CHAPTER FOUR

PRODUCT AND SERVICE CONCEPT

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 Introduction

• Identifying the right product is the first step to

success for any entrepreneur.
• Right kind of product for which there is an
unfulfilled demand will ensure minimum
expenditure on sales promotion as well as higher
sale price.
• But the better option for entrepreneurs is to scan
the customers’ environment for identifying the
dormant/hidden demand.
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• A product or service concept is the way in which a
firm likes to position its products / services in the
market, in terms of product features, quality, price
strategy, distribution methods, differentiating
elements etc.
• While trying to position its products / services in a
distinct manner, the company should not lose
sight of its present and potential rivals
competitive environment changing preferences of
customer etc.

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 New Product Development Strategy
• As you must have realized by now, it is very important
to have a strategy for developing new products.
• Many products fail and in order to keep expanding
company sales, we must have new products. Some
products of an organization might have failed, but still
they remain leading manufacturers because they have
continuously added to their lines and added product
lines to their product mix.
• The product 'concept' requires testing before one
goes into product designing and it is very necessary to
have an adequate strategy for developing new
products and introducing them. Several stages must
be defined in the following slides:
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Stage One; Generation of New Product Ideas
• The first step obviously is to get ideas with regard to
possible new products. Product Idea can be generated
in a number of ways. They are as follows:
Observations
Foreign publications (import of ideas from products
launched overseas)
Brainstorming sessions
Talking to various government and non government
bodies like the Federal & Regional micro and small
scale Industrial agencies & the National Institute for
Entrepreneurship & Small Business Development
Talking to large scale private/public company’s can
also generate ideas 5
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Stage Two; Evaluation or Screening of the Ideas
& Product Concept Development
• So far, from the first stage, we have received a
number of ideas-good & bad. We have now to
screen & evaluate them to reduce their number to
what is likely to be useful. This is known as the
`evaluation' or `screening' of ideas stage in this
process.
• Poor ideas must be dropped immediately because
unnecessary cost should not be incurred to
process them further. The ideas must be
consistent with the company’s philosophy,
objectives, strategies & be in terms of the
resources available in the organization. 6
Product Evaluation Techniques
• Once the products have been short-listed through
exploratory questions and own SWOT analysis,
these items are required to be critically evaluated for
their success potential. This evaluation is carried on
the following factors:
 Growth potential for the product
 Stability of demand
 Marketability
 Company Position – Does company have any past
record in the field?
 Production Capabilities – Can the existing production
plants be utilized to produce the product or new
facilities are required to be built?
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Stage Three; Product Designing and Evaluation
• If the product idea or the concept passes the test, we
then proceed to the engineering or the production or
the Research & Development stage. So far what we
had was only a description or an idea. Now this has to
be converted into a product.
• Prototypes are developed & tested. The test can be
done under laboratory or field conditions. At this
stage of product development, the technical
problems, if any, must be solved. This is because the
product must not suffer from complaints regarding
quality in use. Even a small defect might shorten the
life cycle of the product as well as spoil the company's
image.
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 Stage Four; Product Testing Stage
 Apart from mechanical performance, customer acceptance
is essential. In fact, the following can be stated as
requirements for the new product, after it is designed:
 Satisfactory performance
 Customer acceptance
 Economical production
 Adequate distribution
 Adequate servicing arrangements where required, and
 Effective packaging and branding
 A market test should, therefore, be conducted before
launching the new product. This will help us find out
whether the product can be launched successfully on a
commercial scale or not.
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 Stage Five; Launching the New Product
• The test marketing may show that the sales are `excellent',
in which case, our decision is easy and we can proceed to
launch the product. As against this, if it shows that the sales
are `poor', there are generally two alternatives available
from a practical viewpoint. We can drop the product or
modify it and test it again. If the sales are `fair', we may
modify the product or conduct a new market test. The
latter is done when we feel that perhaps there is something
wrong with the market test just completed. An alternative,
generally available, is to modify the product in terms of the
feedback which has been received from the market test,
and then test again before the final decision is taken to
launch the product commercially or to drop it.
• One must, however, remember that constant testing
involves further costs. A decision must, therefore, be
arrived at as early as practicable.
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 The Product Life Cycle Concept
• A company which introduces a new product
naturally hopes that the product will contribute to
the profits & provide consumer satisfaction for a
long period of time. This however, does not always
happen in practice. So, progressive organizations try
to remain aware of what is happening throughout
the life of the product in terms of the sales and the
resultant profits.
• The Product Life Cycle (PLC) is used to map the
lifespan of a product. There are generally four stages
in the life of a product. These four stages are the
Introduction stage, the Growth stage, the Maturity
stage and the Decline stage. The following graph
illustrates the four stages of the PLC: 11
.

