Topic 3

Product Development

A process that refers to all stages involved in bringing a product from concept or idea through market release. The process of building a new product, from ideation all the way through to market launch.

Steps include:

• Idea conceptualisation

• Design and development

• Prototype and testing

IDEA CONCEPTUALISATION

• Idea Generation - idea relevant to the consumers needs and wants, may differ per market due to cultural tastes.

• Idea Screening - Determine if the idea is feasible for the business.

• Idea Analysis - Involves a closer evaluation of the product concept.

RESEARCH & DEVELOPMENT

• Research - investigation the unknown, such as new products or processes.

• Development - using research findings to create products that might be commercialised.

• High levels of R&D required in some industries (tech, pharmaceutical), some R&D will not return a profit for many years.

PROTOTYPE AND TESTING

• Prototyping - involves creating a sample and testing production runs.

• Test Marketing - researching to check if product fulfils customer needs and wants. Market research focus groups and/or early adopters.

• Launch - informing and offering the product for sale to the general market. Social event, gift boxes.

Why?

• Maintain and increase a business’s market share by satisfying changing global consumer demand.

• Global consumers needs and wants are continuously changing, meaning there is a need to continuously innovate.

• When expanding globally a business is dealing with a variety of target segments (different cultural requirements, language, etc), each may require an adaptive approach - innovate.

• An increased number of competitors (different local competitors and multinational corporations) need to maintain a competitive advantage.

Discuss:

• Research and development - Need to achieve a return on investment, and may not receive this for years due to cost.

• Need to continuously innovate as global needs and wants are always changing - May be difficult to predict.

Innovation

The development and application of ideas that improve the way things are done or what can be achieved. The process of translating a new idea or invention into a product or process that creates value (more sales / reduced costs) for the business.

Purpose: To continuously improve to maintain a competitive advantage in a global marketplace.

Roles:

• Product - Differentiate from competitors to increase demand/sales.

• Process - Reduce costs and improve efficiencies.

• Services - Improve customer satisfaction.

Types of Innovation

• PRODUCT: Development of a new or improved product (good or service for sale). Innovate good or service the business is selling or charging the customer for.

• SERVICE: Development of a new or improved service used within the business. Innovative action to improve customer interaction with the business.

• PROCESS: Development of improved process including marketing techniques, manufacturing, and operational method. Innovation changes interval operations.

For an innovation to be granted as IP, it must have the following criteria:

• New - it must be novel.

• Useful - it can be made or used in an industry.

• Inventive - its different enough to what already exists.

• Not obvious - it is unlikely that others in the same field would have the same idea.

Benefits to business

1) FINANCIAL GAIN

• Increase sales due to better product than competitors are offering,

• Less expenses due to better processes,

• Lead to increase profits as higher sales are achieved - Return on Investment.

• Intellectual Property asset value.

• Lower costs to increase profit margins.

2) GLOBAL EXPANSION

• Innovations that enable businesses to increase its reach globally in an efficient way.

• Innovation creates global demand expanding target market as no other business can offer or use your innovative solution.

• Intellectual Property can be sold into other markets.

3) INCREASE MARKET SHARE

• Demand for something new entices global customers to purchase from one business that has the IP, taking these customers away from competitors.

• Increased business reputation which will encourage brand loyalty.

• With increased market share the business has stronger buying power (suppliers) within global market and credibility with its customers.

Product, Service & Process Innovation

Benefit of innovation to business:

• Purpose = Gain/maintain competitive advantage.

• Role = Distinguish from competition.

• Benefits = Financial gain, Expansion of global market presence, Increased market share.

Product:

BUSINESS - Distinguish from competition (role)

• Increased sales / financial gain

• Increased market share

• Increased global market presence

COUNTRY - Increased exports (role).

• Inject money into the country (balance of payment)

• Increased employment - global demand increase means more people required to produce/provide it

• Increased tax payments from business tax to gov for expenditure on gov services and infrastructure.

CONSUMERS - Improve quality of life (role).

• More time for rest and play

• Increased job availability to earn income

• Increased convenience and better user experience such as safety

• Increased choice based on ethics or cost.

Service:

Purpose - Increase customer satisfaction or engagement.

BUSINESS - Improve the efficiency of customer service (role).

• Increased sales by using e-commerce facilities to reach global customers as all types of currencies accepted and open 24/7

• Increase market share as different payment options allows consumers to stagger payment with 3rd parties buy now pay later.

CONSUMERS - Improve quality of customer experience (role).

• Increased convenience and better user experience, e.g. reduces time required to complete a transaction

• Increased convenience by being open 24/7 and accepting currencies catering from global consumer.

Process:

BUSSINESS - Efficiency (role).

• Financial gain or larger profit margins as costs of sales reduced in manufacturing

• Improved efficiency allows business to reduce pricing or provide quicker/accurate service such as product delivery.

CONSUMERS - Improve quality of customer experience (role).

• Increased convenience and better user experience, e.g. reduces time required to complete a transaction, select a product

• Increased choice based on ethics as processes improve environmental impact (reduce business carbon footprint).

COUNTRY - Reduce carbon footprint.

Factors Impacting Success of Product Innovation

• Timing - When a product is released to market and becomes available to consumers. When consumer demand, market conditions and supporting infrastructure is available.

