UNIT-I

Business Model

Simplest of definition : “How you plan to make money”

A business model has two parts:

[Link] the activities associated with making something: designing it, purchasing
raw materials, manufacturing, and so on.
[Link] the activities associated with selling something: finding and reaching
customers, transacting a sale, distributing the product, or delivering the
service.
A new business model may turn on designing a new product for an unmet
need or on a process innovation. That is it may be new in either end.”

The success or failure of a company’s business model depends largely on how

it interacts with models of other players in the industry. (Almost any business
model will perform brilliantly if a company is lucky enough to be the only one
in a market.)

Because companies build them without thinking about the competition, they
routinely deploy doomed business models.

Appraising models in a stand-alone fashion leads to faulty assessments of

their strengths and weaknesses and bad decision making. This is a big reason
why so many new business models fail.

Not all business models work equally well, of course.

Good ones share certain characteristics:

[Link] align with the company’s goals,

[Link] self-reinforcing, and
iii. are robust.
Successful business models generate virtuous cycles, or feedback loops, that
are self-reinforcing. This is the most powerful and neglected aspect of
business models.

Its competitive advantage keeps growing as long as the virtuous cycles

generated by its business model spin. Just as a fast-moving body is hard to
stop because of kinetic energy, it’s tough to halt well-functioning virtuous
cycles.
What is a business model?

A business model is an outline for how your company plans to make money.
In general, a business model explains four things:

• What product or service a company will sell.

• How it intends to market that product or service.
• What kind of expenses the company will face.
• How the company expects to turn a profit.

Types of business models and examples

Because there are many different businesses, the list of business model types
is constantly changing. Here are 12 common business model options, all of
which can be customized for a specific company or industry.

A “disruptive business model” innovates on these basic structures. And lots

of businesses earn money from multiple revenue streams, meaning their
business models include several of these types.

1. Retailer model

A retailer is the last link in the supply chain. These businesses purchase
goods from manufacturers or distributors and then sell them to customers for
a price that will both cover expenses and turn a profit. Retailers may specialize
in a particular niche or carry a range of products.

Examples: Many of the businesses you patronize day to day are probably
retailers, from grocery stores to pharmacies to florists.

2. Manufacturer model

A manufacturer converts raw materials into products. Then, they sell those
products to distributors, retailers or directly to consumers.

Example: Manufacturing businesses build everything from furniture to

pharmaceuticals. They can be companies of any size and in almost any
industry.

3. Fee-for-service model

A fee-for-service is just what it sounds like: A business charges a set fee for a
specific service. A business set up on this model can increase its earnings by
doing work for additional clients or by raising its rates.
Depending on what type of work the business does, it might charge an
hourly rate, monthly retainer or commission. It may also create a fee
schedule with a set rate for different types of services.

Example: Hairstylists, accountants and real estate agents all charge fees for
their specialized services. They may work independently or be affiliated with
a salon, office or brokerage that provides resources in exchange for a
percentage of their earnings.

4. Subscription model

A subscription business model can be applied to both traditional brick-and-

mortar stores and e-commerce businesses alike. Essentially, the customer
makes a recurring payment for ongoing access to a service or product. A
company may directly ship its product in the mail, or you may pay a fee to
use its services.

Example: Many local farms offer farm shares or community-supported

agriculture subscriptions, where clients get access to fresh produce on an
ongoing basis while crops are in season.

5. Bundling model

The bundling business model involves companies selling two or more

products together as a single unit, often for a lower price than they would
charge selling the products separately.

This type of business model allows companies to generate a greater volume of

sales and perhaps market products or services that are more difficult to sell.
However, profit margins often shrink since businesses sell the products for
less.

Example: Many class-based fitness centers and gyms use a type of bundling
model, where clients pay fees for a certain number of classes per month. The
more classes a client buys, the cheaper each individual class becomes, even
though their total spend increases.

6. Product-as-a-service model

Product-as-a-service businesses charge customers to use physical products.

They may charge a subscription fee, a per-use or per-mile fee, or a
combination of both.

Example: Bike rental companies offer products as a service. Customers might

pay an annual membership fee plus a per-mile fee each time they ride, or they
might have the option to rent a bike for the day.
7. Leasing model

Under a leasing business model, a company buys a product from a seller.

That company then allows another company to use the product they
purchased for a recurring fee. Leasing agreements are usually most efficient
with big-ticket items like manufacturing and medical equipment, but some
companies lease smaller items too.

Leasing is similar to the product-as-a-service business model, but leases

usually have longer terms — days or weeks compared to minutes or hours.
Leasing companies are unlikely to charge a subscription or membership fee
for access to their products.

Example: A business that rents machinery like backhoes, augers and dozers
to individuals for their home construction projects is using a leasing business
model.

8. Franchise model

A franchise is an established business blueprint that a franchisee purchases

and reproduces. The franchiser, or original owner, works with the franchisee
to help them with financing, marketing and other business operations to
ensure the business functions as it should. In return, the franchisee pays the
franchiser a percentage of the profits.

Example: Domino’s, Anytime Fitness and Ace Hardware are all examples of
the franchise model.

9. Distribution model

A company operating as a distributor is responsible for taking manufactured

goods to the market. To make a profit, distributors buy the product in bulk
and sell it to retailers at a higher price.

Example: A chain of beauty salons that buys supplies in bulk and sells some
of them to other salons is using a distribution business model, though they
may have other revenue streams too.

10. Freemium model

In a freemium model, customers can use parts of a product or service for free
but must pay for access to more advanced features. This model is common in
the software-as-a-service space — Spotify, for instance, has a free ad-
supported tier, but subscribers get to listen ad-free.
Example: Some news and internet publishing companies use a freemium
model, where some or all content is free but premium content or special
features are pay-walled.

11. Advertising or affiliate marketing model

The advertising and affiliate marketing business models leverage a business’s

audience as an asset.

With advertising, a business sell its audience’s attention. Advertisers pay for
space — whether it’s in the pages of a magazine or on the side of a vehicle —
with rates usually determined by the size of the business's audience.

With affiliate marketing, a business earns a commission when a member of

its audience buys a product or service it recommends. If you’ve ever heard a
podcaster encourage you to use a specific offer code when you buy a product
they’re promoting, affiliate marketing is probably part of the podcaster's
business model.

Example: A fashion blogger who sells ads on their podcast or website is using
an advertising model. If they post outfit-of-the-day photos with links that
viewers can click to “get the look,” they might also earn an affiliate marketing
commission on those purchases.

12. Razor blades model

To understand the razor blades model, you can simply look to your local
drugstore. You’ll notice that replacement razor blades may cost more than
razors themselves.

