Chapter 15: Product Development and Supply Chain Management
CHAPTER 15: PRODUCT DEVELOPMENT AND SUPPLY CHAIN
MANAGEMENT
CHAPTER OUTLINE
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1) To Grow or Not to Grow
LO1: Recognize the challenges associated with the growth of a small business.
i) Entrepreneurs differ in their desire for growth.
ii) Successful growth seldom happens on its own; it will occur only when a number
of factors are carefully considered and well managed.
iii) Growth places an enormous demand on small company’s personnel and the
management style of its owners.
2) Innovation: A Path to Growth
LO2: Explain the role of innovation in company’s growth
i) From a menu of growth options, entrepreneurs generally choose the one they
think will lead to the most favorable outcomes, such as superior profitability,
increased market share, and improved customer satisfaction.
a) Gaining a Competitive Advantage
i) When innovation is the goal, failure is always a risk. The following are a few
“rules of thumb” to help reduce the risk of failure:
(1) Base innovative efforts on your experience
(2) Focus on products or services that have been largely overlooked
(3) Be sure there is a market for the product or service you are hoping to create
(4) Pursue innovation that customers will perceive as adding value to their lives
(5) Focus on new ideas that will lead to more than one product or service
(6) Raise sufficient capital to launch the new product or service
b) Achieving Sustainability
i) Discuss what a sustainable competitive advantage is and how it affects the
business.
ii) Sustainable competitive advantage (see Exhibit 15-1 showing the three stages of
competitive advantage life cycle). A value-creating position that is likely to
endure over time.
iii) Must produce a continuous stream competitive advantages to keep performance
from falling off
3) The Product Life Cycle and New Product Development
LO3: Identify stages in the product life cycle and the new product development
process.
a) The Product Life Cycle
i) Important to small business owner for three reasons:
(1) Helps entrepreneur to understand that promotion, pricing, and distribution
policies should all be adjusted to reflect a product’s position on the curve.
Chapter 15: Product Development and Supply Chain Management
(2) Highlights the importance of revitalizing product lines, whenever possible,
before they die.
(3) Continuing reminder that the natural life cycle of a product follows a trend
that resembles the classic normal curve and, therefore, innovation is necessary
for a firm’s survival.
b) The New Product Development Process
i) Idea Accumulation
(1) First stage in new product development process
(2) Many possible sources listed by authors include:
(a) Sales staff, engineering personnel, or other employees within the firm
(b) Government-owned patents, which are generally available on a royalty–
free basis
(c) Privately owned patents listed by the U.S. Patent and Trademark Office
(d) Other small companies that may be available for acquisition or merger
(e) Competitor’s products and their promotional campaigns
(f) Requests and suggestion from customers (increasingly gathered through
online channel such as blogs, online surveys, and other tools)
(g) Brainstorming
(h) Marketing research (primary and secondary)
ii) Business Analysis
(1) Four key factors need to be considered in conducting a business analysis
(a) The product’s relationship to the existing product line.
(b) Cost of development and introduction.
(c) Available personnel and facilities.
(d) Competition and market acceptance.
iii) Development of the Physical Product
iv) Product Testing
4) Building the Total Product
LO4: Describe the building of a firm’s total product.
a) Branding (Exhibit 15-3 Components of a Brand Identity)
i) Provide the name of a product such as Nike, then a product such as 7-Eleven. Ask
students to tell what they know about each based on the name. They discuss how
each relates to brand identity. Then ask the students what they think about when
you say Target. Follow with a discussion of the differences among the products
and the store branding.
ii) Brand is a basic foundation for business. A verbal and/or symbolic means of
identifying a product
iii) Used to shape a company’s future
iv) Brand image – the overall perception of a brand
v) Brand name – a brand that can be spoken
vi) Brandmark – a brand that cannot be spoken
vii) Five rules apply in naming a product
(1) Select a name that is easy to pronounce and remember.
(2) Choose a descriptive name.
(3) Use a name that is eligible for legal protection.
(4) Select a name with promotional possibilities.
Chapter 15: Product Development and Supply Chain Management
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(5) Select a name that can be used on several product lines of a similar nature.
