Section C : Chapter-10

Product Identification
Product Selection
How does one select the right product. It is rarely a flash of inspiration it involves
research, careful evaluation and sound judgement. This activity is called Product
Selection Analysis Technique
1. Idea Generation
2. Search & Screen
3. Evaluation
But first we introduce some basic concepts.
Product
A product is capable of satisfying needs and wants of People at large.
Every product can render some service or the other.
A product can therefore be anything, an object, a service, a person, an activity or
place.
A shrewd entrepreneur should examine the various services that people seek from time to
time. This forms the basis for generating Ideas related to product selection which we
discussed above.
Product Ideas
Product Ideas can be generated In a number of ways. They are as follows:
Observation: A person or an acquaintance may have developed some innovative
product, which can be easily produce.
Ideas can be generated by referring to foreign publications. Successful product from
West can be adopted to suit Indian conditions. 'These can be import substitutions.
Brain storming sessions with friends and family members. Even a crazy thought can be
considered as the potential in it is undiscovered.
Talking to various bodies such as the SISI, SIDC. The National Small Industries
Corporation Ltd. and the National Institute for Entrepreneurship and Small Business
Development. These organizations offer specialized advice and service in these matters.
The Government has reserved around 800 products for the Small-Scale sector. It means
that these products can be produced only by manufacturers in this sector.
Talking to large-scale public/ private companies can also generate Ideas. Such
companies have vendor development cells that give Information on products that are in

demand. Then they also help in setting up an ancillary unit. One could thus be assured of
a ready buyer for the product.
Product Search & Screening
After we come up with product ideas, we look at products presently available and
products related to these products ideas Then pose the exploratory questions like:

Are the customers satisfied with what they are getting?

Can we identify a better method of production?
Can the basic design be changed?
What is the present demand, future demand likely to be and so on.

This is followed by a little self- examination.

What are my skills?
Can I handle technical subject?
If not, can I hire people easily?
Do the product ideas generated match my basic interest or do I have to develop new
areas of interest?
How much knowledge do I have about the markets?
Can I dig out more information easily?
There are many types of products catering to the various types of markets. Examining the
product-market relationship can also be of use For example, low volume, high styled
products are meant for exclusive markets They command a good price and offer good
margins. The best for entrepreneurs are low value highly technical products like software,
electronic components etc. Also there are high volume general-purpose products which
consumers use on day-to-day basis like stationary items, fittings etc. Larger demand often
compensates for lower price and margins.
Another point of significance is the product life cycle. Every product/service enjoys a
definite life span and it passes through distinct phases. Care should betaken to see that the
product selected is in the introduction or the growth phase and not beyond that. After
looking at the product options it is time for a bit of introspection again. As a prospective
entrepreneur, one should know the bent of mind one has by asking the following
questions:
Am I comfortable in the room full of strangers?
Can I deal effectively with people in position of power?
Can I communicate effectively and freely with them?
If yes, marketing is the strong area or maybe one has a head for figures and details.
Then finance maybe the area of strength. One could be interested in mechanical &
technical matters with a flair for conceptualizing and design, then production or product
design can be the areas of strengths.

An analysis must be carried out of the strengths and weakness and an examination of the
opportunities knocking at the door while covering for any pitfalls blocking the progress.
Every question helps to weed out ideas, which are infeasible. Eventually we will be left
with 3 or 4 product ideas.
These are products, which have to evaluated objectively and in depth. This is product
Evaluation. This evaluation is carried on the following factors :

Stability
Growth
Marketability
Company position
Production

These are than rated on a scale of one to five points starting from very good, good
average, poor and very poor to yield a profile that is characteristic of the product being
evaluated.
Let us examine these factors in details and see how they are to be rated.
Stability

Permanence of market - Any product for which there is likely to be long lasting
demand would enjoy a higher degree of market permanence than an item likely to
become obsolete.

Breadth of market - A product used by a variety of customers belonging to various

market segment covers greater number of consumers and is rated very good.

Possibility of captive market - A product which provides a unique and exclusive

solution to specific market need would be a very good rating.

Difficult of Copying - Products that are highly technical and difficult to copy would
be rated very good.

Stability in recession - Luxury items are rated poor because they are susceptible to
drop in demand levels during economic recession. On the other hand consumer goods
having regular demand may be rated very good.

