Operation Management

Product and Service Design

MODULE 3

The essence of a business organization is the product and services its offers, and every aspect of the organization and its supply chain
are structured around those product s and services. Organizations that have a well-designed products or services are more likely to
realize their goals than those with poorly designed product or services. Hence organization have a strategic interest in product and
service design.
Product or service design should be closely tied to an organization strategy. It is a major factor in cost, quality, time to market, customer
satisfaction and competitive advantage. The introduction of new product and services, or changes to product or services designs, can
have an impact throughout the organization as well as the entire supply chain.

In this module you will discover insights into the design process that apply to both product and services.

A.PRODUCT DESIGN
What product and service designers do, the reasons for design or redesign and key questions that management must address:
1. What does product and service design do?
The various activities and responsibilities of product and service design include the following (functional
(interactions are shown in interactions):
a. Translate consumer wants and needs into product and service requirements (marketing operations).
b. Refine existing products and services (marketing)
c. Develop new products and/or services (marketing, operations)
d. Formulate quality goals (marketing, operations)
e. Formulate costs targets (accounting ,finance operations)
f. Construct and test prototypes (operation , marketing and engineering)
g. Documents specifications
h. Translate product and service specifications into process specification(engineering, operations)
Product and service design involves or affects nearly every functional areas of an organization. marketing and
operations has major involvement.
2. Reasons for Product and Service Designs
Product and service design has typically had strategic implications for the success and prosperity of an
organization. It has an impact on future activities. decisions in this area are some of the most fundamental that
managers must make. Organizations become involved in product and service design or redesign for a variety of
reasons. the main forces that initiate design or redesign are market opportunities an threats
The factors that give rise to market opportunities and threats can be one or more changes:
a. Economic-(low demand, excessive warranty claims, the needs to reduce costs)
b. Social and demographic-(aging baby boomers, populations shifts)
c. Political liability or legal-( government changes, safety issues, new regulations)
d. Competitive-( new or changes product or services, new advertising promotions)
e. Cost or availability-( raw materials, components , and labor)
f. Technological-(in product component , processes)
3. The Key Questions
From a buyer standpoint, most purchasing decisions entail two fundamental considerations: one is costs and the
other is quality or performance. From the organizations standpoint, the key questions are:
a. Is there a demand for it? What is the potential size of the market, and what is expected demand profile (will
demand be long term or short term, will it grow slowly or quickly)
b. Can we do it? Do we have the necessary knowledge, skills , equipment, capacity and supply chain
capability For product it is known as manufacturability :for service this is known as serviceability
c. What level of quality is appropriate? What do customers expect? What level of quality does competition
provide for similar item.
d. Does it make sense from an economic standpoint, What are the potential liability issues, ethical
considerations, sustainability issues, costs and profits.
 A. Legal and Ethical Consideration
Designers must be careful to take into account a wide array of legal and ethical considerations. If there is
potential to harm the environment, then those issues also become important. Most organizations are
subject to numerous government agencies that regulates important.
 Product liability is the responsibility of a manufacturer for any injuries or damages caused by a
faulty product because of workmanship or design.
It is extremely important to design products that are reasonably free of hazards. When hazards do exist, it
is necessary to install safety guards or other devices for reducing accident potential , and to provide
adequate warning notices of risk.
Organizations generally want designers to adhere to the guidelines such as the following:
a. Produce designs that are consistent with the goals of the organizations. For instance , if the
organization has a goal of high quality , don’t cut corners to save costs , even in areas where it
won’t be apparent to the customer.
b. Give the customer the value they respect.
c. Make health and safety primary concern.
B. Sustainability
Product and service design is a focal point in the quest for sustainability. Key aspect includes life cycle
assessment, reduction of costs and material used, reuse of parts returned products and recycling.
a. Life cycle assessment

PRODUCT LIFE CYCLE

In developing new products and in anticipating future markets developments marketers must consider what
stages of the product life cycle the product is in.
Products Life Cycle shows the process where both the customers and the suppliers change their behavior while
inter acting the market.

Figure shows a typical product life cycle curve where products would be introduced to the market , would grow mature and
perhaps ,if not taken care off ,eventually die to a human being into old age.

