CHAPTER FIVE

PRODUCT AND SERVICE CONCEPT

5.2 Meaning of a Product

A product is anything that can be offered
to a market for attention, acquisition,
use, or consumption that might satisfy
a want or need.

It includes physical objects, services,

persons, places, organizations and
ideas.
Goods are physical objects.
• They are tangible and can be
seen, touched, tested or felt ,
even before actual purchase.

Services are anything of benefit

that one party can offer to
another that is essentially
intangible and does not result
in the ownership of anything.
Differences Between Goods and Service
i) Nature of the product: Although services often
include tangible actions - such as sitting in an
airline seat, eating a meal, or getting damaged
equipment repaired - the service performance
itself is basically an intangible.

ii) Customer involvement in production: Often

customers are actively involved in helping to
create the service products - either by serving
themselves or by cooperating with service
personnel in settings such as hair salons, hotels,
colleges or hospitals.
iii)Quality control problems: Manufactured
goods can be checked for conformance with quality
standards long before they reach the customer.
• But when services are consumed as they are
produced, final "assembly" must take place under
real-time conditions.
• As a result, mistakes and shortcomings are harder
to control.

iv)None inventories for services: Because a service is

a deed or performance rather than a tangible item
that the customer keeps, it cannot be inventoried.
v) Importance of the time factor: There are
limits as to how long customers are willing to
be kept waiting for service to be provided.

vi)Different distribution channels: Unlike

manufacturing firms, which require physical
distribution channels for moving goods from
factory to customers, service businesses
either use electronic channels or else
combine the service factory, retail outlet, and
point of consumption into one.
5.3 Product Planning and

Development
New Product Development is
a business and engineering
term which describes the
complete process of bringing
a new product to market.
Types of New Products
There are several types of new
products.
Some are new to the market
Some are new to the firm,
Some are new to both.
Some are minor modifications
of existing products
While some are completely
innovative.
Why do so many products fail? There are
several reasons:
 Although the idea may be good, the market size
have been overestimated
 Or perhaps the actual product was not designed
well
 Or it was incorrectly positioned in the market,
priced too high, or advertised poorly.
 Sometimes the cost of product development is
higher than expected
 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
Is the systematic search for new product
ideas.
The sources for new product idea may
be categorized into two: internal and
external sources.
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 generated during idea generation stage.
 helps to spot good ideas and drop poor ones as soon as
possible before they go into production and
commercialization stages.
 Idea screening is necessary because ideas are not
equally sound and valuable.
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:
 Drop Error- occurs when the company
dismisses good idea.
 A go-error- occurs when company
permits a poor idea to move into dev’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.
 A product image is the way consumers perceive 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.
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, and the sales, market share & profit
goals for the first few years.
 The second part: outlines the product’s planned price,
distribution and marketing budget for the first year.
 The third part: describes the planned long-run sales,
profit goals and 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 available 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 production
activities.

 Mass production will start with improved features and

distribution channel will be organized to distribute the
product.
5.4 Product Life Cycle
 Product like individuals passes through a series of stages.
 The Product Life Cycle: refers to the succession of stages a
product goes through.
 Product Life Cycle Management is the succession of
strategies used by management as a product goes through
its life cycle.

 Successful products progress through four stages, namely:

introduction,
growth
maturity and
decline as shown in figure.
Sales and Profits over the Product’s Life from Inception to
Decline
Stage I: Introduction
 here, the firm’s objective 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 promotion
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:
has the highest growth rate
Customers are now familiar with the merits and demerits
of the product
sales volume increases very rapidly
A proportional rise in profits occurs
competitors enter the market bringing about imitation of
the product
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.
5.5 Product Identification
5.5.1 Brand
The American marketing association defines a
brand as follows:
 "A Brand is a name, term, sign, symbol, or
design, or a combination of them, intended to
identify the goods or services of one seller or
group of sellers and to differentiate them from
those of competitors".
A brand is essentially a seller's promise to
consistently deliver a specific set of features,
benefits, and services to the buyers.
 A brand name is the part of brand consisting of
words, letters, and/or numbers that can be
vocalized.
 A trademark is defined as a brand that is given
legal protection.
 Therefore, trademark is a legal term meaning the
words, names, or symbols that the law designates
as trademarks.
 Strong brands helps build the corporate
image, making it easier to launch new brands
and gain acceptance by distributors and
consumers.
5.5.2 Packaging
Packaging consists of all activities of designing and
producing the container or wrapper of product.

Thus packaging is a business function and a

package is an item.

 Packaging includes the activities of designing

and producing the container or wrapper for a
product.
The container or wrapper is called the package.
 Well-designed packages can create convenience value
for the consumer and promotional value for the producer.
 A product must be packaged to meet the needs of
wholesaling and retailing middlemen.
 For instance, a packages size and shape must be suitable
for displaying and stacking the product in the store.
Advantages of Packaging
In general, packaging provides the following
advantages:

1. It physically protect the products from damage, theft,

2. It helps in identifying the products
3. It encourages impulse buying
4. It is used as an promotion media
5. It serves as an information tool
6. It serves as a sales tool
5.5.3 Labeling
A label is a part of a product that carries
information about the product and the seller.

A label may be part of the package, or it may be a

tag attached to the product.

Obviously there is a close relationship among

labeling, packaging, and branding.
Types of Labels
Labels fall into three primary kinds:
i) A brand label: - It is simply the brand name applied to the
product or package.
ii) A descriptive label: It gives objectives information about
the products' use, construction, care, performance, and/or
other pertinent features ingredients and nutritional
contents.

iii) A grade label: It identifies the products judged quality

with a letter, number, or word. Canned peaches are grade
labeled A, B, C, corn and wheat are grade labeled 1 & 2.
Brand labeling is an acceptable form of
labeling, but it does not supply
sufficient information to a buyer.
Descriptive labels provide more
product information but not necessarily
all that is needed or desired by a
consumer in making a purchase
decision.
Functions of Labeling
Labeling performs several functions.
Some of which are illustrated below:-
i. The label identifies the product or brand
ii. The label might also describe several things about
the product, which made it, where it was made,
when it was made, its contents, how it is to be
used, and how to use it safely.

iii.The label might promote the product through

attractive graphics.
Product: Trademark, brand name, label and package
5.6 Product Protection
 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, copyright, and trade mark
registration.
5.6.1 Patents
 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, licensed or used as collateral much like other
valuable assets.

 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.
 (An “assign” is anyone who might be assigned ownership
or rights through sales or license of a patent.)
5.6.2. Trademarks
A trademark includes any word, name, symbol,
or distinguishing device, or any combination
thereof 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. /
5.6.3. Copyrights
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, poems, articles, stories, books,
music, sound recordings, audiovisual works,
periodicals, microfilm
 End of
Chapter
Five