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Chapter 4: Product Development
A firm can obtain new products in two ways.
1. One is through acquisition; buying a whole company, a
patent, or a license to produce someone else’s product.
2. The other is through new product development by the
company’s own research and development (R&D) efforts.
– By new products, we mean original products, product improvements,
products modifications or new brands that the firm develops through its
own R&D endeavors.
Reasons for buying an existing business
The following three reasons are the most common reasons why
entrepreneurs buy an existing business instead of creating a new one.
• Buying an existing business reduces the uncertainties involves in
lunching an entirely new venture.
• The buyers of an existing business typically acquires their personnel,
inventories, physical facilities, established banking connections and
ongoing relationship with trade suppliers.
• Ongoing business may become available at what seems to be a low
price.
The process of new product development includes the following
steps listed below.
1. Idea Generation
There are different methods of idea generation some of them are:
a. Focus Groups Method: In this method, a moderator, often called
a focal person leads a group of people through an open, in-depth
discussion rather than singly asking questions to solicit an
individual person response.
b. Brain Storming Method:
C. Problem Inventory /analysis Method: Problem inventory
analysis uses individuals in a manner analogous to focus
groups to generate new product ideas.
•
However, instead of generating new ideas themselves,
consumers are provided with a laundry list of problems in a
general product category.
•
They are then asked to identify and discuss products in the
category that have the particular problem.
d. Reverse Brainstorming Method : Reverse brainstorming is analogous to
brainstorming, except that criticism is allowed. The gist of the technique
is to go for spinning out fault by asking the question, “In how many
ways can this idea fail?” Since the focus is on the negative, care must be
taken to maintain the group’s morale.
2. Ideas Screening: The purpose of idea generation is to create a large
number of ideas.
 The purpose of the succeeding stages is to reduce that number.
 The first idea-reducing stage is idea screening.
 Idea screening helps spot good ideas and drop poor ones as soon as
possible.
3. Concept Development and Testing
• An attractive idea must be developed into a 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 the company can see
itself offering to the market.
• A product concept is a detailed version of the idea stated in meaningful
consumer terms. And a product image is the way consumers perceive an
actual or potential product.
• Concept testing calls for testing new product concepts with groups of target
consumers. The concepts may be presented to consumers symbolically or
physically. Here, concept tests, a word or picture description might be
sufficient.
4. Marketing Strategy Development
•
After concept testing proves best, the next step is marketing strategy
development, and 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 of the marketing strategy statement outlines the
product’s planned price, distribution, and marketing budget for the
first year.
 The third part of the marketing strategy statement describes the
planned long-run sales, profit goal and marketing mix strategy.
5. Business Analysis
• Once management has decided on its product concept and
marketing strategy, it can evaluate the business attractiveness
of the proposal.
• Business analysis is a basic assessment of a product’s
compatibility in the market place and its potential
profitability.
• Both size of the market and competing products are often
studied at this point.
• The most important questions relate to market demand is: How
will the product affect the firm’s sales, costs, and profits?
6. Product Development
• If a product survives the first five steps, it is developed into a
prototype that should reveal its intangible attributes as
perceived by the consumer.
• Usually, product development is often expensive, and few
product ideas make it to this stage.
• Here, Research and Development (R&D) or engineering
develops the product concept into a physical product.
7. Test Marketing
• Test marketing is a trial mini-launch of a product in limited
areas that represent the potential market.
• It allows a complete test of the marketing strategy in a natural
environment, giving the organization an opportunity to
discover weaknesses to be eliminated before the product is
fully launched.
8. Commercialization
• Commercialization is the full introduction of a complete
marketing strategy and the launch of the product for
commercial success.
• During commercialization, the firm gears up for full-scale
production, distribution and promotion.
Product protection
1. Patents
•
You know already that one of the avenues to the establishment
of a new business is invention. An entrepreneur who invents a
new thing or improves an existing invention needs to get legal
protection for the 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 exclusive right to enjoy the
benefits resulting from the possession of the patent.
…Patents
Basically there are two common types of patents the difference of
which the entrepreneur needs to understand and explained as
follows;
• Utility Patent: - This kind of patent protects any new
invention or functional improvements on existing inventions.
It grants the owner of the invention by anyone else. It reflects
protection of new, useful and unobvious processes such as
those in printers and producing chemical compounds.
Design patents
• The other kind of patent is design patent that protects the
appearance of an object and course new, original, ornamental, and
unobvious designs for articles of manufacture.
• Like utility patents, design patents provide the inventor with the
exclusive right to make, use and/or sell an item having the
ornamental appearance protected by the patent.
• This kind of patent is appropriate when the basic product already
exists in the market place and is not being improved in function
but only in the style.
• These patents are particularly important to companies such as
shoe producers and product package design firms that need to
protect their ornamental designs.
2. Trademarks
• Trade Marks: - A trade mark may be a word, symbol, design or
some combination of such or it could be a slogan or even a particular
sound which identifies the sources or sponsorship of certain
goods/service.
• Therefore, for the owner business man he/she needs to register such
identifications because of the following benefits from registered
trademarks.
 Registered trade mark provides notice to everyone that you have
exclusive rights to use of the mark throughout the territorial limits
of the country.
 It enables the business owner to sue in court for trade mark
infringement, which can result in recovery of profits, damages,
and costs.
….trade mark
Registered trade mark provides also incontestable
rights regarding the commercial use of the mark for the
owner.
It also provides right to deposit registration with
customs to prevent importation of goods with similar
trademarks.
It enables the business owner to use the notice of the
registration itself.
It provides a basis for filling trade mark application of
goods in foreign countries and others.
4. Copyrighting
• Copyrights: - A copy right, which is a burning issue in Ethiopia these
days, protects the original works of authorship.
• Among the things that need to be protected through copy right are
music, books, software, scripts, articles, poems, sculptures, models,
maps and blue prints, songs and data.
• Trade secrets: - A trade secret can be a process, a method, a device, a
technique, a formula or a pattern for a machine, pricing information,
customer and supplier list, a method of bookkeeping or other nonpublic information that is used in one’s business, and which gives an
opportunity to obtain an advantage over competitors who do not know
or use it.