(6) In cases where online presence is crucial, consider the cost of domain name
acquisition.
viii) Very valuable to the business, Nike logo and UPS logo are good examples
ix) Developing an effective logo – Tips
(1) Be simple
(2) Design for visibility
(3) Leave it open to interpretation
(4) Be relentlessly consistent
(5) Recognize the importance of logo design
(6) Get good advice
(7) Don’t expect miracles
x) Trademark and service mark
(1) Trademark and Service mark– a legal term identifying a firm’s exclusive right
to use a brand
b) Packaging
i) Relate a discussion on packaging back to the discussion on branding. Ask
students to indicate how they would expect a product to be packaged from
Nordstrom as opposed to Target.
ii) Protects the basic product as well as increases the value of the total product
iii) Creative packaging affected by financial issues
c) Labeling
i) To display the brand
ii) Informative tool for consumers
iii) Laws may affect
d) Warranties
i) Warranty – a promise that a product will perform at a certain level or meet certain
standards
ii) Possible factors
(1) Cost
(2) Service capability
(3) Competitive practices
(4) Customer perceptions
(5) Legal implications
5) Product Strategy
LO5: Understand product strategy and the alternatives available to small
businesses.
i) Product strategy – the way the product component of the marketing mix is used to
achieve a firm’s objectives.
ii) Several supporting features of a product strategy are:
(1) Product item – the lowest common denominator in the product mix-the
individual item
(2) Product line – the sum of related individual product items
(3) Product mix – the collection of a firm’s total product lines
(4) Product mix consistency – the similarity of product lines in a product mix
a) Product Marketing Versus Service Marketing
Chapter 15: Product Development and Supply Chain Management
i) Marketing services present unique challenges that are not faced in product
strategy development
ii) Exhibit 15-5 Services Marketing versus Goods Marketing
b) Product Strategy Options
i) Strategy alternatives of a small business condensed into six categories
(1) One product/one market
(2) One product/multiple markets
(3) Modified product/one market
(4) Modified product/multiple markets
(5) Multiple products/one market
(6) Multiple products/multiple markets
ii) Small firms can try to increase sales of an existing product by doing any or all of
the following:
(1) Convince nonusers in the targeted market to become customers
(2) Persuade current customers to use more of the product
(3) Alert current customers to new uses for the product
6) The Legal Environment
LO6: Discuss how the legal environment affects product decisions.
a) Consumer Protection
i) Federal regulations have important implication for product strategy
ii) Example of two laws
(1) Consumer Product Safety Act of 1972 and the Consumer Product Safety
Improvement Act of 2008
(2) Nutrition Labeling and Education Act of 1990
b) Protection of Marketing Assets
i) Trademarks
(1) Protects a company’s distinctive use of a name, slogan, symbol, picture, logo,
or combination of these
(2) Must be investigated to ensure they are not already in use
(3) Registration of trademarks permitted under federal Lanham Trademark Act
(4) Must be used properly
(a) Make every effort to see that the trade name is not carelessly used as a
generic name
(b) Inform the public that your trademark is exactly that by labeling it with the
symbol TM
ii) Patents
(1) Definitions
(a) Patent – the registered, exclusive right of an inventor to make, use, or sell
and invention
(b) Utility patent – registered protection for a new process or a product’s
function
(c) Design patent – registered protection for the appearance of a product and
its inseparable parts
(d) Plant patent – registered protection for any distinct, new variety of living
plant
Chapter 15: Product Development and Supply Chain Management
(e) Copyright – the exclusive right of a creator to reproduce, publish, perform,
display, or sell his or her own works
(2) Lawsuits concerning patent infringements are costly and should be avoided, if
possible
iii) Copyrights
(1) Copyright Act of 1976
(2) Notice consists of three elements
(a) The symbol ©
(b) The year the work was published
(c) The copyright owner’s name
iv) Trade Dress
(1) Elements of a firm’s distinctive image not protected by a trademark, patent, or
copyright
(2) Valuable intangible asset
(3) Now relate the protections to the two products and the store discussed
previously (Target, Nike and 7-Eleven). How do each of the protections
relate?