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• There is no set time period for the PLC and the
length of each stage may vary.
• One product's entire life cycle could be over in a
few months. Another product could last for
years. Also, the Introduction stage may last much
longer than the Growth stage and vice versa.

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1. Introduction stage
• The Introduction stage is probably the most
important stage in the PLC. In fact, most products
that fail do so in the introduction stage.
• This is the stage in which the product is initially
promoted. Public awareness is very important to the
success of a product. If people don't know about the
product they won't go out and buy it.
• There are two different strategies you can use to
introduce your product to consumers. You can use
either a penetration strategy or a skimming strategy.
If a penetration strategy is used then prices are set
very high initially and then gradually lowered over
time. This is a good strategy to use if there are few
competitors for your product. 14
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• Profits are high with this strategy but there is also
a great deal of risk. If people don't want to pay
high prices you may lose out. The second pricing
strategy is a skimming strategy. In this case you
set your prices very low at the beginning and
then gradually increase them. This is a good
strategy to use if there are a lot of competitors
who control a large portion of the market. Profits
are not a concern under this strategy. The most
important thing is to get you product known and
worry about making money at a later time.

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2. Growth stage
 In the introductory stage, there is likely to be no
profits or more likely a loss. This loss may
continue for some time depending on the market
factors. It is because, at this stage, considerable
amount of funds are being devoted to
promotional expenses with a view to generate
sales while the volume of the sales is low. Thus in
the beginning, there is likely to be a loss and later
on, as the sales grow, the profit might accrue.

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• If you are lucky enough to get your product out of
the Introduction stage you then enter this stage.
The Growth stage is where your product starts to
grow. In this stage a very large amount of money
is spent on advertising. You want to concentrate
of telling the consumer how much better your
product is than your competitors' products.
• Strategy: promotion (want to concentrated of
telling the consumer that your product is much
more better than your competitors’ product) and
improving product feature to get more market
share in the future.
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3. Maturity stage
 At this stage, it is more likely that the competitors become
more active. In case your product is a novel one, by now
competition would have come out with a similar product in
the market to compete with yours. Therefore, the sales are
likely to be pushed downwards by the competitors while
your promotional efforts would have to be increased to try
& sustain sales. Thus the sales reach a plateau. This is called
the `maturity stage' or `saturation'. At this point it is
difficult to push sales up.
 The profits are likely to stabilize or start declining as more
promotional effort has to be made now in order to meet
competition. Unless of course, you have the largest market
share with your product and it needs no extra push in the
market.
 Strategy: product differentiation and promotion to sustain
the sales. We should, however, at this time seriously think
in terms of a new product, mix, that is, the elimination or
redesign of the current product within the near future. 18
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4.The Decline or Obsolescence Stage
• Thereafter the sales are likely to decline and the
product could reach the `obsolescence' stage.
Steps should be taken to prevent this
obsolescence & avoid the decline. This decline
that generally follows could be due to several
reasons such as consumer changes & tastes,
improvement in technology & introduction of
better substitutes. This is the stage where the
profits drop rapidly and ultimately the last stage
emerges. Retaining such a profit after this stage
may be risky, and certainly not profitable to the
organization.
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• Strategy: innovation in various areas
The followings are the specific strategy to avoid
decline:
Improve product quality
Add new product features resulting in extra
benefits
Penetrate new market segments
Give incentives to distribution channels
Expand the number of your distribution channels
Improve advertising and sales effort.

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 Product and Service Protection
• The entrepreneur needs to understand the various laws that
govern the business environment in order to operate as a legal
business person and protect the business from unnecessary
suits and liabilities. Understanding the law will also be helpful to
protect one’s own intellectual property.
• Intellectual property refers to works of the mind such as
copyrights, patents, trademarks, and trade secrets, which the
entrepreneur needs to protect by law against possible
infringement.
• Protecting Intellectual Property is imperative in the marketplace
today. Unfortunately, not every businessperson respects the
rights of ownership to products, processes, names, and works.
The primary weapon is efficient use of the legal system.
Intellectual Property is any product of human intellect that is
intangible but has value in the marketplace. It is called
“intellectual” property because it is the product of human
imagination, creativity, and inventiveness.
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The Four Key Forms of Intellectual Property
1) Patents
2) Copyrights
3) Trademarks
4) Trade Secrets

