What is Product Selection ?
Goods and services are necessary for satisfying the needs of society. Such goods/services or goods along with services or simply an idea can be called as a product. In simple terms, product is anything that is offered for sale into the marketplace. This makes product an important constituent of marketing and an important consideration in managerial decision-making.
In past, it was relatively easier for entrepreneurs to choose a particular product. He had complete freedom to choose any product which according to him can satisfy the needs of the market and is money-making in nature. Before launching the product, entrepreneur use to consider different criteria like technological requirement, needed financial resources, an approximate idea about the product's demand, etc. However, in this age, the selection of a product has become a very complex task as the market conditions have become very complicated. Nowadays, when an entrepreneur wants to select a product, he needs to consider complex parameters like satisfaction level of the customers, attitudes of the customers, competitors' strengths, support of the dealers, existing infrastructural facilities, prevalent macro conditions of the economy, etc.
What is Product Selection in Entrepreneurship ?
There are various sources for collecting the vast array of information regarding product selection. These sources include government publications. development agencies, management and technical journals, public sector units like ITI, HAL, BHEL, etc, and various research laboratories. In many cases, entrepreneurs may hire specialized institutions or individuals to carry out the process of product selection on their behalf. Similarly, the task of market survey may be conducted by the entrepreneur himself or by hiring experts or consultants.
However, in most of the cases, entrepreneurs develop the product idea from their own set of reference or environment. They usually obtain the required information from sources like industrial journals, research institutions, internet, consultants, syndicated research, etc. Similarly, entrepreneur may obtain necessary patents by employing specialized marketing and R&D agencies that specialize in the arrangement of patents, trademarks, etc. Thus, an entrepreneur necessarily engages in selection of a viable product idea out of several alternatives and develops it as marketable product.
Criteria to Select a Product
An entrepreneur makes use of several criteria before selecting a product. These are as follows :
1) Technical Know-how :
Technical know-how is an important guiding factor for an entrepreneur while selecting a product. An entrepreneur can easily decide what product should be manufactured if he belongs to the product-related field. Similarly, knowledge in manufacturing or marketing field enables the entrepreneur in selection of an appropriate product.
2) Availability of Market :
The availability of a large market for a particular product also helps in its selection. If the demand for a product is huge, then the market risk of launching it becomes less. Thus, it is very essential that the entrepreneur have a good knowledge about the product's market in terms of how and where the product can be sold.
3) Financial Strength :
Relative financial of the entrepreneur also serves as guiding force in selection of a product. Manufacturing a product generally requires heavy investment in research and development, capacity creation, plant and machinery, etc., which is generally beyond the expenditure capacity of a small-sized firm. Thus, it is advisable for an entrepreneur to analyse its financial strength prior to product selection.
4) Competitive Rivalry :
The returns from a product are greatly influenced by the degree of competition prevailing in the market. Factors like market dominance by the competitors, availability of substitutes, any barrier to entry, etc., play significant role in determining the viability of the product.
5) Product Category :
In many cases, certain products fall in the priority sector category while some others may be reserved for small scale. sectors. The level and extent of competition for these product categories among small sectors is lesser than that seen in other sectors of the economy. There are also certain products which the Government has earmarked as exclusively to be purchased from the small scale sector. In the case of such products, the entrepreneur will definitely give a greater importance to a product which falls in this category.
6) Consistency in Demand :
When there are not many fluctuations in the demand of a product then the market for such products can be considered to be stable. Seasonal products are contrary in the sense that their demand fluctuates a lot. The seasonality of a product also plays a large part in its selection or non-selection as this is directly linked to the stability in the demand for the same. The entrepreneur should definitely prefer a product which has a consistent and stable demand.
7) Restriction on Imports :
The foreign trade policy of the government may restrict the import of some products. In such cases, those products. gain attraction from general public and consequently an entrepreneur should prefer those products that are part of such restricted category.
8) Availability of Raw Materials :
Availability of raw material is a very important factor for selecting a particular product. An entrepreneur should ensure that supplies required for smooth conduct of business operations are mostly available in desired quantity around the year. Moreover, the source of procurement of raw material is also important. Where supplies are to be procured from external sources, the entrepreneur will have to maintain a sufficient quantity of inventory compared to local sources.
9) Government Incentives and Subsidies :
Government often provide a number of subsidies and incentives for the promotion of certain businesses. These incentives and subsidies are generally in the form of tax holidays, exemptions from customs, concessions, etc. An entrepreneur must consider the availability of such governmental schemes as they greatly support an entrepreneur in setting up a new business.
10) Ancillary Products :
When the product is in the nature of an ancillary product (a product required for manufacturing another product), then its increases the attraction for the entrepreneur. This is because the product will have a ready market in the parent industry. For example, an ancillary unit of Maruti.
11) Location of Business :
Business location is also important for selecting a particular product as certain products are earmarked for production in special zones like free trade zones, export promotion zones, etc. Government also provides incentives and tax breaks for such products. Moreover, the location of big consumer markets near the production centers also increases the attractiveness of certain products. Such products will also be selected by the entrepreneur because of the locational advantage.
12) Licensing System :
There are overtime changes in the governmental licensing policies. For some products, it is mandatory for the entrepreneur to have the required license issued by the concerned authority. Under particular conditions, capital addition is also monitored. Moreover, the process of obtaining license is burdensome for certain products. Thus, products which require a lot of licensing approvals will not be very attractive to entrepreneurs.
13) Government Policy :
The selection of product also has to be done keeping in mind the government policies and their likely impact. The entrepreneur should choose a product which falls in a sector with favorable Governmental policies. For example, products which are not socially beneficial like tobacco and alcohol do not receive government support.
Precautions Regarding Product Selection
An entrepreneur has to be careful while selecting a product. There are certain precautions that he should take while selecting a product, which are outlined below:
1) The production process should not be very long or time-taking.
2) The employed production process should be smooth and straightforward.
3) There should be adequate and consistent demand for the selected product.
4) The product industry must have potentials for growth and development.
5) The product should be accepted by consumers and a healthy competition should exist for the same.
6) There should be easy availability of plant and machinery and other equipment required for the production of the product.
7) There should be availability of adequate raw materials. In case local raw materials are not available, then suppliers from non-local regions should be able to provide the raw materials in the shortest possible time.
8) Personnel required for technical, artistic and manual work/labour should be easily available at reasonable costs.
9) The product should be capable of introducing in overseas markets.