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CHAPTER FOUR
4. THE PRODUCT AND SERVICE CONCEPT
Chapter Objectives:
At the end of this lesson students will be able to:
 Introduction
 New Product Defined
 Product development process
 Product protection
4.1. Introduction
New products are the lifeblood of an organization. Once a company has carefully segmented
the market, chosen its target market or customers, identified their needs and determined its
market positioning, it is better able to develop new products. Marketers play a key role in the
new-product process, by identifying and evaluating new product idea and working with R&D
and others in every stage of development.
New product development shapes the company’s future. Improved or replacement products
must be created to maintain or build sizes. Customers want new products, and competitors
will do their best to supply them.
4.2. New Product Defined
New product is a good, service, and idea that is perceived by some potential customers as a
new.

Figure 4.1
By new products we mean original products, product improvement, product modifications,
and new brands that the firm develops through its own R$D departments.
 Categories of new products:
According to Booz, Allen, and Hamilton there are six categories of new products.

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Figure 4.2፡ Categories of New Products

i. New –to-the world product-: is a new product that creates totally new market or new to
the world or products that are technological innovative that creates a completely new
market that previously did not exist.
ii. New product line (new category entries) – this is new products that allow a company to
enter an established market for the first time. These products are new to the company, but
as a category, the product is not new to the consumer. E.g. The entry of Kodak into the
battery market.
iii. Line extension (additions to existing product lines) – is new products that supplements
Company’s established product lines. Line extension can be copies of existing product
that contain unique features of the original product do not have.
iv. Product improvements (revision of existing product)-is a new products that provide
improved performance or greater perceived value or replace existing products or product
improvements are product entrancements that improve the product’s form or function.
v. Repositioned product (market extension) -is an existing products that are targeted to new
markets or market segments or original products positioned in new markets without any
(with minimal) changes to the product.
vi. Lower priced product (Cost improvement or cost reduction)–this can be new products that
provide similar performance at lowest cost.
4.2.1. Rationale for New Product Development
Product innovation is essentially important for the following reasons
i. Maximum use of resources
The fact that the supply of many of our natural resources are limited and irreplaceable
points out clearly the importance of careful new product development that requires
efficient and effective use of available resources
ii. Product is a basic profit determinant
New products are essential of sustaining a firm’s expected rate of profit. As the product
goes through all four stages of its life cycle, the profit starts to decline in the late stages
unit it become zero.
iii. New products are essential for growth
New products are designed not only to maintain the existing profit but also to increase
their profits and have greater market share.

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Figure 4.3; - Why New Products Fail

4.2.2. Product development process
There are eight steps of new product development. These are:-
i. Idea generation,
ii. Idea screening,
iii. Concept development and testing
iv. Marketing Strategy,
v. Business analysis,
vi. Product development,
vii. Test Marketing &
viii. Commercialization
1. Idea Generation
New product development starts with idea generation - the systematic search for new product
idea. A company typically has to generate many ideas in order to fine a new good one.

Figure 4.3 Sources of new idea generation

Sources of new product ideas can be
- Internal sources &
- External Sources
i. Internal Sources

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Using internal sources, the company can find new ideas through formal R&D. It can pick the
brain of its executives, scientists, engineers, manufacturing staff, and sales people.
ii. External Sources
Good new product ideas also can come from watching and listening to customers. In this case
the company can analyze customer questions and complaints to find new products that better
solve consumer problems.
In generally, external sources are: Customers, competitors, middlemen, private research
organization and trade associations.
2. Idea Screening
The purpose of idea generation is to create a large number of ideas. The purpose of the
screening stage is to reduce the number of ideas.