Companies offer a cheaper razor with the understanding that you’ll continue
to purchase more expensive accessories — in this case, razor blades — in the
future.

In addition to the traditional razor blades model, you'll also see companies
use the reverse razor blades model, in which they offer customers a high-
margin product and then promote the sales of lower-margin products that
accompany that initial product.

Examples: This business model is most common among companies that sell
physical products. Printers that require a specific type of ink or water pitchers
that require a specific type of filter are examples of the razor blades model.

Search for a Business Idea

Even with the necessary drive, skills and abilities, many would-be business
owners struggle with finding just the right idea to get behind.

There are several really good techniques and resources to help to discover the
business idea .

Before you can launch a business venture, you first need an idea. The better
your idea is, of course, the more successful your business can be, but having
a good idea isn't enough. Even the best ideas need grooming before they are
ready to take center stage. A simple six-step process can help you develop a
raw idea into a success.

1. Self Examination
Start with a bit of self examination. Discover what your passions are, what
educational background and any skills or expertise you have. Find out what
you most enjoy doing or what you are most talented at; this might suggest
what industry or industries you should focus on for your business idea. Jot
down your results. Be general, ideas for a business might jump out at you or
they may not at this stage.

2. Needs or Desires
Review your own personal needs or desires within the fields of interest or
industries identified in Step 1. Identify a real need of your own and you may
find a relevant need to be filled across the industry. List anything you can
think of that you would pay for within your areas of interest; these results will
be the beginnings of concrete business ideas.

3. Asking
Ask your friends, family and co-workers who share the same interests what
their needs or wants might be within the industries you are investigating. Find
out what they think are the best ways those needs could be filled. Ask them
how much they might be willing to pay to have those needs addressed. Make
the research conversational and relaxed, and you’ll be surprised at how many
ideas you can generate.

4. Study
Go to the library and look through journals and magazines that cover the
industries you want to focus on. Look for business trends that indicate where
the industry is headed. Find out what the “next big thing” is and you could
be the business leader to bring it to market.

5. Research
Research online business sites, such as [Link] or [Link], which
and offer articles on new business ideas as well as forums to discuss any new
ideas you might have. Review the information and interact with other forum
participants. Use this opportunity to bounce ideas around, receive feedback
and pick the brains of like-minded entrepreneurs.

6. Refine
Use the feedback you’ve gotten through the previous steps to refine your list.
Drop ideas that don’t have a large enough market or that may be too costly to
start up. Summarize each of your business ideas into a short phrase and
research them on the internet. Find out if anyone else has tried to produce
your business idea in the past or present. Research and study their successes
and failures. Learn how you can improve on their efforts or if the idea is one
that the market is ready for at all. This should help you identify the one or
two ideas that are really ready to be pursued.

Design of a business model

There is no one-size-fits-all business model. Many businesses include

elements of several models — the yoga studio that bundles classes may also
sell retail products in its lobby, for instance.

To design your own business model, start by answering the following

questions:

• How will you make money? Outline one or several revenue streams,
which are the different ways your company plans to generate earnings.
• What are your key metrics? Having a profitable business is great, but
it usually doesn’t happen right away. You’ll want to identify other ways
your company will measure its success, like how much it costs to
acquire a customer or how many repeat customers you'll have.
• Who’s your target customer? Your product or service should solve a
specific problem for a specific group of consumers. Your business model
should consider how big your potential customer base is.
• How will your product or service benefit those customers? Your
business model should have a clear value proposition, which is what
makes it uniquely attractive to customers. Ideally, your value
proposition should be specialized enough that competitors can’t easily
copy it.
 • What expenses will you have? Make a list of the fixed and variable
expenses your business requires to function, and then figure out what
prices you need to charge so your revenue will exceed those costs. Keep
in mind the costs associated with the physical, financial, and
intellectual assets of your company.

Business Idea Development Process

Developing a good business idea begins with finding one. From there, you
need to roll up your sleeves and get to work at refining it to turn that initial,
raw idea into something marketable.

1. Generate some ideas: Write down any ideas that occur to you. Think big
and don't hold back. Sit down for an hour and fill a page with ideas or take a
week to jot down every idea as it comes to you.

2. Select the best idea: Review your list and choose the best one. Don't delete
your list, though. You may want to come back to it if your first choice doesn't
pan out.

3. Research your idea: Find out everything you can about your idea: what's
currently being used in the market, who the top competitors are, and what
you'll need to do to turn your idea into a reality.

4. Refine your idea: Based on your research, modify your concept as needed.
If the idea won't work or if it fails the last two steps, pick another one and try,
try, try again.

5. Test your idea: Do some preliminary market research to see if there is a

need or interest in your idea and to identify potential competitors. Start
developing a prototype if your idea is a physical product.

6. Identify your market: If your idea is viable, it's now time to determine
whether people will pay for it – and how much they might pay. This requires
in-depth market research to determine who is seriously interested.

Steps for successful business idea to start:

1. Brainstorm various ideas

The first step in selecting the business idea is determining the appropriate
type of business. Finding a business idea compatible with one’s hobbies,
personal objectives, and abilities is critical since it will keep you motivated
and increase your chances of success.

After brainstorming and limiting down a few business ideas about which one
is passionate comes the research stage. The research stage is when different
types of ideas are looked into, and an understanding of how much work each
one will require is developed. Once the research stage is complete and you
have reached the final ideas that have not been crossed out, you should
validate these business ideas in the market to determine if they will be
profitable and successful.

2. Make a business plan

Building a business plan is necessary for any business when starting a new
business. Before investing a significant amount of money and effort in your
business idea, analyze your concept and develop a good business plan. A
business plan compels individuals to simplify their ideas into a clear image of
what they intend to sell, why they intend to sell it, and how they intend to sell
it. Creating a business strategy involves considering the time and resources
required to get your business concept started. Weigh both the pros and cons
of your business idea and develop the strategic business plan to make it a
success

3. Look out for funds

A business cannot start without initial capital and the funds are necessary
when you’re initially starting. It can be one of the last things on your mind
while coming up with unique ideas for your new business, but it is a critical
component of your company’s lifeline.

Keep your options open and inventive when finding your first investments.
Angel investors, crowdfunding, venture capital, and business lenders are
some potential funding options to consider. You can also consider banks for
long-terms loans. The interest rates on these loans can be hefty, but they can
help you get started quickly if your business can turn a profit rapidly.

