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10.1 What Is a Product?

Learning Objectives

  1. Define product.
  2. Describe the four major categories of product developments: new-to-the-market, new-to-the-company, improvement of existing product, and extension of product line.

Basically, a productSomething that can be marketed to customers because it provides a benefit and satisfies a need. is something that can be marketed to customers because it provides them with a benefit and satisfies a need. It can be a physical good, such as the PowerSki Jetboard, or a service, such as a haircut or a taxi ride. The distinction between goods and services isn’t always clear-cut. Say, for example, that a company hires a professional to provide an in-house executive training program on “netiquette” (e-mail etiquette). Off the top of our heads, most of us would say that the company is buying a service. What if the program is offered online? We’d probably still argue that the product is a service. But what if the company buys training materials that the trainer furnishes on DVD? Is the customer still buying a service? Probably not: we’d have to say that when it buys the DVD, the company is buying a tangible good.

In this case, the product that satisfies the customer’s need has both a tangible component (the training materials on DVD) and an intangible component (the educational activities performed by the seller). Not surprisingly, many products have both tangible and intangible components. If, for example, you buy a Hewlett-Packard computer, you get not only the computer (a tangible good) but certain promises to answer any technical questions that you might have and certain guarantees to fix your computer if it breaks within a specified time period (intangible services).

Types of Product Developments

New product developments can be grouped into four major categories: new-to-the-company, improvement of existing product, extension of product line, and new-to-the-market.

Figure 10.2

Holiday decorating kits have extended Just Born’s product line beyond Peeps.

For examples of the first three types of new product developments, we’ll take a look at Just Born. The company is known for its famous “Marshmallow Peeps,” and consequently its management is very interested in marshmallows. It conducted research that revealed that families use marshmallows in lots of ways, including crafts and decorating. This led Just Born to develop an Easter decorating kit that used Peeps marshmallows. It was such a hit that the company followed by creating decorating kits for Halloween and the Christmas season. Because similar products are made by other companies, the decorating kits are not “new to the market” but are “new to the company.” Now, let’s look at another product development involving Just Born’s also famous Mike & Ike’s. The marketing people at Just Born discovered that teenagers prefer to buy candies that come in pouches (which fit into their pants pockets) rather than in small boxes. In response, the company reduced the piece size, added some new ingredients, and put the Mike & Ike’s in pouches. This “improvement in an existing product” resulted in a 20 percent annual sales jump for Mike & Ike’s. Our last look at Just Born demonstrates an approach used by the company to “extend its existing product line.” Most of us like chocolate and most of us also like marshmallow, so how about putting them together? This is just what Just Born did—the company extended its Peeps product line to include “Peeps in a chocolate egg.” Consumers loved the combination, and its success prompted the company to extend its product line again and launch a chocolate crispy version for Easter.

New-to-the-Market Products

The PowerSki Jetboard is a “new-to-the-market product.” Before it was invented, no comparable product existed. Launching a new-to-the-market product is very risky, and only about 10 percent of products created fall into this category. On a positive note, introducing a new product to the market can be very profitable, because the product often enjoys a temporary monopolistic position.

Entreprenerial Start-Ups

Inventors of new-to-the-market products often form entrepreneurial start-ups to refine their product idea and bring it to market. This was the path taken by Bob Montgomery, inventor of the PowerSki Jetboard. As is typical of entrepreneurial start-ups, the company that Montgomery founded has these characteristics:See Mary Coulter, Entrepreneurship in Action (Upper Saddle River, NJ: Prentice Hall, 2001), 9–11.