BACKGROUND: PRODUCT LIFE CYCLE

Product Life cycle is primarily determined by the rate of new product development in a particular market. This is why
marketers should never underestimate the introduction of new products that directly or indirectly compete with their product.
 Ex Sales of Tancho pomade have hit rock bottom since the introduction of the less greasy hair gel and mouse.
 Demand for anti-diarrhea drugs have been on the decline since the introduction and fast acceptance of bottled
water.
 Cable TV and DVD players have affected ordinary cinema since cinema advertising
 CDs and the internet have made hardbound encyclopedia a collector’s item
Marketers must remember that the rate of new products being introduced in the market is much faster now than before
and the introductory period in the product life cycle is becoming better.
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 An industry does not have a product life cycle. and neither do brands. It is the various products form or products
categories within the industry that have the life cycles.
 Ex Evaporated milk used to be higher in demand until powdered milk is introduced, presently, powdered milk is in
the growth stage while evaporated milk is more challenged.
 Analog phones used to be the norm when “Piltel” and “Smart” started in the early 1990s.The Globe introduced the
shift to digital with text capability. In early 2000,it was the wireless access protocol (WAP) capable of accessing the
internet that had become the “IN” thing. Another technology ,3G,has allowed people to download movies, from the
internet into their mobile phone.
 1.1.1 Introduction Stage
 During the product introduction stage consumers are confronted with a brand from an unfamiliar product
category. Their decision making speed, therefore, would be slow while their information search needs
would be high.
 Marketers must remember that the greater the complexity of a new product the slower acceptance it
should expect because of the higher risk associated with buying an unfamiliar product.
 Product design and consumer education, designed to reduce risk perception during this stage.
 1.1.2 Growth Stage
 In the growth stage,, consumers may encounter a new brand in a familiar product category. Their decision
making speed improves as the amount of information needed and used have significantly decreased.
 It becomes extremely important for marketers to define and defend one or more market segment and
introduce major improvements in their products because competition will study the market to find
segments with unmet needs and will design a products to meet those needs giving customers a reason to
buy from them.
 1.1.3 Maturing Stage
 In maturing stage, consumers are familiar with both the brand and the product category. Consumers
consider the price and availability of the brand is important.
 Consumers also have the tendency the type of store they prioritize. Customer may shift from specialty
store to a discount store as they become accustomed to the product and a better offer may attract them to
new location.
 In this stage, it is important that the fast moving products be revitalized often enough so as not to make the
product obsolete.
 Product modification strategy or having “new Improved” products such as soap and shampoos is good
alternative
 1.1.4 Declining Stage
 There is another stage known a declining stage.
 Ex. Sales volume of appliances such as bread toaster are affected or would fall due to introduction
of microwave ovens and the even more versatile oven toaster
 In this stage the companies may want to reposition its product or maintain only the strongest
product and phase-out weak products to maximize earning
 Ex Carnation ,for instance positioned itself as the cooking milk in the market that has been
eroded by other forms of milk.
b. Three 3R’S : Reduce , Reuse and Recycle
 Reduce ;value analysis
 Reused; remanufacturing
 Recycle

4. Other Consideration in Product and Service Design

a. Strategies for Product and Service
b. Degree of Standardization
c. Designing for Mass Customization
d. Reliability
e. Robust Design
f. Degree of Newness
g. Human Factors

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 New Product Development Program
 A new product development program is needed for three purposes:
 To effectively respond to changing customer’s needs and wants.
 To effectively respond or pre-empt competitors and other threats fast
 To effectively respond to the company’s expansion plan

New Product Development Process

 A seven-steps process (Taylor, !984) for developing new product. The process may be revised an adopted to the
unique needs of each company.
 At each stage the product is evaluated to determine whether it makes sense to proceed to the next stage

New Product Development Process

Product Criteria

Idea Generation

Idea Screening

Business Analysis

Prototype Development

Market Test

Commercialization
 Product Criteria
 Products criteria define the kinds of products a firm will be selling or won’t be selling .This in turn define the
business in the future. The marketer should identify their strengths which will form the basis for developing
the product criteria.
 Products Criteria can be divided into “MUST” and “WANTS”
 MUST
 Potential for market dominance
 At least 50% gross margin
 WANTS
 Unique benefits
 Good Product quality
 Minimal after sales service
 Possible Products Criteria for Retail Stores
 Product uniqueness
 The unique features may convince consumers to upgrade their present standard
 Extra Derma offered retail stores the opportunity to increase total sales revenues
by way of its unique therapeutic features versus regular astringent as well better
margin for the store
 Good value
 No junk items shall be carried that may affect store image.
 Pricing must be available vis-a vi quality
 Advertising support
 Consumers will not purchase products unless they aware of its existence
 Procter and Gamble business models involve offering superior products and promoting the
benefits by way of having heavy advertising expenditure.
 Profitability
 Different product line have different product margin
 Introductory discounts or allowances
 New product may not be move as fast as older products and deny the stores faster turn
over and better return at shelf space
 Company Reputation
 Some companies enjoy a reputation for marketing winners the probability of buying from a
reputable suppliers decreases the risk of having non-moving items.
 Idea Generation
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  Systematic search for new product ideas
 The different marketing techniques can be used to get new product ideas;
 Mission Statement
 Focus Group Discussion
 Product Segmentation
 Perceptual mapping
 Idea Screening
 Involves screening new products ideas in order to spot good ideas and drop poor ones as soon as
possible. One way to keep information organized is to have executives write up new product ideas on a
standard form that can be reviewed by a new product committee.
 The natural first step in idea screening is to compare the new product idea versus the defined product idea.
 Business Analysis
 The business analysis stage is like an extension of idea screening stage, defining more parameters before
an actual prototype are assembled. This is the critical “gate stage” of new product development. During the
business analysis phase (3) important things must be defined:
 Target market
 Market segmentation process enables a company to develop a positioning and marketing
mix strategy that can satisfy a smaller ,more focused range of customer’s needs and wants
given the identified opportunity
 Communication Plan
 How can the product benefit be communicated in an effective way
 Ex “ Bayan communications” used humor by showing a stereo type “demanding”
grandmother who is also an out-of-the-box technological expert, “Lola Techie”
admonishing her grandchildren to spend time in online
 Financial analysis and marketing mix plan
 Supporting financial needed for new product feasibility plan
 Market size, product availability, Awareness level
 Purchase size and frequency.
 Sales volume and market share
 Pricing
 Costing and expenses
 Profitability
 Involves a review of the sales costs and profit projections for a new product to find out whether these
factors satisfy company’s objectives
 Prototype development
 The ultimate question to be answered during this stage is “Can the new product deliver the benefit
promised?” Marketers must know the basic as well as the motivating features of a product
 This involves developing the product concept into a physical product in order to ensure that the product
idea can be turned into a workable product.
 The R&D department will develop one or more physical versions of the product concept. and these
prototypes can take varying lengths of the time to develop.