7) Supply Chain Management
LO7: Explain the importance of supply chain management and the major
considerations in structuring a distribution channel.
i) Supply chain management – a system of management that integrates and
coordinates the ways in which a firm creates or develops a product or service,
delivers it to customers and is paid for it.
ii) Distribution – physically moving products and establishing intermediary
relationships to support such movement.
iii) Channel of distribution – the system of relationships established to guide the
movement of a product.
iv) Physical distribution (logistics) – the activities of distribution involved in the
physical relocation of products
(1) Discuss how the Internet and new software have affected current supply chain
management philosophy.
a) Intermediaries
i) Merchant middlemen – intermediaries that take ownership of the goods they
distribute
ii) Agents / Brokers – intermediaries that do not take ownership of the goods they
distribute
b) Channels of Distribution
i) Definitions
(1) Direct channel – a distribution system without intermediaries
(2) Indirect channel- a distribution system with one or more intermediaries
(3) Dual distribution – a distribution system that involves more than one channel
(a) Discuss the differences among these types of distribution.
ii) The type of Distribution are affected by
(1) Costs
(a) Least expensive channel may be indirect
Chapter 15: Product Development and Supply Chain Management
(b) Determine whether the cost of using intermediaries is more of less
expensive than distributing the product directly to customers
(2) Coverage – indirect channels may increase market coverage
(3) Control
(a) Direct sometimes preferable because it provides more control
(b) Determine how the product is best used and why it’s better than
competitors’ offerings
c) The Scope of Physical Distribution
i) Transportation
(1) Common carriers – transportation intermediaries available for hire to the
general public
(2) Contract carriers – transportation intermediaries that contract with individual
shippers
(3) Private carriers – lines of transport owned by shippers
ii) Storage – lack of space common for small businesses
iii) Materials handling – must have a suitable materials-handling methods and
equipment
iv) Delivery Terms
(1) Which party is responsible for:
(a) Paying the freight costs
(b) Selecting the carriers
(c) Bearing the risk of damage in transit
(d) Selecting the modes of transport
(2) Third-party logistics firm (3PL) – a company that provides transportation and
distribution services to firms that prefer to focus their efforts on other business
aspects.
d) Pulling the pieces together
i) Critical tasks of maintaining existing products and developing new ones, carefully
planning the product strategy and managing the supply chain must be managed
carefully.
ADDITIONAL DISCUSSION QUESTIONS
1. What limitations on growth should a small business owner consider?
2. What can a small business do to reduce the risk associated with innovation
efforts?
The six “rules of thumb” listed and discussed in the chapter are:
3. How could an understanding of the product life cycle concept help with the
crafting of an effective product development strategy?
First, it helps the entrepreneur to understand that promotion, pricing, and
4. Can you identify and describe the stages that are involved in the product
development process?
5. What are the primary components of a total product offering? Can you describe
the importance of each of these components to the success of a new or existing
product?
The four key factors need to be considered in conducting a business analysis are:
10. What major considerations should be factored into decisions regarding the
structuring a channel of distribution.
Looking at the competition is an important first step in building a channel of
SUGGESTED ANSWERS TO YOU MAKE THE CALL EXERCISES
Situation 1
1. Using the rules of thumb for reducing the risks related to introducing an
innovative new product, how well are Teal and Pate likely to do with the
ElliptiGo?
Teal and Pate should consider the following “rules of thumb” to help reduce the
risk of risk of failure:
2. What are the primary benefits and drawbacks of this innovation?
3. What can Teal and Pate do to sustain or extend their competitive advantage
with this new product?
Students answers will vary.
Situation 2
1. What are the advantages and disadvantages of the in-home method of selling
Project Home products?
2. What other channels of distribution might Project Home use?
3. What do you think about the name ”Project Home”? Does it create a positive
impression for the company?
Situation 3
1. What re the advantages the Sugal will likely gain if he decides to bring
inventory storage and bike delivery in-house?
2. What complications might arise if Sugl makes this change? What might he
have to give up if he should chose the new approach?
3. On balance, do you think that converting to an in-house operation would be the
way to go? Why or why not? Put together the best case you can to support your
decision.
Student answers to this question will vary. The answers should consider whether
SUGGESTED SOLUTION TO CASE 15: GRAETER’S ICE CREAM
Commented [SN1]: technical
1. What distinguishes Graeter’s Ice Cream from other ice cream makers and
makes its products desirable to consumers?
2. While its ice cream was a success from the start, what innovations has the
company made to sustain its competitive advantage?
Graeter’s offers its ice cream in grocery stores, they developed a line of candy and
bakery goods, utilized mail-order sales, has an aggressive marketing effort,
3. Cite examples of Graeter’s Ice Cream’s supply chain management. Explain
how the company uses direct channel and indirect channel distribution.