CHAPTER FOUR
PRODUCT/
SERVICE
DEVELOPMENT
4.1 INTRODUCTION
In Entrepreneur’s business, product/service development is the term
used to describe the complete process of bringing a new product or
service in the market and it's an ongoing practice in which the entire
business is looking for opportunities as new products provide growth
promise to businesses that allow them to strengthen their market
position.
The new product development process involves the:
☞ idea generation,
☞ product design,
☞ detail engineering; and
☞ market research and marketing analysis.
Intense global competition, short product and technology lifecycles,
unpredictable consumer buying patterns and possible market stagnation
makes new product development a critical activity in most businesses.
4.2 The Concept of Product/Service
Many entrepreneurs find it difficult to identify a new product/service or a
new market opportunity. To start and expand a small venture, an entrepreneur
needs to identify opportunities for domestic and/or international expansion. As the
new venture grows and matures a need for different management skills can occur as
well as for a new infusion of the entrepreneurial spirit (corporate entrepreneurship).
Organization's success is dependent on customer satisfaction and delight.
Customer satisfaction is achieved through the development of product and service,
which have all attributes required by the customer.
The essence of product design is to satisfy customer and maximizes the value for the
customer at minimum cost.
Most companies apparently are introducing a wide variety of smaller, more efficient,
and more intelligent products, coupled with a leaner, more efficient approach to
operation.
A successful startup depends on its distinctive and compelling proposition
The merchandise or service will succeed most if it either eliminates an
existing pain or adds significant tangible benefits
4.3 Product/Service Development Process
Once the opportunity is selected, and a business model has been
designed, the next step is to develop a commercial version of the
opportunity which in most cases is either a product or a service.
One of the essential characteristics of a successful business is
exemplified by its ability to continuously and rapidly develop new
or improved versions of existing products that deliver values more
than customers expect (Palgrave, 2019.)
Product development is the process through which companies
react to market signals, respond to changes in customer
demand, adopt new technologies, foray into new areas, and
ensure continuous growth.
It is a core process in achieving strategic objectives, renewal of the
company business model and deterring competition from displacing the
company from its market position.
Product/service development process is part of the overall new-venture
creation process.
Even though there are many models that advocate what the
product/service generation process should look like. The four distinct
stages can be referred to as:
1. Idea Generation
2. Incubation
3. Implementation
4. Diffusion
The various stages of New Product Development (NPD) process
are :
1. New Idea Generation
2. Idea Screening
3. Concept Development and Testing
4. Marketing Strategy Development
5. Business Analysis
6. Product Development
7. Market Testing
8. Commercialization
1. New Idea Generation
The new product development process starts with search for ideas
Some of the more fruitful sources of ideas for entrepreneurs include
consumers, existing products and services, distribution channels, the
federal government, and research and development
2. Idea Screening
The purpose is to lessen the number of ideas to few vital/valuable ideas
The ideas should be written down and reviewed each week by an idea
committee who should sort the ideas into three groups- Promising
Ideas, Marginal Ideas, and Rejects.
Each promising idea should be researched by committee member.
3. Concept Development and Testing
Attractive ideas must be refined into fast able product concepts since people
do not purchase ideas but they buy concepts.
Any product idea can be turned into several product concepts. The questions
asked probably include:-
Who will use the product?
What benefits should the product provide?
When will people consume the produced?
Concept Testing: - calls for testing product concepts with an appropriate
group of target consumers/customers, and then getting the consumers’
reactions.
At this stage, the concepts can be in words or picture description
4. Marketing Strategy Development
After testing the new product the concerned body must develop a
preliminary marketing strategy plan for introducing the new product into
the market.
The marketing strategy will undergo further refinement in subsequent
stages.
The marketing strategy plan consists of three parts:
(1) Market size, structure, behavior ;
(2) Planned price, distribution strategy, and marketing budget of the 1 st
year; and
(3) Long run sales and profit goals, marketing mix strategy.
5. Business Analysis
After management develops product concept and marketing strategy, it
can evaluate the proposals’ business attractiveness.
Management needs to prepare sales, cost and profit projections to
determine whether they satisfy the company's objective or not.
Estimated Total Sales: - Management needs to estimate whether sales
will be high enough to yield satisfactory profit.
Estimating Cost and Profits: - After sales forecast the management
should estimate the expected cost and profit at various levels of sales
volume.
The company can use other financial measure to evaluate the merit of a
new product proposal. The simplest is breakeven analysis.
What is a Break-Even Analysis?
A break-even analysis is a financial tool which helps a company to determine
the stage at which the company, or a new service or a product, will be
profitable.