  • It’s characterized by innovative products and/or practices. Before the PowerSki Jetboard was invented, no comparable product existed.
  • Its goals include profitability and growth. Because the patented Jetboard enjoys a temporary monopolistic position, PowerSki potentially could be very profitable.
  • It focuses on new opportunities. Bob Montgomery dreamed of creating the first motorized surfboard. This dream began when he and a few of his surfer friends (all around age twelve) missed a wave because it was too far down the beach for them to catch. He imagined that if he was on a motorized surfboard (instead of an ordinary one that you had to paddle), he would have been able to catch that wave. His dream became the mission of his company: “PowerSki International Corp. was founded to deliver the patented PowerSki Jetboard, the world’s only motorized surfboard, and its engine technology to the world market. It’s PowerSki’s goal to bring the experience of surfing to everyone on lakes, rivers, seas, and the ocean. ‘Now everybody has an ocean, and can ride an endless wave.’”PowerSki’s Web site, About PSI section, http://www.powerski.com/content/psi_index.php (accessed November 9, 2008).
  • Its owners are willing to take risks. Anybody who starts any business is taking a risk of some kind. The key to entrepreneurial risk is related to the idea of innovation: as Woody Allen once put it, “If you’re not failing every now and again, it’s a sign you’re not doing anything very innovative.”Brainy Quote, Woody Allen Quotes, http://www.brainyquote.com/quotes/quotes/w/woodyallen121347.html (accessed November 9, 2008).

How to Take a Calculated Risk

As Montgomery learned, the introduction of an innovative product to the market is more unpredictable, and thus more risky, than the introduction of a market-tested product. Starting up a store to sell an improved version of an existing surfboard entails one level of risk; starting up a business to market the first motorized surfboard entails quite another. Even though the introduction of new-to-the-market products are more risky, some of this risk can be avoided. What if, for example, Montgomery had brought the Jetboard to market only to discover that many of the buyers in his target market—water-sports enthusiasts—couldn’t easily maneuver the Jetboard? We could then say that he took an unnecessarily risky step in bringing his product to market, but we could also say that he simply attempted to market his product without adequate information. Surely a little research would have alerted Montgomery to the probable consequences of his decision to go to market when he did and with his product in its current state of development.

A couple of final words, therefore, about introducing an entirely new product to the market. First, this type of product introduction is about carefully calculated risks, not unnecessary risks. Second, though little is certain in the entrepreneurial world, most decision making can be improved with input from one or both of two sources:

  1. Information gathered from research
  2. Knowledge gained from personal experience

Again, you can’t be certain about any results, but remember that uncertainty reflects merely the lack of complete knowledge or information; thus, the more knowledge and information that you can bring to bear on a situation, the less uncertain—and the less risky—the decision becomes.See Mary Coulter, Entrepreneurship in Action (Upper Saddle River, NJ: Prentice Hall, 2001), 9, 206–207. In short, always do your homework, and if you’re new to entrepreneurship or to your market, make it a point to work with people who know from experience what they’re talking about.

Key Takeaways

  • A product is something that can be marketed to customers because it provides them with a benefit and satisfies a need. Products can be goods or services or a combination of both.
  • A “new-to-the-company product” is a good or a service that is new to the company but has been sold by a competitor in the past—for example, Peeps marshmallow Easter decorating kits.
  • An “improvement in an existing product” is an enhancement of a product already on the market—for example, a change of ingredients and packaging for Mike & Ike’s.
  • An “extension to an existing product line” is a new product developed as a variation of an already existing product—for example, Peeps chocolate eggs.
  • A “new-to-the-market product” is a good or a service that has not been available to consumers or manufacturers in the past—for example, the PowerSki Jetboard.
  • Four characteristics of the entrepreneurial start-up are:

    1. It’s characterized by innovative products and/or practices.
    2. Its goals include profitability and growth.
    3. It focuses on new opportunities.
    4. Its owners are willing to take risks.
  • Entrepreneurship is about carefully calculated risks, not unnecessary risks. Most entrepreneurial decision making can be improved with input from one or both of two sources:

    1. Information gathered from research
    2. Knowledge gained from personal experience

Exercise

(AACSB) Analysis

Identify a good or a service for each of the following product development categories: new-to-the-market, new-to-the-company, improvement of existing product, and extension of product line. To come up with the products, you might visit a grocery store or a mall. Don’t use the Just Born examples presented in the chapter.