October 21, 2009

Entrepreneurship and New Venture Creation Exercise 3

Discuss an idea for a new product that will create a new industry niche. To convince others of your idea you need to set out the likely scenario for how the new niche will develop in terms of competition, numbers of firms and how firms compete over time.

Idea background

Some of the most routine labours that are not very much recognized are the home cleaning. In the latest years all the adults’ members of the family (usually the parents) are working almost all day, without too much time to enjoy of theirs children. Some people have the possibility of outsourcing the clean services of his home, but not all of them. Also in the latest years have been a lot of advanced in the clean products that increase its efficiency and decrease its price hence the parents can have more free time to enjoy with his family and can save money, even if they buy clean services.

Then we have studied the idea of launch a new product to the market of clean product's that let to the cleaners to clean the glasses more efficiently, and even forgot that they must to clean the glasses. We are talking about of the automatic cleaner of window glasses. It is device that is put in the window and automatically it starts to clean and stops according with the schedule parameters.

Factors of Industry Evolution

There are several factors that have influence in the decision of launch a new product, its strategy, performance and its exit strategy, some of them are the macroeconomic situation, the regional variation and the industry evolution. According with the industry evolution there are three topics that are important to analyze with more detail to be clear that these will not are problematic during the life of product and we will be ready to launch the appropriate response if that appear. These three factors are the barriers of entry, the minimum efficient scale and the competitive process and business shakeouts.

First to explain with a little bit of detail over these topics is necessary remark that the region where initially will be launched will be Spain. Although now in terms of macroeconomic situation is not the best moment, we think that in Spain the weather is not bad during a lot of time of the year and there are a lot of hours of sun light each day. That is a important factors to clean the glasses of the windows.

  • Barriers of entry

The new product is a technological product and required a lot of investment, hence money and financial resources. For these reason the main barrier could be the switching cost, because the price of the product will be more expensive that a simple rag and bucket. Nonetheless the situation can change with appropriate level of advertisement explaining to the customer the benefits in long terms.

  • The minimum efficient scale.

Only a few companies can develop the technology to make the product. It is a product differentiation that needs specific components. The new product will have the company patent in order to fight against the copies.

  • The competitive process and business shakeouts.

About the competitive process we have already explained some aspects in the last two paragraphs. We can think that if there are specific components, we can have troubles with the suppliers, but there is not problem because the raw components are very common (‘circuits’) but has a specific firmware made by the company.

In order to be prepared for a shakeout, some of the best solution is to sell the patent but another can be use the infrastructure available in develop new products with similar technology.

As conclusion in the follow table we can see the evolution of the new product over the time identify the most important characteristics:

Barriers to Entry

MES

Competitive process

Market Entry

The switching cost

Almost all markets will be for us, but the customers are low.

Use generic components.

Market Development

Avoid the temporary.

Create Patent to avoid the increase the number of companies that can copy the technology.

Continuous marketing plan.

Shakeout

Sell the patent.

Use the technology for other products.

Sell the patent.

Use the technology for other products.

Sell the patent.

Mature Phase

Hold the patent for all derivates products and evolutions.

Use the economy of scale.

Create a secondary market with the spare parts.

References

Andrew Burke (2009. ‘Entrepreneurship and New Venture Creation’ Study Notes, Warwick Business School.

George S. Day. ‘Strategies for Surviving a Shakeout’, Harvard Business review March-April 1997.


- One comment Not publicly viewable

  1. Harminder Singh

    Hi Luis,
    you need to look at how the industry evolves over time as the answer is insufficient at the moment – how about a matrix, using Barriers to Entry, MES and Competetive process as on axis. On the other axis you could use Market Entry, Market Development, Shakeout, Mature Phase.
    Regards,
    Harminder

    21 Oct 2009, 10:35


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