In other words, it is a financial calculation for determining the number of
products or services a company should sell or provide to cover its costs
(particularly fixed costs).
Break-even is a situation where an organisation is neither making
money nor losing money, but all the costs have been covered.
Break-even analysis is useful in studying the relation between the
variable cost, fixed cost and revenue.
Generally, a company with low fixed costs will have a low break-even point of
sale.
Components of Break Even Analysis
Fixed costs
Fixed costs include (but are not limited to) interest, taxes, salaries, rent,
depreciation costs, labour costs, energy costs etc.
These costs are fixed irrespective of the production. In case of no
production also the costs must be incurred.
Variable costs
Variable costs are costs that will increase or decrease in direct
relation to the production volume.
These costs include cost of raw material, packaging cost, fuel and other
costs that are directly related to the production.
Calculation of Break-Even Analysis
The basic formula for break-even analysis is derived by dividing the total fixed costs of
production by the contribution per unit (price per unit less the variable costs).
6. Product Development
If product concept passes the business test, it moves to R&D or
engineering to be developed to one or more physical version of
the product concept.
Its goal is to find a proto type that the consumers/customers see as
embodying the key attribute described in the product concept
statement,
Scientists must not only design the products’ required functional
characteristics but also know how to communicate its psychological
aspects through physical cues and how will the consumer/customer react
to different colors, sizes, weight & other physical cues.
7. Market Testing
After management is satisfied with the products’ functional and psychological
performance, the product is ready to be dressed up with the brand name.
What is a Brand?
A brand is a name, term, design, symbol or any other feature that identifies one seller's
good or service as distinct from those of other sellers
A brand is a name given to a product and/or service such that it takes on an identity by
itself.
In today's marketplace teeming with thousands of products and services, all of which are being
rapidly commoditized, a brand stands out from the clutter and attracts attention.
A brand name can create and stand for loyalty, trust, faith, premium ness or mass-market appeal,
depending on how the brand is marketed, advertised and promoted.
A brand differentiates a product from similar other products and enables it to charge a higher
premium, in return for a clear identity and greater faith in its function.
A brand is also likely to survive longer than just an undifferentiated product.
A brand is akin to a living being: it has an identity and personality, name, culture, vision, emotion
and intelligence. All these are conferred by the owner of the brand and needs to be continuously
looked at to keep the brand relevant to the target it intends to sell to.
The goals of market testing are to test the new product is more authentic
consumer/customer settings and to learn how large the market is and
how consumers/customers and dealers react to handling, using and
repurchasing the actual product.
Most companies know that market testing can yield valuable information
about buyers, dealers, marketing program effectiveness, market
potential & other matters.
Test Marketing yields several benefits include:
more reliable forecast of future sale, and
pretesting of alternative of future sale.
8. Commercialization
When (Timing):- In commercializing, market entry timing is critical.
If the company hears about a competitor nearing the end of its development
work, it will face three choices.
The 1st choice is First Entry. Under this category, the firm usually enjoys the
"first mover advantage" of locking up key distributors & gaining reputation.
The 2nd choice goes with Late Entry Strategy- which has three advantages
include:-
i. The competition will have borne the cost of educating the market;
ii. The competing product may reveal fault that the late entrant can avoid; and
iii. The company can learn the size of the market.
The 3rd strategy- Parallel Entry
The strategy to work, a prospective businessman can take the advantage of
opting for the latest technology and production process and operate at higher
volume of operation. This leads to reduced production cost and production of
quality goods and services.
Where (Geographical Strategy):- The company must decide whether
to launch the new product in a single locality, a region/several regions, in
the national/international market.
To Whom (Target-Market-Prospect):- Within the rollout markets, the
company must target its distribution and promotion to the best prospect
group. Prime prospects for a new consumer/customer’s product would
ideally have the following characteristics:
☞ They would be early adapters;
☞ They would be heavy users;
☞ They would be Opinion leaders; and
☞ Could be reached at low cost.
How (Introductory Markets Strategy):- To sequence and coordinate
many actives involved in launching a new product may/can use network-
planning techniques such as Critical Path Scheduling (CPS).
What is critical path scheduling (CPS)?
The critical path method (CPM), or critical path analysis (CPA), is an
algorithm for scheduling a set of project activities.
A critical path is determined by identifying the longest stretch of
dependent activities and measuring the time required to complete them
from start to finish.
What is its purpose?
The critical path method schedules a project by defining individual tasks
that make up the project, assigning a duration to each of them and
arranging them in sequences from the start of the project to the finish.