Figure 4.4: Idea Screening

Idea screening helps to distinguish good ideas and drop poor ones as soon as possible. A
company should motivate its employees through rewards to submit their new ideas.
3. Concept development and Testing
i. Concept development: An attractive idea must be developed in to a product concept. It is
important to distinguish between a product idea, product concept and a product image.
A product idea is an idea for a possible product that the company can see itself offering to the
market. A product concept is a detailed description of the idea stated in the meaningful
consumer terms.
ii. Concept testing: Concept testing involves presenting the product concept to appropriate
target consumers and getting their reactions. The concept can be presented symbolically
or physically.
The more tested concepts look like the final product or experience the more dependable
concept testing.
A product image is the way consumers perceive an actual or potential product. For example
observe the following situation to understand concept development. A large food processing
company gets the idea of producing a powder to add to milk to increase its nutritional value
and taste. This is the product idea, consumers do not buy product idea; they buy product
concepts. A product idea can be turned into several concepts.
E.g who will use this product? (Infants, adults, young people etc), when will people consume
this product? (Breakfast, lunch, evening etc)

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4. Marketing Strategy
Following a successful concept test the new product manager develops a preliminary
marketing strategy plan for introducing the new product into the market.
The plan consists of three parts.
The first part describes the target market’s size, structure, and behavior; the planned product
positioning; and the sales, market share, and profit goals sought in the first few years.
The Second part outlines the planned price, distribution strategy, and market budget for the
first year.
The third part of the marketing strategy plan describes the long-run sales and profit goals and
marketing mix strategy over time.
5. Business Analysis
After management develops the product concept and marketing strategy, it can evaluate the
proposal’s business attractiveness. Management needs to prepare sales; cost and profit
projections to determine whether they satisfy company objectives.

Figure 4.5: Business Analysis

The simplest way to analyze business is break even analysis in which management estimates
how many units of the product the company would have to sell to break even with the given
price and cost structure.
6. Product Development
Up to now, the product has existed only as a word description, a drawing, or a prototype (trial
product). At this stage the company determines whether the product idea can be translated
into a technically and commercially feasible product.
7. Test marketing
After management is satisfied with functional and psychological performance, the product is
ready to be dressed up with a brand name and packaging and put into a market taste. The new
product is introduced into an authentic setting to learn how large the market is and how
consumers and dealers react to handling, using and repurchasing the product.
Pros are:
 Can reduce the risk of product failure.
 Reduces the risk of loss of credibility or undercutting a profitable product.
 Can determine the weaknesses in the marketing management and make adjustments.
Cons are:
 Test market is expensive.
 Firm's competitors may interfere.
 Competitors may copy the product and rush it out.

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8. Commercialization
Commercialization is introducing a new product into the market. Here, markets fully
promote, distribute, and sell their new products. Thus, it is a passage of presenting to
consumers tangibly with high financial company expenditure cost and trying to reach at
breakeven point
4.2.3. The Concept of Product Life Cycle
Product life cycle is the path of a product’s sales & profit take over its lifetime. Company’s
positioning and differentiation strategy must change as the product, market, and competitors
change over time. The Life Cycle Concept provides a useful framework for looking at the
development of either products or services and a small business. A product or service has a
life cycle of four stages.
Stage 1: Introduction: This is the stage where the product or service is introduced &
encounters a certain amount of consumer ignorance and resistance. Sales are low and
growing slowly and profits are low or negative because of the heavy expenses of product
introduction. Promotional expenditures are also highest ratio to sales because of the need to
inform potential customers.
Stage 2; Growth: This is a period of rapid market acceptance and substantial profit
improvement. New competitors enter, attracted by the opportunities. Small firms maintain
their promotional expenditures at the same or slightly increased level to meet competition and
to continue to educate the market.
Stage 3; Maturity: At some point, the rate of sales growth will slow, and the product will
enter a stage of relative maturity. In this stage; the market becomes saturated and slowdown
in sales growth. Profits stabilize or decline because of increased competition. Product sales
may simply be for replacement and customers begin switching to other products.
Stage 4; Decline: After sometimes, sales will star to decline as substitute. Improved products
or services become more attractive and the old product becomes obsolete. Sales decline for a
number of reasons, including technological advances, shifts in consumer tastes, and increased
domestic and foreign competition. Some firms withdraw from the market.
The life-cycle concept helps small firms to interpret product and market dynamics. It can be
used for planning and control, although it is useful as a forecasting tool. It can also be a
competitive device, in the sense that it allows the firm to compare its sales performance to the
industry as a whole. For some products or services the life-cycle can be counted in days. For
others, it can span a number of years. It is usually possible to extend the life of a product or
service by developing it in some way or expending the market into which it is sold.