Growth factor

Uniqueness of product - A product that satisfies market need exclusively or can

replace a more costly product by material substation or better design possess a high
degree of uniqueness and may rated very good.

Demand-Supply relationship - If demand is greater than supply, unique or not, a good

rating can be given.

Rate of technological change - Areas where rapid changes in technology are likely to
occur are risky and poor rating. Such products become obsolete faster.

Export Possibilities - Those products that enjoy international demand and can be
exported easily demanding a good rating.

Marketability

Ease of distribution - A good rating would be given to a product which can be

transported from point of manufacture to a point of sale easily, quickly and with
minimum breakage or transit loss.

After sales service - Products that have to be provided with after sales service,
especially at customer's location are rated poor.

Average order size per customer - Greater the average order size/per customer, better
would be the rating. It would be relatively easier and more beneficial to cater to
customers who buy large volumes. However the product should meet the
specifications of such large buyers.

Freedom from Numerous variation - Products that have to be made available in a

wide range of grade, size, shapes etc. result in average manufacturing economy and
inventory control problems and would be rated poor.

Freedom form seasonal fluctuation - Products for which demand falls during off-season
are rated poor. Alternative products will have to be though of to sustain profit during such
lean periods.
Company Position Factors

Time required to get established - Projects having higher gestation period are more
risky for the entrepreneur as he exposes himself to a greater risk of changes in
technology, competition and economic conditions

Degree of value addition - Greater value addition, better the rating. Hence it is better
to carry out the entire manufacturing process yourself, rather than subcontract it.

Availability of raw material - If crucial raw material and other materials are available
during varying condition then a good rating can be assigned. This factor will have a
great impact on working capital management when the project starts especially in
times of shortages.

General labor atmosphere - The project should be located in an area enjoying a good
labor climate. This could be a negative factor

Production Factors
Procurement of equipment - Will it be possible to get machinery and equipment easily
and quickly? Are supply reliable and conveniently located? If your answers are yes,
rating is good.
Utilities/ facilities required - Projects are highly dependent on clean water, steam,
electricity or good sewerage systems and if these are not available regularly then the
project would be rated poor.
Training of Personnel - Are technical people easily available? If yes, can they be
quickly inducted into the company. Is the training likely to be time consuming. It depends
on how easy It is to absorb trained personnel in the project activities.
.
Freedom from difficult maintenance problems - Does a project involve a manufacturing
process, which is hazardous, which could affect the well being of the workplace but also
the community at large. A poor rating follows. If the equipment being used is complex
and requires frequent maintenance then it could result in costly down time, loss of
production and low workers morale.
Freedom from costly waste- disposal problem - Both government and society are
becoming more conscious of pollution and its dangers. If your project calls for a large
waste disposal system to neutralize the affluents, then it will be a negative factor.
This list of factors is by no means exhaustive and can be modified to suit specific
products. The product evaluation described so far is repeated for each of the short listed
products. You will find no two-product profiles are similar. A comparison of the product
profile would help us to decide which product to pick on.
At the end of analysis an estimate of the cost of each projects may be obtained
Comparing these costs with how much finance we have, an idea of money required to be
raised can be obtained. This calls a separate examination of the project in its entirety.

PRODUCT LIFE CYCLE:

No business is static. Things keep on changing every day. In developing societies like
ours the changes are faster. Hence any small-scale businessman must keep a strict watch
on these changes and adapt himself to the changing environment.
We conclude the product selection after discussing the Product Life Cycle. As every
person has three stages-childhood, adult and old age so have the products. Their three
stages are: 1) Growth; (2) Maturity; and (3) Decline.

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This has been clearly shown in the sketch, which depicts the product-life cycle for a
chemical firm. The first stage is one of growth. Prices, and consequently profits, are high.
Competitors are few. In the stage of maturity the sales and the profits reach their peaks.
Many more competitors join the bandwagon. Then starts the stage of decline when price,
profit and sales all decline. You must keep a watch at the stage of your business.
Otherwise you will be out of the business very soon.
Many clever businessmen have sold their businesses at the end of the maturity stage,
when the going was good. Then they start a new business, which also will be sold when it
reaches the maturity stage. It is reported that Kennedy familys wealth was accumulated
utilizing this aspect of the product life cycle concept. Alternatively, choose a new growth
product at the end of maturity stage.