A critical path is determined by identifying the longest stretch of dependent
activities and measuring the time required to complete them from start to
finish.
4.4 Legal and Regulatory Frameworks for Entrepreneurs
Since there are many options that an entrepreneur can choose in setting
up an organization, it will be necessary to understand all the advantages
and disadvantages of each regarding such issues as liability, taxes,
continuity, transferability of interest, costs of setting up, and
attractiveness for raising capital.
Legal advice for these agreements is necessary to ensure that the most
appropriate decisions have been made.
One of the challenges the novice entrepreneur will face as he/she goes
into business understands the regulatory environment which is made up
of numerous laws and regulations.
To operate as a legal businessperson and protect the business from
unnecessary suits and liabilities, the entrepreneur needs to understand
the various laws that govern his/her business.
4.5 Intellectual Property Protection/Product/Service Protection
4.5.1 What is Intellectual Property?
Intellectual Property which includes patents, trademarks,
copyrights, and trade secrets represents important assets to the
entrepreneur and should be understood even before engaging the
services of an attorney.
Too often entrepreneurs, because of their lack of understanding of
intellectual property, ignore important steps that they should have taken
to protect these assets.
Intellectual property is a legal definition of ideas, inventions,
artistic works and other commercially viable products created
out of one's own mental processes.
In the same sense that real estate titles establish ownership of tangible
items, intellectual property is protected by such legal means as patents,
copyrights, and trademark registrations.
In order to enjoy the benefits arising from the exclusive ownership of
these properties, the entrepreneur needs to protect these assets by the
relevant law. This is the reason why’ experts strongly recommend that
those in creative fields seek protection through official registration of
their intellectual properties.
4.5.2 Patents
An entrepreneur who invents a new thing or improves an existing
invention needs to get legal protection for her invention through a patent
right.
A patent is a contract between an inventor and the government
in which the government, in exchange for disclosure of the
invention, grants the inventor the exclusive right to enjoy the
benefits resulting' from the possession of the patent.
i. Utility Patent : A utility patent protects any new invention or
functional improvements on existing inventions.
ii. Design Patent : This patent protects the appearance of an object
and covers new, original, ornamental, and unobvious designs for
articles of manufacture.
Like utility patents, design patents provide the inventor with-
exclusive right to make, use and/or sell an item having the
ornamental appearance protected by the patent.
This patent is appropriate when the basic product already exists in
the marketplace and is not being improved in function but only in
style.
A patent provides the owner with exclusive rights to hold, transfer, and
license the production and sale of a product/process.
It is an intellectual property right and It is issued by government to the
inventor.
This exclusive property right can be granted for a number of years
depending on the countries laws and type of property.
Patents are property rights that can be sold and transferred, willed as
well as licensed and at times used as collateral.
What Can Be Patented Then?
Processes: Methods of production, research, testing, analysis,
technologies with new applications.
Machines: Products, instruments, physical objects.
Manufactures: Combinations of physical matter not naturally found.
Composition of matter: Chemical compounds, medicines, etc.
4.5.3 Trademarks
A trademark may be a word, symbol, design, or some
combination of such, or it could be a slogan or even a particular
sound that identifies the source or sponsorship of certain goods
or services.
These are distinctive names, marks, symbols or motto identified
with a company’s product or service and registered by
government offices.
Unlike the patent, a trademark can last indefinitely, as long as the
mark continues to perform its indicated function.
Trademarks unlike patents are periodically renewed unless invalidated by
cancellations, abandonment, or other technical registration/renewal
issues.
Benefits of a Registered Trademark
☞ Itprovides notice to everyone that you have exclusive rights to the use of
the mark throughout the territorial limits of the country.
☞ Itentitles you to sue in federal court for trademark infringement, which
can result in recovery of profits, damages, and costs.
☞ It
establishes incontestable rights regarding the commercial use of the
mark.
☞ Itestablishes the right to deposit registration with customs to prevent
importation of goods with a similar mark.
☞ It entitles you to use the notice of registration (®).
☞ It provides a basis for filing trademark application in foreign countries.
4.5.4 Copyrights
Copyright is a right given to prevent others from printing,
copying, or publishing any original works of authorship.
Copyrights provide exclusive rights to creative individuals for the
protection of literary or artistic productions.
It protects original works of authorship including literary, dramatic,
musical, and artistic works, such as poetry, novels, movies, songs,
computer software, and architecture.
They pertain to intellectual property.
Usually copyrights are valid for the life of the inventor plus a few
decades.
Reading Assignment
4.6. The Intellectual
Property System in
Ethiopia
?