4. Analyze market demand

Before starting a business, you need to research your target market and the
optimum customers for your product or service. Consider how your business
can uniquely solve your customer’s problem. Consider what they would do in
the absence of your product or service. This is also an excellent time to
undertake competitive research and see why consumers gravitate toward
services other than yours. Additionally, determine whether your business
concept has sufficient demand to be viable. It can be challenging to enter a
market if there is more competition than demand.
5. Test your business idea

Regardless of your experience level, you should test your business idea before
allocating the time and money necessary to implement it. Testing the business
idea gives you an understanding of whether you are truly prepared to execute
your business idea and embark on the road of a new business journey.
There are numerous ways to accomplish this. For example, you can meet an
entrepreneur who has previously worked in a similar sector. You can discuss
every facet of the business and attempt to understand everything there is to
know about it. While speaking with the entrepreneur, you can ascertain
whether you are prepared to take on the aforementioned tasks. You should
begin working on the project only if you believe you are confident and have
tested the business idea in the real world.

6. Prioritize scalability

Scalability is commonly neglected while stumbling across a new idea. The

prevailing consensus is that every business idea is scalable. A business that
primarily concentrates on serving a single group cannot attract new clients
from other demographics. And that ultimately slows the scale-up process.
Before striking on an idea, ask what the long-term plans for the business are.
If scalability is of priority, the business idea should be something that can
work universal and can cater to a large market.

7. Consider profitability

When selecting a business idea, the final factor to check is its profitability.
The profitability of any product or service is determined by several criteria,
including the product’s necessity, market size, marketing costs,
manufacturing costs, retail value, and scale of production. While your
business idea may appear to be excellent in every way, it will be a fruitless
endeavour if it cannot generate profit. Entrepreneurs should take the time to
properly comprehend and protect their business’s earning potential before
starting out their venture.

Product Concept

A product concept, also known as a concept statement, is a description or

vision of a product or service, typically developed at an early stage of
the product lifecycle.
Product concepts are built long before any kind of design or engineering work
— taking into account market analysis, customer experience, product
features, product-market fit, cost and more to help bring the concepts to life.

The last part of the product concept is the product concept statement. It
articulates the product strategy, vision, purpose, and how it will provide value
to customers and the business.

What’s included in product concept statements?

Product concept statements typically cover these elements:

• The product or service name

• Target users or segment
• How target users will use the product or service
• What problems or pain points the product or service solves
• The business goals the product or service supports
• The concept’s unique selling points
• The overall vision and strategy for the user experience
Perhaps most crucially, great product concepts address a market or a
customer need. Rather than building what you think the market needs, listen
to what people are saying! To this end, you must carry out market research
and product-market fit research to uncover opportunities and needs.

Why is a product concept important?

As product concepts establish the vision or strategy for a new product or

service, they’re a great way to get buy-in from senior stakeholders long before
any kind of work takes place.

Product concepts provide a starting point for discussion and continued

improvement, so sharing them as early as possible is both beneficial and
essential.

Product concepts also serve as a check-in mechanism — by returning to the

initial product concept statement, teams can determine whether they’re still
on track and building something that satisfies the criteria outlined in the
document.

In the next section, we’ll cover the types of products in the market so you can
align your product concepts with consumer needs and expectations.
Product idea

A product idea is an idea for a possible product that the company can see
itself offering to the market.

It is obligatory for every company to exactly define its product idea and the
process for making it happen. The company needs to go through several
stages to remain on a safe side when it starts this big job. The main stages
that it will need to go through to define the product idea for avoiding failure
and confusion are briefly discussed here:

1. Problem Identification: In this process, the company first has to solve one of
our society’s problems. So, it needs to recognize a problem or why will people
purchase it? While several other products don’t give solutions to any problem,
but the market leaders do. Defining a problem is thus, vital.

2. Product Overview: Now the company needs to define the idea in a more
detailed way and more from the company’s side and what it thinks is right.
Four components shape the core of the product overview:

• Uniqueness of the product.

• The product features.

• Benefits of the product.

• The target audience.

After defining the product overview, the company must make sure to protect
its intellectual property, set some barriers to entry, and define the use cases.

3. Product Design: It includes everything regarding the looks of the product,

the functional requirements, the hardware requirements, the software
requirements, the mechanical requirements, and the performances of the
product.

4. Business Structure: Here, the company needs to establish the value

propositions, define the cost structure and the revenue streams.

5. Business Insights: This is the last stage and the most important and
theoretical one among all the stages. It includes risk assessment, team
management, creating a legal structure, doing financial projections, and
setting milestones.

Benefits of developing an effective product idea

Consider the following benefits of developing an effective product idea:

• Fulfill customer needs: You can create a product idea to resolve a

specific issue for customers. For example, individuals may appreciate a
product that can help them accomplish their job responsibilities more
efficiently.
• Launch a company: An effective product idea can help an individual
create a successful private company that can generate revenue. As a
result, you can compete with other businesses in an industry and
increase your overall net worth.
• Support technological advancement: A product can elevate an
industry's technical capabilities, which may help people improve larger
systems and reduce everyday costs. For example, sustainable
technology can allow people to use energy from the sun to power
electricity, which renegotiates the value of other light sources.
• Provide job opportunities: There are often multiple individuals
involved in one manufacturing procedure, including design and
assembly personnel. Creating an effective product idea can offer people
the chance of financial gain in the future, which may increase your
reputation in an industry.
How to manufacture a product idea

Here are the key steps for manufacturing a product idea:

1. Develop your concept

After you discover a viable product idea, take some time to refine your
concept. Determine whether your product represents an industrial item for a
construction process or a consumer product for everyday customers, as this
classification may inform what type of manufacturer to hire in the future.
Then, consider writing an overview of its design elements and some critical
steps for how a person might operate it. It may be helpful to invest in a high-
quality inventor's journal, which contains a drawing grid, product
development guidelines and some important patent documents for
copyrighting an idea.

2. Conduct patent research

Use the United States Patent and Trademark Office (USPTO) website to learn
whether someone else created a similar idea, as you can only patent your idea
if it has an original function or scope. If you find a similar idea in the database,
you can alter these aspects and target a separate industry area. Be sure to
enter all relevant keywords in the database to conduct a thorough search. It
may also be helpful to use those same keywords in a search engine to see if
anyone previously created a product with a comparable design.

3. Research your idea's market

Investigate your target market thoroughly. First, determine if anyone

expressed a desire for a similar concept by researching relevant websites,
including social media and blogging platforms. It may also be helpful to attend
trade shows involving a product's industry to discuss the product idea with
potential buyers, designers and manufacturers. For instance, if you're
developing a new car feature, you can attend a local automobile exposition to
meet customers and experts.

You can also create a formal testing process to learn whether an idea may
appeal to a prospective customer. Consider organizing a focus group with
individuals from your target market to discuss a product's potential purpose
and features, then measure their answers using statistical analysis. Having a
numerical figure for your idea's desirability may help you find manufacturing
support in the future.

