Lesson 3

DESIGN OF GOODS AND SERVICES

Learning Objectives:

At the end of the chapter, the students will be able to:

1. Discuss the concept of product development;
2. Describe attributes of products; and
3. Analyze each stage of product life cycle.

In developing a program to reach its intended market, a company starts with the product or
service designed to satisfy the wants of the market. Executives must plan, develop and manage both the
individual product as well as the company’s product. This is not an easy t ask as shown by the large
number of product failures in our economy.

Product Development

Product development is the process of creating a new product to be sold by a business or

enterprise to its customers.  In the document title, Design refers to those activities involved in creating the
styling, look and feel of the product, deciding on the product's mechanical architecture, selecting
materials and processes, and engineering the various components necessary to make the product work.
Development refers collectively to the entire process of identifying a market opportunity, creating a
product to appeal to the identified market, and finally, testing, modifying and refining the product until it
is ready for production. A product can be any item from a book, musical composition, or information
service, to an engineered product such as a computer, hair dryer, or washing machine. This document is
focused on the process of developing discrete engineered products, rather than works of art or
informational products.

The task of developing outstanding new products is difficult, time-consuming, and costly. People
who have never been involved in a development effort are astounded by the amount of time and money
that goes into a new product. Great products are not simply designed, but instead they evolve over time
through countless hours of research, analysis, design studies, engineering and prototyping efforts, and
finally, testing, modifying, and re-testing until the design has been perfected.

       Few products are developed by a single individual working alone. It is unlikely that one individual
will have the necessary skills in marketing, industrial design, mechanical and electronic engineering,
manufacturing processes and materials, tool-making, packaging design, graphic art, and project
management, just to name the primary areas of expertise. Development is normally done by a project
team, and the team leader draws on talent in a variety of disciplines, often from both outside and inside
the company. As a general rule, the cost of a development effort is a factor of the number of people
involved and the time required to nurture the initial concept into a fully-refined product. Rarely can a
production-ready product be developed in less than one year, and some projects can take three to five
years to complete.

        The impetus for a new product normally comes from a perceived market opportunity or from the
development of a new technology. Consequently, new products are broadly categorized as either market-
pull products or technology-push products. With a market-pull product, the marketing center of the
company first determines that sales could be increased if a new product were designed to appeal to a
particular segment of its customers. Engineering is then asked to determine the technical feasibility of the
new product idea. This interaction is reversed with a technology-push product. When a technical
breakthrough opens the way for a new product, marketing then attempts to determine the idea's prospects
in the marketplace. In many cases, the technology itself may not actually point to a particular product, but
instead, to new capabilities and benefits that could be packaged in a variety of ways to create a number of
different products. Marketing would have the responsibility of determining how the technology should be
packaged to have the greatest appeal to its customers. With either scenario, manufacturing is responsible
for estimating the cost of building the prospective new product, and their estimations are used to project a
selling price and estimate the potential profit for the company.

The process of developing new products varies between companies, and even between products
within the same company. Regardless of organizational differences, a good new product is the result a
methodical development effort with well-defined product specifications and project goals. A development
project for a market-pull product is generally organized along the lines shown in Figure 1.

Concept Development      
          Good concept development is crucial. During this stage, the needs of the target market are
identified, competitive products are reviewed, product specifications are defined, a product concept is
selected, an economic analysis is done, and the development project is outlined. This stage provides the
foundation for the development effort, and if poorly done can undermine the entire effort.    Concept
development activities are normally organized according to Figure 2.

Identify Customer Needs:    Through interviews with potential purchasers, focus groups, and by
observing similar products in use, researchers identify customer needs. The list of needs will include
hidden needs, needs that customers may not be aware of or problems they simply accept without question,
as well as explicit needs, or needs that will most likely be reported by potential purchasers. Researchers
develop the necessary information on which to base the performance, size, weight, service life, and other
specifications of the product. Customer needs and product specifications are organized into a hierarchical
list with a comparative rating value given to each need and specification.

Establish Target Specifications:    Based on customers' needs and reviews of competitive

products, the team establishes the target specifications of the prospective new product. While the process
of identifying customer needs is entirely a function of marketing, designers and engineers become
involved in establishing target specifications. Target specifications are essentially a wish-list tempered by
known technical constraints. Later, after designers have generated preliminary products concepts, the
target specifications are refined to account for technical, manufacturing and economic realities.

Analyze Competitive Products: An analysis of competitive products is part of the process of

establishing target specifications. Other products may exhibit successful design attributes that should be
emulated or improved upon in the new product. And by understanding the shortfalls of competitive
products, a list of improvements can be developed that will make the new product clearly superior to
those of others. In a broader sense, analyzing competitive products can help orient designers and provide
a starting point for design efforts. Rather than beginning from scratch and re-inventing the wheel with
each new project, traditionally, the evolution of design builds on the successes and failures of prior work.

Generate Product Concepts:   Designers and engineers develop a number of product concepts to
illustrate what types of products are both technically feasible and would best meets the requirements of
the target specifications. Engineers develop preliminary concepts for the architecture of the product, and
industrial designers develop renderings to show styling and layout alternatives. After narrowing the
selection, non-functional appearance models are built of candidate designs.
 Select a Product Concept:   Through the process of evaluation and tradeoffs between attributes, a
final concept is selected. The selection process may be confined to the team and key executives within the
company, or customers may be polled for their input. Candidate appearance models are often used for
additional market research; to obtain feedback from certain key customers, or as a centerpiece of focus
groups.

