CHAPTER FOUR

PRODUCT AND SERVICE CONCEPT

1.4. Overview of Product and Service

People satisfy their needs and wants with products. A product is anything that can be offered
to a market for attention, acquisition, use or consumption that might satisfy a want or need.

Product Classifications; Products can be classified in three groups according to their

durability or tangibility.
a) Non-durable goods: Non-durable goods are tangible goods that normally are consumed
in one or few period of time eg. Beer, soap, salt, etc.
b) Durable goods:
goods: Durable goods are those tangible goods that usually survive many users
eg. Refrigerator, TV, clothing, etc.
c) Services: Services are activities, benefits or satisfactions that are offered for sale eg.
Haircut, repairing etc.
Products can also be classified based on the purpose for which they are bought as consumer
and industrial product
Consumer Products: Consumer products are those bought by final consumers for personal
consumption. Consumer products include convenience products, shopping products, special
products and unsought products.

Industrial Products:
Products: on the other hand, are products that are bought for further processing,
not for final consumption

4.2. Product Planning and Development process

A firm can obtain a new product in two ways:

1. Through acquisition- by buying a whole company, a patent, or a license to produce
some one else’s product.
2. Through new product development by the company’s own research and development
effort. By new product we mean original products, product improvements, product

1
 modifications or new brands that the firm develops through its own research and
development endeavors.
The reason we have to concentrate on new product development is that new products
continue to fail at disturbing rate. Sometimes certain products reach at the decline stage the
moment it is introduced to the market. Why do so many products fail? There are several
reasons:
1. Although the idea may be good, the market size have been overestimated
2. or perhaps the actual product was not designed well
3. Or it was incorrectly positioned in the market, priced too high, or advertised poorly.
4. sometimes the cost of product development is higher than expected
5. sometimes competitors fight back harder than expected
The remedy lies in strong new product planning and in setting up a systematic new product
development process for finding and growing new products. The product planning and
development process comprises several major steps:

1. Idea generation
New product development starts with idea generation- the systematic search for new product
ideas. The ideas could emerge form various idea sources or creative problem solving new
product idea may come from several sources. The sources may be categorized into two:
internal and external sources.
Internal sources: this source includes executives, employees, scientists, sales persons,
top management etc.
External source include customer, distributors, dealers, competitors and other
institution.
However, they need an in-depth development and refinement into final product or service to
be offered. The company ought to generate as many ideas as possible in order to find a few
good ones. It is better to collect some 10 to 12 ideas. If you want to find a few ideas with the
power to fascinate consumers, frustrate competitors, and thrill investors, you must first
generate hundreds of unconventional strategic ideas.
2. Idea screening
The purpose of idea generation is to create a large number of ideas from which a few best
ideas can be selected. The purpose of idea screening is to reduce to number of ideas
2
generated during idea generation stage. The first idea reducing stage is idea screening, which
helps to spot good ideas and drop poor ones as soon as possible before thy go into production
and commercialization stages. Idea screening is necessary because ideas are not equally
sound and valuable. Thus, poor ideas are screened and rejected as early as possible. Product
ideas should be screened from the point of view of our knowledge, market potential, raw
material availability, import export related matters, availability of skilled human resources,
profitability and capacity to be compatible with existing competitors in market. In screening
stage two types of errors must be avoided. They are:
1. Drop Error-which
Error-which occurs when the company dismisses good idea. If the company
makes so many drop errors, its standard is too conservative.
2. A go-error-
go-error- That occurs when company permits a poor idea to move into dep’t and
commercialization.
3. Concept development
An attractive idea can be developed into product concept it is important to distinguish
between a product idea, a product concept, and a product image. A product idea is an idea
for a possible product that a company can see itself offering to the market. A product concept
is a version of the idea stated in a meaningful consumer stated terms. The product image: is
the particular picture that consumer acquires of an actual or potential product. Concept
testing calls for testing new product concept with groups of target consumers. The concept
may be presented to consumers’ symbolically or physically. Here concept is in word or in
writings only. Consumer preferences obtained in market research can be incorporated;
Consumers are called up on to review this written concept for their comments and
suggestions.
4. Market strategy Development
After concept, testing proves best, the next step is marketing strategy development; designing
an initial marketing strategy for introducing the proposed product to the market. The
marketing strategy statement consists of three parts:
The first part describes the target market: the planned product positioning, the sales,
market share and profit goals for the first few years
The second part outlines the product’s planned price, distribution and marketing
budget for the first year