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 1) Patent
• A patent can be considered as a contract between
a government and an inventor in which the
government grants the inventor the exclusive right
to benefit from the invention for a specified
amount of time in exchange for disclosure of the
invention.
• Patent is a grant from the federal government’s
Patent and Trademark Office (PTO), to the
inventor, giving the exclusive right to use or sell
the invention in this country for 20 years from the
date of the patent application, of course this may
vary from country to country. 23
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• A patent is a grant of a property right by the
government to an inventor.
• Patents are exclusive property rights that can be
sold, transferred, willed, licensed, or used as
collateral much like other valuable assets.
• In fact, 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
sources to develop products and commercial
markets.

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What can be patented?
Processes: Methods of production, research, testing,
analysis & other technologies with new applications.
Machines: Products, instruments, machines and
other physical objects that have proved to be useful
and unique.
Manufactures: combination of physical matter not
found in nature fabricated in unique and useful
applications.
Composition of Matter: chemical compounds,
medicine and botanical compositions that do not
exist in nature in an uncultivated state nor those that
could evolve in nature, those are new and useful. 25
 2) Copyright
• A copyright is a form of intellectual property protection
that grants to the owner of a work of authorship that is the
legal right to determine how the work is used and to obtain
the economic benefits from the work.
• Copyright is also a right that protects the original works of
authorship such as music, books, software, scripts, articles,
poems, sculptures, models, maps and blueprints.
• Or it is an exclusive right that protects the creators of
original works of authorship such as literary, dramatic, and
artistic works. This includes motion pictures, software,
choreography, books, and recordings.
• It is a right owned by every author of a work to exclude
others from doing any of the following activities in
connection with the work: (1) reproduction, (2)
Adaptation, (3) Distribution to the public, (4) Performance
in public or (5) Display in public
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• 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.
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 Copyright Infringement
• Copyright infringement occurs when one work
derives from another or is an exact copy or
shows substantial similarity to the original
work. To prove infringement, a copyright
owner is required to show that the alleged
infringer had prior access to the copyrighted
work and that the work is substantially similar
to the owner’s.
• How much is the penalty for copy right
infringement in our country? Both in terms of
imprison and financial fine.
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 3) Trademarks
• A trademark may be a word, symbol, design, or some
combination of such, or it could be slogan or even a
particular sound that identifies the source or sponsorship
of certain goods or services.
• Unlike the patent, a trademark can last indefinitely as long
as the mark continuous to perform its indicated function.
• It is important to note that registration with a patent &
trademark office establishes legal documentation that can
be used in court. Without registration the privilege of
ownership is subject to contention in a civil action between
the parties. Registration is a reasonable course of action.
• For example,
 Word: “McNugget”—think McDonald’s
: “coke”- coca cola corporation
 Slogan: “Just do it”—think Nike
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 4) Trade secret
• A trade secret is any formula, pattern, physical device,
idea, process, or other information that provides the
owner of the information with a competitive advantage in
the marketplace.
• Trade secrets include marketing plans, product formulas,
financial forecasts, employee rosters, logs of sales calls,
and similar types of proprietary information.

• It is business information that is the subject of reasonable

efforts to preserve confidentiality and have value because
it is not generally known in the trade. Examples are
formulae, devices, manufacturing processes, customer
lists & preferences.

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 Trade Secret Protection
• Not all information qualifies for trade secret
protection. In general, information that is known to
the public or that competitors can discover through
legal means doesn’t qualify for trade secret
protection. The strongest case for trade secret
protection is information that is characterized by the
following:
 Is not known outside the company.
 Is known inside the company on a “need-to-know”
basis only.
 Is safeguarded by stringent efforts to keep the
information secret.
 Is valuable and provides the company a competitive
edge.
 Was developed at great cost, time, and effort. 31
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 Trade Secret Protection Methods
• Physical Measures For Protecting Trade Secrets
– Restricting access to confidential material.
– Labeling documents “proprietary,” “restrictive,” or
“secret.”
– Password protecting confidential computer files.
– Maintaining log books for visitors.
– Maintaining log books for access to sensitive
material.
– Maintaining adequate overall security measures.

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Trade Dress
• Definition: A specialized type of trademark for
packaging where the totality of all elements of
the packaging that is capable of identifying and
distinguishing goods or services.
• For example, shape of Coca-Cola bottle, Barbie
pink, Tiffany’s “little blue box,” Taco Bell
restaurant

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