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Figure 4.8 Product life cycle stage

Characteristics Introduction Growth Stage Maturity Decline Stage
Stage Stage
Sales low sales rapidly rising high sales and Declining sales
sales starts to
decline
Costs high cost per average cost per low cost per low cost per-
customer customer customers customer
Profit Negative increasing high profits declining profits
profits
Customers innovators early adopters middle Laggards
majority
Competitors few growing stable number declining in
competitors competitors beginning to number
decline
Objective create maximize maximize Reduce
product market share profit expenditure and
awareness milk the product
Product Offer basic Offer product Diversity Phase out weak
product extensions, brands and (remove)
service, and item models
warranty
Price Charge cost - Price to Price to match Cut-price (reduce)
plus penetrate market competitors’
Distribution Selective Intensive More intensive Go selective or
distribution distribution distribution phase out
unprofitable
outlets
Advertising Build product Build awareness Stress brand Reduce
awareness and interest in differences and advertising cost to
the mass market benefits retain hard-core
loyal
Sales Use heavy Reduce to take Increase to Reduce to
promotion sales advantage of encourage minimal level
promotion s heavy consumer brand
demand switching
4.3. Product protection
Most entrepreneurs are concerned with protecting their idea. When those ideas relate to new
products, unusual processes, unique designs, or biological innovations such as new plants,
understanding patent law becomes paramount. When entrepreneurs want to protect unusual
brand names or establish ownership of intellectual property, then understanding trademarks
and copyrights is vital. Entrepreneurship has several dimensions and an entrepreneur is
expected to know them thoroughly. One such dimension is a legal dimension. Thus
conforming to legal requirements will be the first thing to start an enterprise. Any enterprise
(i.e., sole proprietorship, partnership or Joint Stock Company) has to be run within the legal
framework doing business according to commercial law, labour law, etc. of the country.
Therefore, an entrepreneur should be aware of such governmental legislation. Moreover, it is

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important if entrepreneurs have well fledged information about the characteristics,

advantages and disadvantages of the different types of business organization.
4.3.1. Patent; a utility patent is granted for new products, processes, machines, methods, of
manufacturing, and compositions of matter. This category excludes most botanical creations
related to plant and agricultural use. The utility patent is the most common patent sought by
inventors. Similar patents can be filed in more than 80 countries, and there are joint utility
patent protection rights that can be obtained for international regions such as the European
Economic Community (EEC). All patents have the distinction of being assets with
commercial value because they provide exclusive rights of ownership to patent holders, their
heirs and assigns. Patents are exclusive property rights that can be sold, transferred, willed,
licensed, or used as collateral; much like other valuable assets. Most independent inventors
do not commercialize their inventions or create new products from their ideas. Instead, they
sell or license their patents to others who have the resources to develop products and
commercial markets.
4.3.2. Registered design; is granted for any new or original decorative design for an article
of manufacture. A design patent protects the appearance of the article, not the article itself.
An inventor could easily register both a utility patent and a design patent, but the design
patent has a limited life. Entrepreneurs can select the period of time for protection in order to
commercialize designs and to realize the benefits of their ingenuity. The benefit of a design
patent is that the ornamental nature of the patent may be a distinguishing feature that allows
an individual to have exclusive use of visual imagery, thus enhancing sales or creating brand
identification.
When registered, this allows the shape, design, or decorative features of a commercial
product to be protected from copying.
4.3.3. Copyright: A copyright is that the intellectual property is protected for the life of the
originator plus 50 years. This protection affords an extraordinary property right and a
substantial estate. A copyright extends protection to authors, composers, and artists, and it
relates to a form of expression rather than the subject matter. This distinction is important
because most intellectual property has proprietary information in terms of subject matter, and
if that property cannot be patented, the copyright only prevents duplicating or using the
original material.
4.3.4. Trademarks: A trade mark includes any word name, symbol, or distinguishing device,
or any combinations thereof adopted and used by a manufacturer or merchant to identify their
goods and distinguish them from those manufactured or sold by others. A trade mark is
granted thought the U.S patent and trade mark office for a period of 20 years.
Examples; coke (name) for Coca-Cola Corporation, (Symbol) apple with a bite in his side,
apple Computer Corporation

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