4. Design a model of the product

Consider making a physical drawing of the product or sketching it through a

digital art program. Depending on your knowledge of mechanical terms, it
may be helpful to include some technical specifications like preferred
materials or any installation requirements. Afterward, you can either build
the prototype out of simple materials or make a 3D model through computer-
aided design (CAD) software, which many professional designers use for this
phase. If you have skill sets in different areas, you can hire a CAD specialist
to generate the product model instead.

5. Build and test a prototype

Create a working prototype to better understand its requirements, make any

necessary adjustments to the design, and verify that it's operational. You can
use this process to test the materials you envisioned for the project or examine
a series of different options. Consider finding a book or manual on building a
prototype for your particular industry, especially if it requires a lot of technical
components. Depending on your budget, you can hire a professional prototype
developer to help you test the product or provide suggestions for critical
improvements.

6. File a patent application

After finishing a working prototype, you can begin the official patenting
process. Determine whether it requires a utility patent, meaning it legally
protects how the product works, or a design patent, meaning it only protects
the item's aesthetic design. It may be helpful to hire a patent attorney or
another specialist in the industry to write the application, as they have the
knowledge and training to better prevent competitors from using your design
in the future. Be mindful to only hire professionals who have official
accreditation from the USPTO.

7. Prepare a business plan

After you patent your product successfully, you can create a plan for how to
manufacture and sell it. First, determine if you're going to license a product
to a company or create your own business to sell it. If you license a product,
the company can support some critical financial and manufacturing steps
while offering it yourself may provide you with more control over the process.
The latter also may require the help of an external investor or funding source
so you can hire a manufacturer more easily and gain access to high-quality
materials.

8. Gain funding

If you plan to start your own business to manufacture a product, you can use
your business plan to locate funding sources. It may be helpful to apply for a
loan through the U.S. Small Business Administration (SBA), which can match
you with a vetted lending service that understands your specific needs.
Otherwise, you can submit a proposal to a private investor who displays an
interest in your product and has access to multiple resources. Depending on
your preferences, you can also connect with peers or family members who
might be interested in becoming investors as well.

9. Find a manufacturer

Locate a service or company that can mass produce your product to sell. First,
it's important to determine whether you prefer to hire a domestic or
international manufacturer, as each option contains different financial and
legal requirements. Domestic production can give you more access to the
manufacturing process, while an international supplier may provide some
reduced costs. Afterward, it may be helpful to search for a supplier using an
industry-specific network or through a referral from another business owner.
You can also use an online directory of manufacturers that lists their
specifications.

10. Start production process

Send your design to a selected manufacturing company and consider

requesting some product samples to test before you submit an official order
request. It may be helpful to use your own quality control process for the
sample to ensure it matches the functional and aesthetic design. You can also
negotiate agreements like a production timeline, customization options or
shipping expenses. At this stage, consider dedicating some time to marketing
a product to generate some excitement among prospective customers in your
target market.

Types of products

Convenience products – A convenience product saves customers time and

effort. Convenience products are goods that customers usually purchase
frequently, immediately and with minimal effort. For example, soap, toilet
paper, and batteries — are all examples of convenience products.

Specialized products – Specialized products are products that consumers

actively seek to purchase because of unique characteristics or loyalty to a
specific brand. These consumers won’t normally accept substitute products.
For example, high-end fashion clothing, luxury vehicles, and famous
paintings.

Brand products – The sentiment behind branded products is simple: the

more positive the brand connotation, the more likely it is that a consumer will
buy something from it. For those with brand recognition, the chances of a
successful product concept — not just from a design and market opportunity
— are much higher as they’ve established their position.

Advantages of product concepts

There are many benefits to using product concepts:

• Quality over quantity

Product concepts are all about balancing high quality, accessibility and
performance. As new ideas are shared as product concepts, you can start to
assess and evaluate them, discarding low-quality ideas much earlier in the
process. This ensures that you only ever go to production with product
concepts that are most likely to achieve success — e.g. align with customer
needs — and support business goals.

• Develop curiosity
When established brands bring new product concepts to market, consumers
are inevitably interested; they want to purchase the product and see the new
features to satisfy their curiosity. As for the brands, they keep themselves in
the media for as long as possible to increase perceived value and awareness
of the new product concept.
 • Increase margins
If a company has created a strong product concept and marketed it effectively
to its target audience, e.g. they’ve displayed the very high quality of the
product and its functional value, it can charge more than its competitors.
Remember, quality over quantity is the name of the game, and if consumers
are aware of that fact (and it’s embedded in their minds), they’ll spend more.

Disadvantages of product concepts

The disadvantages of product concepts include:

• Irrelevant and impractical features

One of the main concerns with early product concepts is that in the race for
innovation and differentiation, there’s a risk of going off track and missing the
needs of potential customers. Even with unique features and better quality,
it’s important to focus on functional value. What is the problem you are trying
to solve with the product concept?

• Price concerns
In many markets, consumers are very price-conscious. They prefer cheaper
solutions rather than products with higher quality because they are more
affordable. With this in mind, if you have a target market or segment that is
more price-conscious than your other buyers, consider creating a lite version
of your product concept (where practical).

Examples of product concepts

Samsung’s folding screens

Samsung wanted to supply customers with larger screen space, but also knew
that portability was a key concern for its customers. In 2021, Samsung came
up with a foldable screen – the S foldable — with a bi-fold design that opens
to 7.2 inches.

Now, Samsung could see the interest in foldable tech due to propositions from
other manufacturers like LG, but by moving fast and getting a product
concept to launch, they now lead the way within the telecommunications
market.

Types of Products [Consumer Products and Industrial Products]

Marketers consider goods primarily in terms of whom they are being targeted.
They classify goods based on whether they are consumer goods or industrial
goods.
Generally, products are classified into two types;

1. Consumer Products (convenience products, shopping products,

specialty products, unsought products).
2. Industrial Products (capital goods, raw materials, component parts,
major equipment, accessory equipment, operating supplies, and
services).
Consumer products are those which are bought by consumers for ultimate
consumption and not for resale. These goods can be further classified based
on how consumers buy them. Consumer products include (1) convenience
products, (2) shopping products, (3) specialty products, and (4) unsought
products.

Industrial products are those intended for use in making other products or
operating a business or institution. Thus, industrial products are
differentiated from consumer products based on their ultimate use. The types
of Industrial goods are raw materials, component parts, major equipment,
accessory equipment, operating supplies, and services.

Let’s understand the main two types of product and their subcategories one
by one.

