Developing New Products and Services

Lawrence Sanders

• Publisher: Business Expert Press
• Year: 2011
• Print ISBN: 9781606492413
• eBook ISBN: 9781606492420
• Topic: Negocios y empresa
• Subtopic: Reuniones y presentaciones

This book will focus on the up-front activities required for product and service differentiation, the learning methodologies that contribute to arriving at that differentiation, and the role that technology plays in implementing the process. The book will show how technology factors into such entrepreneurial activities as engaging in business planning and utilizing creativity and innovation, and how creative innovation, in turn, is achieved and enhanced through an understanding of two different modes of learning: "learning about" and "learning by doing". A successful product introduction depends on an efficient supply chain, a strong brand, and the ability of a manufacturer or provider to differentiate it successfully in the marketplace. New Product and Services Development demonstrates how differentiation, this last critical component, can be secured by the strategic use of technology and by engaging in two key learning methodologies.

CHAPTER 1

Understanding Entrepreneurship, Diffusion, and R&D in the Context of Monopolistic Competition

I always like to start class with a pop quiz. It is a good way to get the old gray matter going and stirs up a bit of angst and loathing. There are only three matching questions and they all relate to the dominant types of markets: (1) perfectly competitive markets, (2) perfectly monopolistic markets, and (3) the market hybrid referred to as monopolistic competition.

Question 1: Match the market types with their definition

1. Perfectly competitive market 2. Monopoly market 3. Monopolistic competition market

a. Many sellers trading a similar product to many buyers b. One seller trading a similar product to many buyers c. Many sellers trading a slightly differentiated product to many buyers

If you matched 1 with a, 2 with b, and 3 with c, give yourself one point.

Question 2: Now match the types of markets with their percentages of total activity

1. Perfectly competitive market 2. Monopoly market 3. Monopolistic competition market

a. Less than 1% b. Less than 1% c. Over 99%

If you matched 1 with a, 2 with b, and 3 with c, give yourself one point.

Question 3: Now match the type of market that is easiest to enter

1. Perfectly competitive market 2. Monopoly market 3. Monopolistic competition market

a. Somewhat easy to enter b. Very difficult to enter c. Very easy to enter

If you matched 1 with a, 2 with b, and 3 with c, give yourself one point.

Give yourself a passing grade if you get above a zero.¹ Based on the description of the three types of markets, this brief questionnaire illustrates that the best place, and perhaps the only place for entrepreneurs to compete is in markets characterized by monopolistic completion.

Monopolistic Competition

Edward Chamberlin published the foundations of monopolistic competition in his 1933 book entitled The Theory of Monopolistic Competition. It is considered by some economists to have the same stature as John Maynard Keynes’s General Theory in revolutionizing economic thought in the 20th century.² The idea behind monopolistic competition is simple in form and powerful in practice.

Monopolistic competition involves many buyers, many sellers, and easy exit and entry, with slightly differentiated products. The sellers in these markets sell products that are closely related, but not identical. They have features that differentiate them from the competition. Usually, the buyers and sellers also have good information on the attributes of the products and the prices of the products in the marketplace. Indeed, most products and services are sold in markets characterized by monopolistic competition. The list includes jewelry, movie production, food, entertainment, many electronic gadgets and components, some durable goods, books, crafts, soda, houses, cars, consulting businesses, software, game consoles, restaurants, bars, and so forth.

A monopolist is a price setter and a business competing in a perfectly competitive market is a price taker. Most businesses strive to be price setters within a certain range of prices by offering a product that is closely related, but not exactly identical to other products in the market. The key strategy for competing in markets characterized by monopolistic competition is to offer products that are differentiated. The products are sort of quasi-substitutes, but they still resemble the original product or service. For example, Apple developed the iPod to compete with existing MP3 players.

According to standard economic theory, a purely competitive market has many buyers and sellers and each individual firm is a price taker. In essence, consumers and producers determine the market price for a product or service. In perfectly competitive markets, there are many sellers and buyers, and entry into and out of the market is easy. In a perfectly competitive market, companies sell their products at prevailing market prices where marginal revenue equals marginal cost. In actuality, every business would like to control the market, set the price, and be a monopolist. All businesses should strive to compete as a monopolist, even if it is in the short term. The goal is to rake in lots of money in the short term because your company is the only seller of a slightly differentiated product or service.³ This will be short term (unless you have an exclusive patent on a product, own a large oil field, or have exclusive rights to providing cable or utility services) because successful products will always attract the competition. The only way to compete in contemporary markets is to become a serial entrepreneur, to constantly refine and reposition your products, and to function as a near-monopolist in the short term.

