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6.1 Riding the Crest of Innovation

Have you ever wanted to go surfing but couldn’t find a body of water with decent waves? You no longer have a problem: the PowerSki Jetboard makes its own waves. This innovative product combines the ease of waterskiing with the excitement of surfing. A high-tech surfboard with a forty-five-horsepower, forty-five-pound watercraft engine, the PowerSki Jetboard has the power of a small motorcycle. Experienced surfers use it to get to the top of rising ocean waves, but if you’re just a weekend water-sports enthusiast, you can get your adrenaline going by skimming across the surface of a local lake at forty miles an hour. All you have to do is submerge the tail of the board, slide across on your belly, and stand up (with the help of a flexible pole). To innocent bystanders, you’ll look like a very fast water-skier without a boat.

Where do product ideas like the PowerSki Jetboard come from? How do people create products that meet customer needs? How are  ideas developed and turned into actual  products? How do you forecast demand for a product? How do you protect your product ideas? These are some of the questions that we’ll address in this chapter.

PowerSki Jetboard High-Speed Chase Down the Colorado River

6.2 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.

3. Contrast a calculated risk and an unnecessary risk.

4. Indicate how entrepreneurial decision making can be improved.

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” (internet 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 an Apple 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

Figure 6.1

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

Source: © 2010 Jupiterimages Corporation

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.

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 candies. 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.

Entrepreneurial 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:

· 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 had been 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.’”

· 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.”

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.

Figure 6.2

Taking a “risk” is risky, but taking a “calculated risk” can be a good business move.

Source: Sohel Parvez Haque/Shutterstock.com

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 a situation, the less uncertain—and the less risky—the decision becomes. 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:

· It’s characterized by innovative products and/or practices.

· Its goals include profitability and growth.

· It focuses on new opportunities.

· 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:

· Information gathered from research

· Knowledge gained from personal experience

Before going to the next section of this chapter, take a few minutes to take an online quiz in order to test your knowledge of the material covered in this section. Quizzes can be found under the “Quiz” tab at the bottom of the online reader.

6.3 Where Do Product Ideas Come From?

Learning Objectives

1. Explain where product ideas come from.

2. Identify the approaches used by firms to seek product ideas.

For some people, coming up with a great product idea is a gratifying adventure. For most, however, it’s a daunting task. The key to coming up with a product idea is identifying something that customers want—or, perhaps more important, filling an unmet customer need. In coming up with a product idea, ask not “what do I want to sell?” but rather “what does the customer want to buy?” With this piece of advice in mind, let’s get back to the task of coming up with a product idea. Nobel Prize–winning chemist Linus Pauling suggested that “the best way to have a good idea is to have lots of ideas,” and though this notion might seem a little whimsical at first, it actually makes a lot of sense, especially if you’re trying to be innovative in the entrepreneurial sense. Every year, for example, companies launch about 30,000 new food, beverage, and beauty products, and up to 90 percent fail within a year. You might need ten good ideas just to have one that stands a chance.

Purple Cow Ideas

Figure 6.3

Keep looking—maybe someday you will come up with a “purple cow” idea.

Source: © Shutterstock, Inc.

So where do these ideas come from? Product ideas can originate from almost anywhere. How many times have you looked at a product that just hit the market and said, “I could have thought of that”? Just about anybody can come up with a product  idea; basically, you just need a little imagination. Success is more likely to result from a truly remarkable product—something that grabs the attention of consumers. Entrepreneur and marketing consultant Seth Godin refers to truly remarkable products as “purple cows.” He came up with the term while driving through the countryside one day. As he drove along, his interest was attracted by the hundreds of cows dotting the countryside. After a while, however, he started to ignore the cows because looking at them had become tedious. For one thing, they were all brown, and it occurred to him that a glimpse of a  purple cow would be worth writing home about. People would remember a purple cow. In fact, they might even want one.

Who thinks up “purple cow” ideas? Where do the truly remarkable business ideas come from? As we pointed out in an earlier chapter, entrepreneurs and small-business owners are a rich source of new product ideas (according to the Small Business Administration, 55 percent of all new product innovations come from small businesses). Take Dean Kamen, inventor of the Segway Human Transporter, a battery-operated vehicle that responds to the rider’s movements: lean forward, and you can go straight ahead at 12.5 miles per hour; to stop, just tilt backward. This revolutionary product is only one of Kamen’s many remarkable business ideas. He invented his first product—a wearable infusion pump for administering chemotherapy and other drugs—while he was still a college undergraduate.