1. Consumer Products

Consumer products are those designed to satisfy the needs and want of the
ultimate consumer.

But, this is not an adequate definition for marketing purposes. The consumer
goods category is far too broad and diverse to be meaningful when developing
product strategies.

Consumer goods include everything from fresh corn to advanced electronic

games and home video recorders, from sweaters and jeans to books and pens.

As a result of this variation, marketing executives must further classify these

goods, focusing on the buying processes consumers use.

The four subgroups of consumer products are;

1. Convenience Products.
2. Shopping Products.
3. Specialty Products.
4. Unsought Products. Let us now have a brief idea on each of the different
types of product:
1. Convenience Goods

These are products that consumers want to buy with as little difficulty and
physical effort as possible. Consumers know what they want., usually have
purchased the product before, and perhaps above all, do not want to spend
considerable time making the purchase.

Goods falling into this group are known as convenience goods – they are the
goods that the customer usually purchases frequently, immediately, and with
a minimum of effort in comparison and buying.

A large number of products, of course, fall into this group. Milk, soap, candies,
and various other low-cost goods for which consumers are not totally brand
loyal are examples of convenience goods.

Marketing executives are especially careful to make sure that this type of
product is readily available. These goods, therefore, receive widespread
distribution.

Marketing executives recognize that consumers do not view all of the

convenience products alike.

Or example, bread is a convenience item for some people who do not demand
only one brand. If a store does not carry a particular brand, another will be
readily substituted.

Other consumers, however, are very loyal to a specific brand and will go out
of their way to find it. Marketers have identified four subgroups of convenience
goods: staple, impulse, emergency.

Staple goods

Those goods that the consumer buys on a very regular basis plans for the
purchase, and tends to be somewhat brand loyal. Ballpoint-pens soft drinks,
pickles, tobacco products, etc., are usually considered as staple goods. Brand
loyalty for these particular products stems from the desire to simplify the
buying process by automatically selecting one brand and minimizing
purchasing time.

Impulse goods

Impulse goods are purchased without conscious forethought – they are the
result of a sudden but strongly felt need. Magazines, street foods, ice cream,
are examples of impulse items. One of the most common misconceptions
about impulse goods is that they are bought irrationally. Though such
purchases are not preplanned, they satisfy consumer needs, and therefore
cannot be viewed as wasteful.
Emergency goods

These goods are closely related in some respects to impulse items because
they are not preplanned purchases. Emergency goods differ from impulse
goods because they may be planned for on short notice, but more importantly,
are purchased to satisfy an immediate and pressing situation. Candles,
matches, antiseptics are certainly emergency goods.

2. Shopping Products

Shopping goods are those consumer goods which the customer in the process
of selection and purchase characteristically compares on such bases as
suitability, quality, price, and style. Shopping products are infrequently
purchased products that customers plan and compare carefully on brands,
price, quality, and style.

Consumers devote much time and effort in obtaining information and making
comparisons in case of buying shopping products.

For example, refrigerators, air coolers, televisions, washing machines, and

clothing are shopping products.

In this category, marketing executives generally distinguish the shopping

products into two types;

1. Homogeneous shopping goods.

2. Heterogeneous shopping goods.
Homogeneous Shopping Goods

Shopping goods that consumers believe to be essentially the same in terms of

quality, price, styling and suitability for their needs are called homogeneous
shopping goods.

The buyer considers homogeneous products similar in quality, such as

refrigerators, but they think that prices are different for which they tend to
make comparisons.

Heterogeneous Shopping Goods

Heterogeneous shopping goods are products in which consumers perceive

some discernible differences in suitability, quality, price, or styling. Whether
real or imagined, the differences are important enough to cause consumers to
evaluate the trade-offs between them.

Reversibly, in heterogeneous products such as clothing, consumers consider

product features more important than price.
So a trader of heterogeneous shopping products must carry varied assortment
to cater to individual tastes and should employ well-trained salespeople to
provide information and advice to buyers.

3. Specialty Products

Specialty products are characterized by strong brand preferred and loyalty,

special purchase effort, little comparison of brands, and/or price sensitivity.
These goods include those consumer goods with unique characteristics
and/or brand identification for which a significant group of buyers is
habitually willing to make a special purchasing effort.

The most important factors distinguishing specialty items from other goods
are their high brand recognition and the degree to which consumers will
actively seek them.

Here consumers have particular preferences and will make concerted efforts
to find them.

Examples include expensive men’s suits, fancy groceries, health foods, hi-fi
components, and photographic equipment.

The unique feature of specialty products is that the buyer will look for only a
specific brand. The consumer does not care for substitutes but tries to
procure the wanted brand, which may require considerable time and effort.

Most specialty goods are relatively expensive, carry high-profit margins for the
seller, and are available in a limited number of outlets. They are sold in a few
outlets because consumers are unwilling to accept substitutes and will seek
out stores carrying the brands of their choice.

4. Unsought Products

Unsought products are those consumer products of who’s existence the

consumers are not aware of. If they know about these products, they may not
think of buying. “Unsought goods are goods that potential customers do not
yet want or know they can buy. Therefore, they don’t search for them at all.

Consumers probably wouldn’t buy these goods if they saw them – unless
promotion could show their value”.

Consumers do not consciously want or actively seek out unsought goods.

Consumers have no intention of buying the product in the first place.

Examples include life insurance and eye donations to the Eye Banks. As their
characteristics indicate, unsought products need aggressive advertising and
personal selling by producers and resellers.
The challenge involved in selling unsought products has led to developing
some of the most advanced personal selling methods. Costly personal selling
is often required since people often avoid these products.

2. Industrial Products

Industrial goods are those purchased by organizations for use either in other
products or in their operations. Manufacturers, commercial businesses, non-
profit institutions, and government agencies buy industrial goods. Industrial
goods can be classified into raw materials, component parts, major
equipment, accessory equipment, operating supplies, and services

If a consumer buys an air conditioner for use at home, the air conditioner is
a consumer product. If the same consumer buys the same air conditioner
for use in his factory, it is an industrial product.

Industrial goods can be classified into;

1. Capital goods.
2. Raw materials.
3. Component parts.
4. Major equipment.
5. Accessory equipment.
6. Operating supplies.
7. Services.
A brief discussion of these different types of industrial product can be
presented as under;

Capital goods

Capital goods are industrial products that are directly used in production.
Capital goods consist of installations and accessory equipment. Buildings,
plants, and machinery are examples of installations.

Installations are usually bought directly from the producer. Accessory

equipment includes workman’s tools and office equipment like calculators,
fax machines, etc.