3
 The third part describes planned long-run sales, profit goals & marketing mix strategy.

5. Business Analysis
Business analysis is the basic assessment of the product’s compatibility in market place and
its potential profitability. Both the size of the market and competing products are studied at
these point. Cost-benefit analysis is made to see the viability of the product if manufactured.
The company’s capacity to produce that new product in terms of resource availability can be
evaluated and if the benefit is greater than the cost, then the move to the product
development is progressed. Otherwise, the idea can be rejected at this stage also.
6. Product development
This stage covers
Prototype development
Consumer’s testing of the prototype
Branding, packaging and labeling
Consumer testing of the model product will make way for final selection of the most
acceptable model for mass production and distribution.
7. Test marketing
Test marketing is a trial mini launch of product in limited areas that represent the potential
market. The test marketing of the product is done in pre-decided city or areas. This will help
to study the responses, suggestions and comments before embarking in to mass scale
production. It is the step used to discover weaknesses to be eliminated before the product is
fully launched and to incorporate responses, suggestions and comments in to the product
before the product is manufactured on large-scale production.
8. Commercialization
At this stage the entrepreneur after incorporating necessary amendments based on consumer
suggestions and comments, it can launch full scale promotional activities. Mass production
will start with improved features and distribution channel will be organized to distribute the
product.
Product Life Cycles Strategies (PLC)

What is product? A product is a bundle of physical, service and symbolic attributes designed
to produce consumer want satisfaction. An important feature of many products is the product

4
warranty. Warranty is the guarantee to the buyer that the manufacturer will replace the
product or refund its purchase price if it proves defective during a specified period of time.

Product Life Cycle

Product like individuals passes through a series of stages. Successful products progress
through four stages, namely: introduction, growth maturity and decline as shown in figure

Sales /
Profits

Sales curve
I II III IV
Introduction Growth Maturity Decline
Profit curve

Time
Figure: Product Life Cycle

Stage I: Introduction The firm’s objective in the early stage of the product life cycle is to
stimulate demand for the new product. Since product is not familiar to the public,
promotional campaign stresses information about its features. The basic features are as listed
below:

 Customers are hesitant in buying the product

 Productivity is low since demand is low
 Sales volume is low
 High amount of money is placed in advertisement
 Expenses are high
 Therefore it is the least profitable stage.

Stage II: Growth: Sales volume rises rapidly during the growth stages as new customers
make initial purchases. The basic characteristics of the growth stage are listed below:
 This stage has the highest growth rate
 Customers are now familiar with the merits and demerits of the product
 Accordingly, sales volume increases very rapidly
 A proportional rise in profits occurs
 In this stage, competitors enter the market bringing about imitation of the
product

5
  Promotional campaign is still very high.

Stage III: Maturity: Sales continue to grow during the early part of the maturity Stage. This
stage can be summarized as:
 Large number of competitors have entered market
 Available products exceed customer demand
 Sales increase levels out into a plateau reaching its highest peak.
 Reduction in prices may occur in this stage.

Stage IV: Decline: In the final stage, shifting consumer preferences brings about decline in
sales. Important trends that follow are:
 Sales show downward trends,
 Profits decline, in some cases actually becoming negative,
 It necessitates product differentiation, that is having different uses
for the same product,
 Or a totally new product may have to be introduced.