Jacob Dunnack also got an early entrepreneurial start. At  age six, Jacob became frustrated one day when he took his baseball bat to his grandmother’s house but forgot to take some baseballs as well. His solution? A hollow baseball bat that holds baseballs. Dunnack’s invention, now called the JD Batball, was quickly developed and sold in some of the biggest toy stores. But, there is an inspiring story that goes along with Jacob’s great business idea. Jacob was born with a rare congenital disease that required a series of operations. One operation, at eleven months old, caused a stroke. Doctors were not optimistic and feared he would be blind, paralyzed, and permanently disabled. But a brave and determined Jacob defied the odds by not only seeing but also walking. And—you guessed it—playing baseball, even though the stroke had resulted in Jacob’s losing the use of his right hand. Without the use of his hand, he could not carry both the bat and balls. So, his invention was designed to help him. But, at the same time, it helped other baseball-playing kids keep their bat and balls together.     

Why do so many entrepreneurs and small businesspeople come up with so many purple cows? For one thing, entrepreneurs are often creative people. Moreover, they’re often willing to take risks. This is certainly true of Bob Montgomery, inventor of the PowerSki Jetboard (which undoubtedly qualifies as a purple cow). With more than twenty years’ experience in the water-sports industry and considerable knowledge of the personal-watercraft market, Montgomery finally decided to follow his long-cherished dream of creating an entirely new and conceptually different product—one that would offer users ease of operation, high performance, speed, and quality. His creative efforts have earned him the prestigious  Popular Science “Best of What’s New” award.

Figure 6.4

Have you ever thought of a great product idea? Did you consider selling the idea to a company? To sell your idea, you will need to make a presentation to an interested company. But first, protect your idea by applying for a patent.

Source: gst/Shutterstock.com

To remain competitive, medium and large organizations alike must also identify product development opportunities. Many companies actively solicit product ideas from people inside the organization, including marketing, sales, research, and manufacturing personnel, and some even establish internal “entrepreneurial” units. Others seek product ideas from outside the organization by talking to customers and paying attention to what the competition is doing. In addition to looking out for new product ideas, most companies constantly seek out ways to make incremental improvements in existing products by adding features that will broaden their consumer appeal. 

A novel approach to generating new-to-the-world product ideas is hiring “creativity” consultants. One of the best is Doug Hall, who’s been called “America’s Number 1 Idea Guru.” At a Cincinnati idea factory called Eureka! Ranch, Hall and other members of his consulting firm specialize in helping corporate executives get their creative juices flowing. Hall’s job is getting people to invent products that make a real difference to consumers, and his strategies are designed to help corporate clients become more innovative—to jump-start their brains. Eureka! Ranch’s extensive client list includes Disney, Kellogg, Johnson & Johnson, Procter & Gamble, Coca-Cola, and Nike as well as a number of budding entrepreneurs. Hall boasts that the average home uses eighteen goods or services that the Ranch helped shape, and if he’s right, you yourself have probably benefited from one of the company’s idea-generating sessions.

Key Takeaways

· The majority of product ideas come from entrepreneurs and small-business owners, though medium and large organizations also must identify product-development opportunities in order to remain competitive.

· Firms seek product ideas from people inside the organization, including those in marketing, sales, research, and manufacturing, as well as from customers and others outside the organization.

Before going to the next section of this chapter, take a few minutes to take an online quiz in order to test your knowledge of the material covered in this section. Quizzes can be found under the “Quiz” tab at the bottom of the online reader.

6.4 Identifying Business Opportunities

Learning Objectives

1. Explain how an idea turns into a business opportunity.

2. Describe the four types of utility provided by a product: time, place, ownership, and form.

Figure 6.5

There might be many creative ways for Bic to extend its product lines, aside from the disposable underwear idea. Can you think of a product idea that might be more successful for Bic?

Source: © 2010 Jupiterimages Corporation

An idea turns into a business opportunity when it has commercial potential—when you can make money by selling the product. But needless to say, not all ideas generate business opportunities. Consider these products that made the list of the “Top 25 Biggest Product Flops of All Time”:

· Bic underwear. When you think of Bic, you think of inexpensive pens, disposable razors, and lighters. But disposable underwear? Women didn’t find the idea of buying intimate attire from a pen manufacturer appealing, and the disposability factor was just plain weird.

· Harley-Davidson perfume. Even its loyal fans found the idea of Harley-Davidson perfume peculiar (and they weren’t terribly fond of the Harley-Davidson aftershave, either). Perhaps they were afraid they would end up smelling like a motorcycle.

· Bottled water for pets. OK, so people love their pets and cater to them, but does it really make sense to serve Thirsty Cat! and Thirsty Dog! bottled water to your four-legged friends? Even though the water came in tantalizing flavors such as Tangy Fish and Crispy Beef, it never caught on. Do you wonder why?

· Colgate kitchen entrees. Colgate’s entrance into food products wasn’t well received. Maybe the company believed customers would buy into the idea of eating one of its prepared meals and then brushing their teeth with Colgate toothpaste. For most of us, the name Colgate doesn’t get our taste buds tingling.