Accessory equipment is marketed through intermediaries because the buyers

of those products are scattered over a large geographic area, and individual
purchase volume is small.

Raw Materials
These are industrial goods that will be used in the making of other products.
Included in this category are natural resources such as forest products,
minerals, water, oceanic products, and agricultural products and livestock.
In most instances, raw materials lose their individual identities when used in
the final product.

Materials and parts become a part of the buyer’s product through further
processing. They include raw materials and manufactured materials and
parts. Raw materials include farm products and natural products such as
jute, cotton, wheat, fruits, crude petroleum, coal, iron ore, and natural gas.

Farm products are supplied by many small producers who sell them to
intermediaries. These intermediaries then process and sell them. Natural
products are of big bulk and low unit value and to be transported from
producer to user.

Producers of natural products are few in number and large. They market their
products directly to industrial users.

Manufactured materials and parts include component matters such as iron,

yarn, cement, and wires, and component parts such as small motors, tires,
and casting. Component materials usually are processed further.

For example, the pulp is made into paper. Component parts enter into the
finished product wholely. For example, amplifiers are fixed in CD players.

Generally, manufactured materials and parts are sold directly to industrial

users. In marketing manufactured materials and parts, more emphasis is
given on price, and service is given more attention than branding and
advertising.

Component Parts

Unlike raw materials, parts usually have been processed before being used in
the finished product. Although they may not be visible, parts are left intact
and assembled into the total product.

Major Equipment

This category comprises industrial products used to make, process, or sell

other goods. These include machinery, typewriters, computers, automobiles,
tractors, engines, and so on.

Normally, they are relatively expensive and have a useful life over one year.
Major equipment is not limited solely to the production process. It is found in
wholesale (e.g., forklifts) and retail (e.g., cash registers) operations.
Accessory Equipment

This equipment includes industrial products used to facilitate the production

process or middleman sales. It does not become part of the finished product
but aids in the overall production or selling effort.

Accessory equipment would include tools, shelving, and many other products
that tend to have a lower cost and shorter life than major equipment.

Operating Supplies

Supplies include operating supplies like office stationery, repair, and

maintenance items. Supplies can be treated as convenience products of the
industrial market as they are purchased with minimal effort.

These are products that are incidental to the production or selling functions.
Included in this category are low cost and quickly (within one year) used up
in the company’s operations. Pencils, papers, lubricating oils, cash register,
tape, and maintenance and repair items are included in this category.

Services

Business services include maintenance and repair services, factory premise

cleaning, office equipment repair, and business consultancy services. These
services are generally provided through contracts by small producers and
manufacturers of the original equipment.

Services normally should not be considered as a separate product

classification. Depending on the particular service, they are either consumer
or industrial goods. They are activities, benefits, or satisfactions offered for
sale or are provided in connection with the sale of goods.

Industrial services are purchased for use in producing the buyer’s products
or, more frequently, general operations. Like consumer services, industrial
services are not as standardized as goods, nor are they as tangible or as
durable.

As the complexities of business increase, so does the need for a specialized

service. Professional services like accounting, advertising, marketing
research, legal advice, and management consulting rely on more and more.

Selection of Product

Process of Product Selection

The commencement of a business venture is a huge investment in both

material and human terms that requires in-depth planning. Just as
investment opportunities can be sourced from several sources, the choice of
products or services for the entrepreneur are innumerable.

However, selecting/choosing the appropriate product or service can be

considered an important building block of every business venture.

Methods of Selecting a New Product

Products serve the business as the most important and visible first contact
with buyers i.e. end-users. The physical nature of products to the consumers
typifies the psychological symbols of personal attributes, goals, and strategic
pathways. In other words, consumers are most likely to form opinion and
perspectives for the entrepreneur

Factors to Consider in Product Selection and Design

In the selection of a product for your business venture, the following factors
must be carefully analyzed, in a bid to explain product selection:

Supply- Demand gap

The size and scope of the potential and unsatisfied market demand, which
forms the bedrock of business opportunity, will dictate, to great proportions,
the need to settle for a particular product. One rule of thumb in developing a
product selection criteria template is that the product with the most frequency
of need/demand possesses the greater chance of bestowing success on the
business, should be selected.

In plain terms, there must be existing demand (a market) for the chosen
product.

Financing

This is one of the most important factors associated with product selection.
The size of the funds that can be accessed is another important consideration
in choosing a method of product selection permitted. Adequate funding is
required to carry out pre-launch activities such as development, production,
promotion, marketing and distribution amongst others, of the selected
product.

Availability of and Access to Starter/Raw Materials

Differences in products require different starter materials. Factors such as

the source of the materials, the quality to be achieved as well as the quantity
of the raw materials is key management decisions. Will the raw materials be
available in sufficient quantities, over a continual basis? Where are the
locations of the raw materials needed? Are they accessible? Will it be
important to situate the business close to these sources of raw materials?

In the event of local sources being incapable of meeting demand, are there
viable alternatives abroad? The entrepreneur must embark on a thorough
analysis of these limiting factors before settling for a particular product for a
market.

Technical Considerations

The production route for the product bears a lot of weight when it comes to
the product selection process in entrepreneurship. The technical dynamics of
the chosen product on the existing production line will be x-rayed against
factors such as available technology, power requirement and even the use of
automated processes or human labor.

Besides, the choice of a particular product may warrant either the acquisition
of new equipment or refurbishing of used machinery. The product must also
be deemed technically satisfactory to the user.

Profit viability/Marketability

As is often the case, the product that meets the criterion of giving the optimum
return on investment will be selected. However, a product may be chosen on
the ground that it utilizes dormant capacity or helps with the sales of existing
products. The product must also bear the important characteristic of being
marketable.

Qualified and Skilled Personnel

Qualified personnel will be required to handle the production and marketing,

on an ongoing basis. The cost associated with manufacturing the product
must be kept to the barest minimum by reducing wastage. This is achievable
through the engagement of competent and skilled hands.

Government Policies and objectives

These product selection factors are often beyond the control of the
entrepreneur. The thrust of government policies on economics and commerce,
over time, is usually in the national interest, which may or may not be at odds
with the objectives of the business. For instance, the insistence of government
on the use of 100% locally sourced starter materials will greatly influence the
decisions of business concerning what business product to introduce to the
market.

Standard global practices advocate identifying several criteria upon which

product selection can be carried out. Scores can be allocated to each criterion
to come up with an objective evaluation.

The Product Adoption Process:

Getting users to adopt your product by helping them realize sustained value
is critical to maintaining and growing your business.

Not only that:

• Acquiring new customers is between 5 and 25 times more expensive

than keeping current ones.
• Research shows that increasing customer retention rates by 5%
increases profits by 25% to 95%.
• Adopted customers are ideal targets for product expansion strategies,
increasing your revenue through upselling.
What is the product adoption curve?