 Market test and Full Commercialization
Product that passed the proto type development must be exposed to a portion of actual customers within realistic
target market environment. This is the learning and fine tuning period before the total offering will be tested in the
market to ensure that all dimensions are working together and in the way that the marketer assumed they would.
 Market test
 Test marketing lets the marketer get experience with marketing and product.
 The basic purpose is to test the product itself in real markets
 Full Commercialization
 The final stage in the new product development process is commercialization. This step is
introducing new product into the market.
 The company bringing a new product must make certain decision
 When? Is the right timing to introduce the new product
 Where do you launch a new product?

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B.SERVICE DESIGN
There are many similarities between product and service design. One major differences is that unlike manufacturing, where production
and delivery are usually separated in time ,services are usually created and delivered simultaneously separated in time.
1. DEFINITIONS
Service refers to an act, something that is done to or for customer. It is provided by a service delivery system, which includes
the facilities, processes and skills needed to provide the service. Many service are not pure, but a product bundle, the
combination of goods and services provided to customer. The ability to create and deliver reliable customer oriented service is
often a key competitive differentiator. Some companies combine customer oriented service with their product. System design
involves development or refinement of the overall service package.
Service package is the physical resources needed to perform the service, the accompanying goods, and the explicit and
implicit services
2. DIFFERENCES between SERVICE DESIGN and PRODUCT DESIGN
Service operation managers must contend with issues that may be insignificant or non-existent with managers in a production
setting. These include the following
a. Products are generally tangible; services are generally intangible. Service design often focuses more in tangible
factors: e.g. peace of mind, ambience than does product designs.
b. Services cannot be inventoried. This poses restrictions on flexibility and makes capacity issues very important.
c. Services are highly visible to consumers and must be designed with that in mind; this adds extra dimension to
process design , one that usually not present in product design
3. CHALLENGES OF SERVICE DESIGN
Service design presents some special challenges that are less likely to be encountered in product design, in part because
service design also involves designs of the delivery system. Among the challenges are the following:
a. Requirements are variable. This creates a need for a robust designs that will accommodate a range of inputs and
perhaps a range of outputs.
b. Services can be difficult to describe. Verbal descriptions can be somewhat imprecise.
c. Customer contact is usually much higher in services.
d. Service designs must take into account the service-customer encounter. There can be a relatively large number of
variables to deal with the in service.
4. GUIDELINES FOR SUCCESSFUL SERVICE DESIGN
a. Design a service package in detail. A service package may be helpful for this.
b. Focus operation from a customer perspective
c. Consider that the service package will present both to customer and prospective customer
d. Recognize that designer familiarity with the system may give them a quite different perspective than that of the
customer, and take steps to overcome this.
e. Make sure that the managers are involved and will support the design once it is implemented.
f. Define quality for both tangible and intangibles. Intangibles standards are more difficult to define, but may be
addressed.
g. Make sure that recruitment , training and reward policies are consistent with service expectations.
h. Establish procedures to handle both predictable and unpredictable events.
i. Establish system to monitor, maintain and improve service.

LEARNING RESOURCES
Book/E-book:
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  Production and Operation Management 2012 Ed. Stevenson, Sum,Mc Graw Hill Companies
 Operation Management 2009 Ed. 10th Edition William J. Stevenson,Mc Graw Hill Companies
 Fundamental Marketing in the Philippine Setting,2nd Ed .Josiah Go, Chiqui Escaller-Go.Mansmith

Online resources:

END OF MODULE 3 B: Product and Service Design

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