Refine Product Specifications:    In this stage, product specifications are refined on the basis of
input from the foregoing activities. Final specifications are the result of tradeoffs made between technical
feasibility, expected service life, projected selling price, and the financial limitations of the development
project. With a new luggage product, for example, consumers may want a product that is lightweight,
inexpensive, attractive, and with the ability to expand to carry varying amounts of luggage.
Unfortunately, the mechanism needed for the expandable feature will increase the selling price, add
weight to the product, and introduce a mechanism that has the potential for failure. Consequently, the
team must choose between a heavier, costlier product, or one that does not have the expandable feature.
When product attributes are in conflict, or when the technical challenge or higher selling price of a
particular feature outweighs its benefits, the specification may be dropped or modified in favor of other
benefits.

Perform Economic Analysis: Throughout the foregoing activities, important economic

implications regarding development expenses, manufacturing costs, and selling price have been
estimated. A thorough economic analysis of the product and the required development effort is necessary
in order to define the remainder of the development project. An economic model of the product and a
review of anticipated development expenses in relation to expected benefits is now developed.

Plan the Remaining Development Project: In this final stage of concept development, the team
prepares a detailed development plan which includes a list of activities, the necessary resources and
expenses, and a development schedule with milestones for tracking progress.

The Product

In a very narrow sense, a product is a set of tangible, physical attributes assembled in an

identifiable form. Product attributes appealing to customer motivation or buying patterns play no part in
this narrow definition.

A product is a set of tangible and intangible attributes, including packaging, color, price, quality
and brand; plus, the services and expectation of the seller. In essence, consumers are buying more than a
set of physical attributes. They are buying what satisfaction in form of product benefits.

Product planning embraces all activities that enable a company to determine what products it will
market. Product development is a product market growth strategy that calls for a company to develop new
products to sell to its existing markets. More specifically, the combined scope of product planning and
product development includes activities related to the following strategy decisions such as:
1. Which products should the firm make?
2. Should the company market more or fewer products?
 3. What new uses are there for each product?
4. What brand, package and label should be used for each product?
5. How should the product be styled and designed and in what sizes, colors and materials should it
be produced?
6. In what quantities should each item be produced?
7. How should the product be priced?
Development of New Products

Three recognizable categories of new products are as follows:

1. Products that are really innovative or unique

2. Replacement products
3. Imitative products

Stages in Product Development Process

With the company’s new product strategy as guide, the development of a new product can
proceed through a series of six stages. During each stage, management must decide whether to move on
the next stage, abandon the product or perhaps seek additional information.

1. Generation of new product ideas

2. Screening and evaluation of ideas
3. Business analysis
4. Product development
5. Test marketing
6. Commercialization

Why New Products Fail?

In the various research studies regarding this question, the key reasons typically cited for the
failure of new products are as follows:

1. Poor marketing research

2. Technical problems in the new products design or in its production
3. Poor timing in product introduction
4. Other poor management practices
a. Lack of well-defined new product strategy
b. Lack of strong, long term commitment by top management to new product development
c. Ineffective organization for new-product development

The Product Life Cycle

 Products are born; they live and die. They are cast aside by changing society. It may be helpful to
think of a products’ life as divided into four phases. Those phases are: introduction, growth, maturity and
decline.

Product life cycle maybe a matter of few hours, months, years or decades. Regardless of the
length of the cycle, the task for the operations manager is the same: to design a system that helps
introduce new products successfully. If the operations function cannot perform effectively at this stage,
the firm may be saddled with losers-products that cannot be produced efficiently and perhaps not at all.

1. Introduction
During the first stage of a product life cycle, it is launched into the market in a full-scale
promotion and marketing program.

There is a high percentage of product failures in this stage. Operations in the introductory stage
are characterized by high costs, low sales volume, net losses and limited distribution. However, for
really new products, there is very little direct competition.

2. Growth
In the growth or market acceptance stage, both sales and profits rise, often at a rapid rate.
Competitors enter the market in large numbers if the profit is attractive. The number of distribution
outlets increases and prices may come down a bit. Typically, profits start to decline near the end of
the growth stage.

3. Maturity
During the first part of this period, sales continue to increase but at a decreasing rate. While sales
are levelling off the profits of both the producer and retailers are declining.

4. Decline
For virtually all products, obsolescence inevitably sets is a new products start their own life
cycles and replace the old ones. Cost control becomes increasingly critical as demand drops.
Advertising declines and a number of competitors withdraw from the market. Whether the product
has to be abandoned or whether the surviving sellers can continue on a profitable basis often depends
on management’s abilities.

Ten Ways to Dream up New Products and Revitalize Older Ones

Originally, some of these ideas were intended to stimulate new-product development and others were for
revitalizing older products. Whatever the case may be they can create additional sales for a company.

1. Take something out of the product

2. Add something to the product
3. Listen to consumers’ complaints
4. Transfer success from one product category to another
5. Make the task easier
6. Dream up new uses
7. Add new distribution channels
8. Add a dramatic guarantee
9. Don’t stymie (stop) creativity
10. Look overseas for inspiration