The Importance of Being Entrepreneurial and Being a Short-Term Monopolist

The notion of the entrepreneurial enterprise as a monopolist is not new. Indeed, it has a long tradition and history. Kirzner⁴ noted in 1973 that entrepreneurship may be a step to monopoly power. It is possible to acquire market power by adding unique features or services that are not offered by the competition. When the unique features of a product are combined with a well-thought-out production and distribution process and an understanding of the competitive environment, the results are usually positive. This knowledge and the unique knowledge resources are of course transitory, but in the short run they can provide for near-monopoly power.

Entrepreneurship is currently being viewed as a set of skills that are part of a rational and logical process for identifying and creating opportunities.⁵ The process and the skills have been likened to learning how to read, write, calculate, and conduct scientific reasoning. Being a successful entrepreneur requires insight and knowledge of problem solving, strategic planning, new product development, project management, and portfolio management among others. An important reason for participating in the entrepreneurial process is that it involves a significant amount of making and building things. This, in turn, leads to learning-by-doing and the creation of new unforeseen opportunities because you have been participating in the entrepreneurial process. Participation in entrepreneurial activity leads to the creation of opportunities in the form of products and services that were not even conceptualized or anticipated in the beginning. The entrepreneurial process actually creates new markets via innovation and product differentiation. Our definition of entrepreneurship focuses on a continuous process for creating new and enhanced products and services.

Entrepreneurship is a risky endeavor involving the continuous creation and re-creation of a new enterprise, a new product, or a new idea.

The origin of the word entrepreneur can be traced to Old French. Entrepreneurs were individuals who undertook risky endeavors such as theatrical productions. Risk is an inherent part of entrepreneurship. If there is no risk involved and there is still money to be made, then the endeavor is probably a gift.

The Entrepreneur Should Design Products and Services for Continuous Product Differentiation and Innovation

Developments in economics, marketing, operations management, and information technology have now brought the vision of customization and personalization to reality.⁶ Consumers want products and services tailored to their personal needs, but they also want products that are standardized, mass produced, and inexpensive. It is possible to assemble products and services using standardized processes and standardized modular components and still achieve product differentiation. Autos, global positioning systems (GPSs), tax software, operating systems, refrigerators, and so forth are all designed so that features and performance can be easily added and subtracted. The key principle in designing products and services is to design for flexibility and to continuously improve those products and services. This is the essence of a product differentiation strategy and the only way to survive under monopolistic competition.

Entrepreneurship Can Be Found in Large and Small Companies

Large companies can be entrepreneurial, but as a company scales up it is difficult to maintain entrepreneurial momentum. For example, several promising employees left Google for the relatively entrepreneurial environment of Facebook.⁷ This is a natural phenomenon in high-tech enclaves such as Silicon Valley, but there was reason for concern because Google had grown to 23,000+ employees. Google was being viewed as slow and lumbering, too bureaucratic, and too slow to respond to the innovative possibilities of emerging technologies. Google has taken several steps to retain entrepreneurial talent by permitting them to work independently and letting them recruit individuals with relevant skills.

It does not matter if a firm is a gigantic monolithic multinational or a small start-up company manufacturing kazoos or even a mom and pop organization designing and launching Web services. The objective is the same: design products and services that are new and unique, easily differentiable, and adaptable to the needs of consumers. Entrepreneurial guru, blogger, and author Guy Kawasaki describes the sit...

Table of contents

• Developing New Products and Services
• Chapter 1 Understanding Entrepreneurship, Diffusion, and R&D in the Context of Monopolistic Competition
• Chapter 2 Fundamental Concepts of Product and Price Differentiation
• Chapter 3 Differentiation in Action
• Chapter 4 The Role of Dynamic Tension in Constructing Versioning and Product Differentiation Curves
• Chapter 5 Examples of Product Differentiation and Versioning Curves
• Chapter 6 Facilitating Creativity and Innovation
• Chapter 7 Conceptualizing Products and Services Using the FAD Template
• Chapter 8 Strategic Planning Approaches for Product Differentiation and Innovation
• Chapter 9 The Ten-Ten Planning Process: Crafting a Business Story
• Chapter 10 Lock-In and Revenue Growth
• Chapter 11 Valuing the Business
• Chapter 12 Developing a Business Plan
• Chapter 13 Project Management for New Product and Services Development
• Chapter 14 Re-priming the Business Using Real Options Concepts
• Chapter 15 Wrap-Up
• Notes
• References
• Index