Utility

Remember: being in business is not about you—it’s about the customer. Successful businesspeople don’t ask themselves “What do I want to sell?” but rather “What does the customer want to buy?”  Customers buy products to fill unmet needs and because they expect to derive some value or utility from them. People don’t buy Alka-Seltzer because they like the taste or even because the price is right: they buy it because it makes their indigestion go away. They don’t shop at Amazon.com because the website is entertaining: they shop there because they want their purchases delivered quickly. The realization that this kind of service would meet customer needs made Amazon.com a genuine business opportunity.

Products provide customers with four types of utility or benefit:

1. Time utility. The value to a consumer of having a good or a service available at a convenient time. A concessionaire selling bottled water at a summer concert is making liquid refreshment available when it’s needed.

2. Place utility. The value to a consumer of having a product available in a convenient location. A street vendor selling hotdogs outside an office building is making fast food available where it’s needed.

3. Ownership utility. Value created by transferring a product’s ownership. A real estate agent helping a young couple buy a home is transferring ownership from someone who doesn’t need it to someone who does.

4. Form utility. The value to consumers from changing the composition of a product. A company that makes apparel is turning raw material (fabric) into a form (clothing) that people need. A company that produces liquid detergent, rather than powdered detergent, is adding form utility for some consumers.

How can you decide whether an idea provides utility and has the potential to become a business opportunity? You should start by asking yourself the questions in  Figure 6.6: if you can’t come up with good answers to these questions, you probably don’t have a highly promising product. On the other hand, if you conclude that you have a potential product for which people would pay money, you’re ready to take the next step: analyze the market to see whether you should go forward with the development of the product.

Figure 6.6 When Is an Idea a Business Opportunity?

Key Takeaways

· An idea turns into a business opportunity when it has commercial potential—when you can make money by selling the product.

· Time utility provides value by having a product available at a convenient time.

· Place utility provides value by having a product available in a convenient location.

· Ownership utility provides value by transferring a product’s ownership.

· Form utility provides value by changing the composition of a product.

Before going to the next section of this chapter, take a few minutes to take an online quiz in order to test your knowledge of the material covered in this section. Quizzes can be found under the “Quiz” tab at the bottom of the online reader.

6.5 Understand Your Industry

Learning Objectives

1. Define an “industry.”

2. Explain how to research an industry.

3. Define and give an example of a “niche market.”

Before you invest a lot of time and money to develop a new product, you need to understand the industry in which it’s going to be sold. As inventor of the PowerSki Jetboard, Bob Montgomery had the advantage of being quite familiar with the industry that he proposed to enter. With more than twenty years’ experience in the water-sports and personal-watercraft industry, he felt at home in this business environment. He knew who his potential customers were, and he knew who his competitors were. He had experience in marketing similar products, and he was familiar with industry regulations.

Most people don’t have the same head start as Montgomery. So, how does the average would-be businessperson learn about an industry? What should you want to know about it? Let’s tackle the first question first.

Evaluating Your Industry

Before you can study an industry, you need to know what industry to study. An  industryGroup of businesses that compete with one another to market products that are the same or similar. is a group of related businesses: they do similar things and they compete with each other. In the footwear industry, for example, firms make footwear, sell it, or both. Players in the industry include Nike and Adidas, both of which specialize in athletic footwear; but the industry is also sprinkled with companies like Candies (which sells young women’s fashion footwear) and Florsheim (quality men’s dress shoes).

Let’s say that you want to know something about the footwear industry because your potential purple cow is a line of jogging shoes designed specifically for older people (those over sixty-five) who live in the Southeast. You’d certainly need a broad understanding of the footwear industry, but would general knowledge be enough? Wouldn’t you feel more comfortable about pursuing your idea if you could focus on a smaller segment of the industry—namely, the segment that specializes in products similar to the one you plan to sell? Here’s a method that will help you narrow your focus.

Segmenting Your Market

Begin with the overall industry—in this case, the footwear industry. Within this industry, there are several groups of customers, each of which is a  marketGroup of buyers or potential buyers who share a common need that can be met by a certain product.. You’re interested in the  consumer market—retail customers. But this, too, is a fairly broad market; it includes everybody who buys shoes at retail. Your next step, then, is to subdivide this market into smaller  market segmentsGroup of potential customers with common characteristics that influence their buying decisions.—groups of potential customers with common characteristics that influence their buying decisions. You can use a variety of standard characteristics, including  demographics (age, sex, income),  geography (region, climate, city size), and  psychographics (lifestyle, activities, interests). The segment you’re interested in consists of older people (a demographic variable) living in the Southeast (a geographic variable) who jog (a psychographic variable). Within this market segment, you might want to subdivide further and find a  nicheNarrowly defined group of potential customers with a fairly specific set of needs.—an unmet need. Your niche might turn out to be providing high-quality jogging shoes to active adults living in retirement communities in Florida.

The goal of this process is to identify progressively narrower sectors of a given industry. You need to beco