Product life cycle predicts that profits assume and go through certain pattern. The length
of the life cycle is considerably different from one product to another. A new fashion may
have a total life span of one calendar year, with an introductory stage of two months. But
the automobile has been in maturity stage for more than twenty years

4.3. Product protection

Any idea which gives a trade advantage or proprietary information is called intellectual
property. Intellectual property is a legal definition of ideas, inventions, artistic works, and
other commercially valuable products created out of one’s own mental processes. Intellectual
property differs from other forms of property because it is intangible, a product of the human
imagination. There are three forms of intellectual property rights an entrepreneur should
think about as he creates something different and better. These are Patents, copy write, and
trade mark registration.

4.3.1. Patents

A patent is a grant of a property right by the government to an inventor. It is issued through

the Ethiopian science and Technology. The most common type of patent is called a utility

6
patent and it is granted for years. All patents, however, have the distinction of being assets
with commercial value because they provide exclusive rights of ownership to patent holders,
their heirs and assigns. (An “assign” is anyone who might be assigned ownership or rights
through sales or license of a patent.)

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 resources to develop products and commercial
markets.

Types of Patents
The patent law provides the three categories of patents as: utility patents, design patents, and
plant patents. There are no other proper names or categories of patents however one often
hears an inventor speak of obtaining a product patent or a process patent. Both of these are
normally called utility patents. In some instances they will be design patents, and for
botanical creations they are issued as plant patents.

a) Utility Patents
A utility patent is granted for new products, process, machines, methods of manufacturing,
and compositions of matter. This category excludes most botanical creations related to plant
and agricultural use process

b) Design patents
Design patents are granted for any new or original ornamental 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

7
an individual to have exclusive use of visual imagery, thus enhancing sales or creating brand
identification.

c) Plant Patents
In botanical terms, any new variety of plant that has been asexually reproduced can be
granted a plant patent. The new plant must not exist in nature or in an uncultivated state.
Therefore, new plants, mutants, hybrids, the seedlings may be patented. Provided the
inventor can satisfy the patent office that the new plant did not evolve from nature. A plant
provides the same protection as a utility patent for specific period.

Types of Patents
Utility patents Granted for new processes, machines, manufactures, and compositions
not including botanical creations, with a protected for specific period.
Design patents Granted for any original ornamental design for an article of
manufacture with protected specific period.
Plant patents Granted for botanical creations that have been a sexually reproduced
and do not exist in nature with a protected for specific period

4.3.2. Trademarks
A trademark “includes any word, name, symbol, or distinguishing device, or any
combination there of adopted and used by a manufacturer or merchant to identify his goods
and distinguish them from those manufactured or sold by others. An important qualification
for a trademark is that the mark, name, or insignia must be used commercially. Consequently,
a logo not actually used in trade may be denied registration and one that was registered out of
use for an extended period may loss registration protection. In addition, a company name
cannot be registered as a trademark but it can be registered as a service mark. To be eligible
for registration, a distinguishing mark must be used in commerce on a continuous basis. For
example, the trade marked name “Coke” has been in continuous use since its inception.

8
A service mark is similar to and can be registered in the same way with the same protection.
A service mark can be a name, wording used in advertising symbols, or artistic figures that
create a distinctive service concept. Therefore, the unique lettering of the abbreviation “IBM”
for International Business Machines coupled with a design and a specific blue color cannot
be replicated by another firm.

4.3.3. Copyrights
A copyright is distinct from patents and trademarks in that intellectual property is protected
for the life of the originator. This protection affords an extraordinary property right and a
substantial estate.

A copyright extends protection to authors, composers, and artists, and it relates to the form of
expression rather than the subject matter. This distinction is important because most
intellectual property has proprietary information in terms of subject or using the original
material. This prohibition does not prevent another person from using the “subject matter”
and then rewriting the material.

Visual materials under copyright protection are photographs, paintings, sculptures, poems,
articles, stories, books, music, sound recordings, motion pictures audiovisual works,
periodicals, computer punch cards, microfilm, pantomimes, and choreographic works. These
can be accurately differentiated from similar works. Copyright law extends to literary and
dramatic efforts, so that performances and recording rights also can be protected.