New products and entrepreneurs

The five stages of a product life cycle are as follows:

Introduction: initial research into the market results in a new product which is developed, prototyped and then launched as a commercial product. Initial advertising will introduce this product to the market. In recent years the ‘teaser’ has become common for products yet to be release but for which there is already considerable interest.

Growth: when sales are increasing at their fastest rate. This is when advertising and marketing will be the most aggressive and prolific.

Maturity: sales are near their highest, but the rate of growth is slowing down, e.g. new competitors in market or saturation. Advertising and marketing has usually dropped back at this point.

Decline: final stage of the cycle, when sales begin to fall. Likely that marketing budgets would have been used up by this stage.

Extension strategies: extend the life of the product before it goes into decline or to prevent complete loss of sales. Again businesses use marketing techniques to improve sales; reduced price, bundles, new software features etc.

Technology push/market pull

When a new technology has been developed which the manufacturers or inventors believe will benefit the consumer or be of interest to them, this is known as Technology Push.

A classic example would be the microwave oven. No one would have asked for a machine to super heat their food but once it was discovered that microwaves do heat food quickly, it was clear it would be of use to families, especially those brought up on fast food.

Sometimes manufacturers develop products that the consumer needs for or where there is a growing trend or demand for a particular product.

Examples would include tablet computers, camera phones etc. When manufacturers see a demand from the consumer (or market), this is known as market pull.

We will look at technology push/market pull in more detail in a future lesson.

You should also be familiar with how to calculate cost of making a product. An example is given below:

A designer/maker of furniture makes hand crafted wooden dining chairs. They need to calculate what they need to charge per chair. The furniture maker wants to earn a gross salary (before tax) of 22,000 GBP

Step 1 is to calculate the costs of annual overheads (studio, workshop, rent, phone, insurance, business rates, advertising etc.

It is calculated that this is 12,500 GBP

Step 2 is to decide on how long will be spent working each week to make the product.

In this example we will assume 40% of a typical 40-hour week for 48 weeks a year (assuming 4 weeks holiday a year).

Step 3 is to calculate hourly overhead costs.

48 weeks x 40 hours x 40% =768 hours/year

Divide the yearly overhead cost by number of hours per year:

12,500/768 = 16.28 GBP

Step 4 calculate the required hourly wage

22000/768 = 28.65 GBP

Step 5 calculate the total hourly rate (hourly wage + hourly overhead cost)

16.28 + 28.65 = 44.93 GBP

Step 6 is to work out the time it takes to make one chair. In this example it takes 2.5 hours

Step 7 multiply the hourly rate by the time it takes to make one chair.

2.5 x 44.93 = 112.33 GBP

Note: this shows the total direct cost to make one chair.

Step 8 add the material cost to the hourly rate. In this example the material costs are 15 GBP

15 + 112.33 = 127.33 GBP

Therefore in this example, the furniture maker would charge 127.33 GBP for the manufacture of a single chair, but this effectively pays an hourly rate with no other profit for the maker.

It is also important to note that retailers would typically double the cost price to arrive at a recommended retail price (RRP) to cover their overheads of staffing, storing, shop rent, energy costs, transportation and delivery etc.

Entrepreneurs

An entrepreneur is a person who demonstrates initiative and invests capital into an idea; perhaps setting up a business, project or other venture. Usually the entrepreneur takes the risk by investing their own capital or by obtaining finance from banks and other investors.

Some entrepreneurs also have the skills to invent and design their products but more commonly, entrepreneurs will need to work with designers and engineers to turn their ideas into reality.

Designers in industry rarely work in isolation and will collaborate with other designers or engineers either face to face or remotely.

Large companies will have many different sections such as Research and Development (R&D), engineering, manufacturing design, marketing etc. All of the skilled people work together to make the entrepreneur’s vision a reality and bring a new product to the marketplace.

Summary

• Designers often work in collaboration with entrepreneurs, engineers and other designers when developing products.

• Packaging has several functions; to protect, preserve and promote products.

• Advertising and marketing are key to the success of products and different forms can be used at different stages in the life cycle of a product.

• New products can be developed as a result of technology push or market pull.

• Marketing and advertising appeal to consumers needs and wants.

• Entrepreneurs are not always the designers or engineers, but they have the capital to invest or take the risk in investing in products to develop.

Revision notes

You should understand the concepts of needs and wants when it comes to consumers.

Ensure you know the purpose of marketing and advertising and how they can also appeal to needs and wants.

As well as more traditional methods of marketing, you should be aware of those used on the internet such as pop up ads, viral marketing and cookies.

An entrepreneur is not always the designer or engineer, but there are several high profile entrepreneurs who were also the designers or inventors of their products.

Can you name any?

Look at Kickstarter to get an idea of how crowdfunding works.

How could you crowdfund your own project?

Remember that Apple is based in the work of Steve Wozniak who created the Apple computer but it is Steve Jobs who is more famous and was the entrepreneur who made Apple the company it is today!