The new product adoption process is not linear. As your product matures,
you’ll be faced with different customer segments. Each demands its own
adoption process.
Product adoption curve.

This “innovation adoption lifecycle” or “product adoption curve” is broken

down into five product adoption stages:

Stage 1: Innovators

Innovators (2.5% of the market) are excited about any new features and
products. They love trying them out and don’t tend to mind a few bugs. They’re
a great feedback resource, but their love of novelty makes them hard to pin
down long-term.

Stage 2: Early Adopters

This segment (13.5%) wants innovation rather than novelty. Early Adopters
expect a product to work well, and support when they encounter problems.

Stage 3: Early Majority

This 34% segment wants a proven product – they are not risk-takers. Build
strong bonds with Innovators and Early Adopters to give the Early Majority
confidence. Once they’re on board, their risk aversion will make them loyal
customers.

Stage 4: Late Majority

The Late Majority (34%) is similar to the Early Majority, but they’re more risk-
averse, more cautious, and less tolerant of glitches.

Stage 5: Laggards

These people in the final stage (16%) don’t want to change unless they simply
have to.

Stages of the product adoption process

Each of these stages plays a unique and equally important role in the overall
consumer adoption process. They also help to inform decision-making in the
strategies used for adoption process marketing.

Stage 1: The product awareness stage

Becoming aware that a product exists and what it does is the first stage in the
new product adoption process.
A familiar brand provides an advantage for new products in generating
awareness among the target audience.

Marketing campaigns need to create awareness of the product as a solution

to a well-known problem (differentiating it from alternatives) or awareness of
a less well-recognized problem and the solution together.

Stage 2: The product interest stage

A potential customer moves from awareness to the product interest stage

when the information about the product is of interest to them and their job to
be done (aka what they are trying to solve with your product).

The information they want depends on which product adoption group they
are from.

It also depends on their intended use cases – along with details like features,
price, and customer support.

Stage 3: The product evaluation stage

The product evaluation stage sees a sharpening of focus from the previous
stage.

The customer considers the pros and cons of giving the product a try.

During this phase, efforts should focus on communicating the best use cases,
highlighting strongest features, and the relative advantage over competitors,
and minimizing the perceived costs of testing the product.

Stage 4: The product trial (sampling) stage

By now the prospect has decided they’re going to try the product out.

This might be a free trial (reducing the perceived cost mentioned above), free
samples, a product demo, or an initial purchase.

During the product trial stage, users test the service against their specific
needs.

They see if it delivers on its value proposition; if it fits in with their tech stack;
how much effort it requires; etc.

Stage 5: The product activation stage

When a user has activated – experienced value for the first time – that they
can be convinced to stay.
An activation stage, focused on making sure that the newly-acquired
customers get that benefit fast.

Stage 6: The product adoption stage

Activated users are now primed to be convinced that the product is right for
them.

In this last stage, product teams must convince users that they’ll get enough
value regularly to justify paying for the product, learning how to use it, and
foregoing whatever the competition offers.

Product Planning and Development:

Product development is the process by which one can plan, build, and launch
the product into the market.

Generally, when people talk about product development, they’re referring to

the actual software development phases. Keep in mind that there are a lot of
tangential steps that lead up to and follow from the actual build. Those can
be part of the product development process, too.

Product Planning and Development Step # 1. Generation of New

Product Ideas:

The first step in product planning and development is generation of ideas for
the development of new/innovative products.

Ideas may come from internal sources like company’s own Research and
Development (R&D) department, managers, sales-force personnel etc.; or from
external sources like, customers, dealers, competitors, consultants, scientists
etc.

At this stage, the intention of management is to generate more and more new
and better product ideas; so that the most practical and profitable ideas may
be screened subsequently.

Product Planning and Development Step # 2. Screening of Ideas:

Screening of ideas means a close and detailed examination of ideas, to

determine which of the ideas have potential and are capable of making
significant contribution to marketing objectives. In fact, generation of ideas is
not that significant as the system for screening the generated ideas.
The ideas should be screened properly; as any idea passing this stage would
cost the firm in terms of time, money and efforts, at subsequent stages in
product planning and development.

Product Planning and Development Step # 3. Product Concept

Development:

Those product ideas which clear the screening stage must be developed into
a product concept – identifying physical features, benefits, price etc. of the
product. At this stage product idea is transformed into a product concept i.e.
a product which target market will accept.

Product Planning and Development Step # 4. Commercial Feasibility:

At this stage, the purpose is to determine whether the proposed product idea
is commercially feasible, in terms of demand potential and the costs of
production and marketing. Management must also ensure that product
concept is compatible with the resources of the organization technological,
human and financial.

Product Planning and Development Step # 5. Product Development:

Product development encompasses the technical activities of engineering and

design. At this stage, the engineering department converts the product
concept into a concert form of product in view of the required size, shape,
design, weight, colour etc. of the product concept.

A model or prototype of the product is manufactured on a limited scale.

Decisions are also made with regard to packaging, brand name, label etc. of
the product.

Product Planning and Development Step # 6. Test Marketing:

A sample of the product is tested in a well-chosen and authentic sales

environment; to find out consumers’ reaction. In view of consumers’ reactions,
the product may be improved further.

Product Planning and Development Step # 7. Commercialisation:

After the management is satisfied with the results of test marketing, steps are
taken to launch a full-fledged programme for the production, promotion and
marketing of the product. It is the stage where the new product is born; and
it enters it life cycle process.
Product Innovation
The most widely accepted definition for product innovation is creating and
introducing something new to the market. It could be anything, including new
products and services, processes, and incremental improvements to existing
products. However, people usually refer to new and improved products when
talking about innovation.

Product innovation refers to the creation and introduction of a product or

service that is new to the market or a substantial and novel iteration of an
existing product. It includes improvements in components and materials,
incorporated software, technical specifications, and other functional
characteristics like user-friendliness. Product innovation is how brands like
Apple and Tesla have achieved huge commercial success.

Types of product innovation

Product innovation has three main categories, as discussed below.

1. New product innovation

Experts term new products as either radical or disruptive because if they

achieve a successful adoption rate, they can become game changers and
cause a market shift.

Radical innovation: is defined as a significant and transformative

breakthrough in technology, business models, processes, or products that
creates a substantial shift in industry or society. It involves introducing
revolutionary ideas, concepts, or approaches that challenge existing norms,
disrupt markets, and often result in groundbreaking advancements.

Disruptive Innovation: disrupt established markets, technologies,

and business model innovations, often rendering previous solutions obsolete
or less relevant. They introduce new ways of doing things that fundamentally
change the competitive landscape.

However, radical and disruptive innovations are harder to get right, have a
lower success rate, and present more risks. For these reasons, they are not
common because the challenging part is not coming up with a new idea, but
driving market adoption. Success requires a systematic, proven way of taking
ideas from conception to marketable products.

2. Incremental changes of existing products

Incremental innovation aims at improving existing products. It's the most

lucrative and successful type of product innovation because it improves
products enjoying relatively successful market adoption. It also meets the
needs of consumers—for example, the innovation of the computer into
smartphones, laptops, tablets, and PCs.

3. Development of new product features

Introducing new product features is the third type of product innovation.

Developers and designers develop new features to improve products and
increase their frequency and adoption. The trick is not to overburden
consumers with numerous additional features that distract them from the
product's original usability and utility.

Reasons to invest in product innovation and development

Product innovation is necessary for growth. Customer needs evolve as

technology evolves. And because technology is evolving at an incredibly fast
pace, it's crucial that you continually innovate your product so that it stays
relevant and essential.

Product innovation, when done right, product innovation has the following
benefits:

1. Improved product quality

All business innovations directly improve product quality and performance.

In turn, this increases the efficiency and effectiveness of business processes
and makes radical structural and operational reforms possible.

2. Smart expansion to new markets

Companies can find a way out in oversaturated markets by turning to product

innovation. It gives them a leeway to expand to new markets and get new
customers simultaneously.
3. Product differentiation

When companies use a differentiation strategy focusing on one aspect of the

product (such as cost value), they create a perceived value among potential
customers and consumers. Thus, innovation simplifies customer choices by
solving their problems.

4. Business growth

Successful product innovation and adoption boosts the growth of business

and industrial enterprises. It allows companies to grow, conquer new markets
and turn higher profits.

5. Market domination

Successful companies find new ways to leverage innovation, gain a

competitive advantage over their competition, and dominate the market.
However, success requires balancing three approaches: new products,
incremental improvements, and targeting new markets. For example, Apple
dominates the global smartphone market by maintaining its competitive
advantage.

6. Top talent acquisition

Innovation requires talented individuals, so companies looking to innovate

their products or services must seek top industry talent to ensure success.

Innovation policy: 5 considerations

Below are some considerations before starting a product innovation process:

1. Costs

Innovation is not free. Companies have to allocate resources, such as money,

people, and time, to create new products, services, and processes. On the
other hand, innovation can lead to massive cost savings.
2. Market demand and requirements

Product innovation aims to improve consumer experience and utility, so

companies must consider what the market wants and what customers
demand to drive adoption.

3. Competitors

The whole aim of product innovation is to gain a competitive advantage in the

market. Thus, companies must always consider what their competition is
doing and factor it into their innovation policy and strategy.

4. Legal framework

Does your product innovation face legal conflicts (norms, laws, and patents)
or ethnic conflicts with societal values? A company could launch a product
that violates government rules and regulations—for example, the FDA flagging
the launch of an energy drink with a significantly high amount of caffeine.

5. Value proposition

Successful product innovation offers a unique value position and achieves a

competitive advantage. For example, it could save customers money and time,
provide significant societal benefits, and provide better quality, convenience,
or durability.

Selection of a Product or Service

Fully 80 percent of the products and services being consumed today are
different from those that were being consumed five years ago. And five years
from today, fully 80 percent of the products being used will be new and
different from those being used today.

There are thousands of products and services available to consumers today.

And there are unlimited opportunities to enter the marketplace and compete
effectively with a new product or service that's better in some way than what's
already being offered by competitors. Skill at choosing that product or service
is critical to your success.

For a product or service to succeed, it must be the right product, being sold
at the right time, to the right customer, in the right market. It must be
produced and sold by the right company, and the right people. What one has
to decide is this: Is this product right or not?
Selecting/choosing the appropriate product or service can be considered the
important building block of every business venture.

As a matter of fact, products serve the business as the most important and
visible first contacts with buyers i.e. end users. The physical nature of
products to the consumers typifies the psychological symbols of personal
attributes, goal and strategic pathways. In other words, consumers are most
likely to form opinion and perspectives for the entrepreneur.

Factors responsible for selection of product

Supply- Demand gap

The size and scope of the potential and unsatisfied market demand, which
forms the bedrock of business opportunity, will dictate, to great proportions,
the need to settle for a particular product. One rule of thumb in developing a
product selection criteria template is that the product with the most frequency
of need/demand possesses the greater chance of bestowing success on the
business, should be selected. In plain terms, there must be existing demand
(a market) for the chosen product.

Financing

The size of the funds that can be accessed is another important consideration
in choosing a method of product selection permitted. Adequate funding is
required to carry out pre-launch activities such as development, production,
promotion, marketing and distribution amongst others, of the selected
product.

Availability of and Access to Starter Materials

Differences in products require different starter materials. Factors such as

the source of the materials, the quality to be achieved as well as the quantity
of the raw materials are key management decisions. Will the raw materials be
available in sufficient quantities, over a continual basis? Where are the
locations of raw materials needed? Are they accessible? Will it be important
to situate the business close to theses sources of raw materials? In the event
of local sources being incapable of meeting demand, are there viable
alternatives abroad? The entrepreneur must embark on a thorough analysis
of these limiting factors before settling for a particular product for a market.

Technical Considerations

The production route for the product bears a lot of weight when it comes to
product selection process in entrepreneurship. The technical dynamics of the
chosen product on the existing production line will be x-rayed against factors
such as available technology, power requirement and even the use of
automated processes or human labour.

In addition, the choice of a particular product may warrant either the

acquisition of new equipment or refurbishing of used machinery. The product
must also be deemed technically satisfactory to the user.

Profit viability/Marketability

As is often the case, the product that meets the criterion of giving the optimum
return on investment, will be selected. However, a product may be chosen on
the ground that it utilizes dormant capacity or helps with the sales of existing
products. The product must also bear the important characteristic of being
marketable.

Qualified and Skilled Personnel

Qualified personnel will be required to handle the production and marketing,

on an ongoing basis. The cost associated with manufacturing the product
must be kept to the barest minimum by reducing wastage. This is achievable
through the engagement of competent and skilled hands.

Government Policies and objectives

These product selection factors are often beyond the control of the
entrepreneur. The thrust of government policies on economics and commerce,
over time, is usually in the national interest, which may or may not be at odds
with the objectives of the business. For instance, the insistence of government
on the use of 100% locally sourced starter materials will greatly influence the
decisions of a business with regard to what business product to introduce to
the market.