• Cost - Expenses related to the product development process including R&D, prototypes and market research. Cost analysis to ensure Return on Investment.

• Technology - Availability and support of emerging scientific skills, knowledge and machinery.

• Marketing Strategy - Implementation of the marketing mix to attract, inform and persuade potential customers.

TIMING

When the innovative product is launched to the market and available to consumers. Based on consumer demand.

Most likely to succeed:

• During economic expansion when consumers have higher levels of discretionary spending and willing to try something new

• Fulfils social norms, e.g. environmentally friendly

• Competition - introduced before others

• Seasonality.

Less likely to succeed:

• During economic contraction

• Limited supporting tech or infrastructure

• Launch after other business.

COST

• Cost analysis of innovation to ensure return on investment.

• Selling price (what consumers are willing to pay) can cover costs associated with innovation.

• Process innovation could reduce ongoing costs of the business.

• Research and development costs are expensive, high R&D costs need to be recuperated in the sales or price, and some may take years to see a return on investment.

TECHNOLOGY

• New tech provides stimulus to innovation

• Enables innovation to improve existing product

• Creates demand

• Ability to assess emerging technology and its impact on your business

• How you use it to gain competitive advantage before others within your industry.

MARKETING STRATEGY

Application of appropriate marketing mix.

Promotion:

• Create awareness, informative, benefits, how it is used, reviews

• New ways to reach and inform target market, e.g. mobile tech (consumers are constantly bombarded with marketing, so need to filter through by doing something different).

Pricing Strategy:

• Premium or skim - high prices to convey exclusivity

• Penetration pricing - low to be affordable to try and then increase when brand loyalty is achieved.

Standardise vs Adaptation.

Production Management

Coordinating and controlling the activities required to make a product.

Activities typically include:

• Procurement of inputs (land, labour, capital, ideas)

• Inventory control

• Process management (maintenance, scheduling of labour)

• Quality control

Outputs should be of the right quality, time, and quantity to satisfy consumer demands, needs and wants.

Purpose: Improve efficiency and reduce costs

• Control labour and inventory costs

• Reduce waste

• Maintain/improve ethical and sustainable practices

• Improve triple bottom line considerations.

Purpose: Fulfils customers needs and wants

• Quality and quantity that satisfies customers requirements

• Timely - efficiency to fulfil demand on time

• Right price - cost effective to ensure retail price is low enough

Inventory Control – Just In Time vs Just in Case

Quality Control – Assurance and Continuous

Global supply chain management

Quality Management

QUALITY CONTROL

Process of inspecting, testing and sampling.

• Detecting faulty inputs or outputs that has not reached predetermined standards

• Reactive traditional approach

• At any stage of the production process

Why: Minimise faulty products arriving to consumer.

How:

• Qualified/trained inspectors with understanding of predetermine specifications.

• Use of tech to inspect inventory.

• Based on batch or random sample.

Advantages:

• Cheaper method

• Compliance with industry standards.

Disadvantages:

• Does not prevent mistakes being made - expense/cost

• Some faulty products may reach consumers

QUALITY ASSURANCE

Guarantee that predetermined specifications are met on every product.

• Process of preventing substandard products (proactive approach)

• Strong organisational culture

• All employees responsible for reaching quality standards set.

How:

• Training all staff to be aware of specification and success criteria required.

• All staff able to recognise and solve issues as they arise to prevent errors - improves job satisfaction and morale.

• Greater customer satisfaction.

Advantages:

• Gives competitive advantage

• Part of International Organisation of Standardisation 9000 criteria for accreditation

• High level of customer satisfaction

• High staff morale as all employees have ownership and work towards common goals

• Less wastage - reduced production costs.

Disadvantages:

• Costs and time associated with implementation (staff training, teamwork)

• Downtime along production lines when faults are detected because no production until it is fixed.

QUALITY IMPROVEMENT

Process of incremental change that continuously redefines standards for the better.

• Proactive approach to qualify management that goes beyond set standards

• Continuous improvement

• An organisational culture where everyone is responsible for quality.

Why:

• Maintaining a global competitive advantage

• Continuously improving products or processes to reduce costs (product, process and service innovation).

How:

• Process of plan, do, check, and act.

• Staff training and organisational culture developed.

Advantages:

• Maintain a competitive advantage in a globally competitive environment

• Focus on all aspects of the business (product, process. people, etc)

• Reduce costs - wastage, recycle, zero defects - environmental ethics.

Disadvantages:

• Time consuming to implement continuous change

• Training costs high as all staff must be on board including management to set a corporate culture.

TOTAL QUALITY MANAGEMENT

Combining all features of quality management.

• Achieves lean production - process of streamlining operations and processes to reduce all forms of waste.

• Involves supply chain - relationships with suppliers.

• Achieve zero defects.

Inventory Control

Scheduling and storage of raw materials and components required to process the product.

Why - ensure appropriate amount of inventory are maintained to fulfil customer demands without delay whilst keeping holding inventory and stock that will not cause delays in production.

How - developing relationship with suppliers and determining the most appropriate inventory control technique.

JUST IN CASE

Inventory control management strategy in which extra supply of raw materials and components are kept in reserve.

• Excess levels of buffer stock

• Bulk purchases

• High levels of storage requirements

When to use:

• Customer demand is inconsistent or difficult to determine.

• Global supply chain is inconsistent or difficult to manage due to likely interruptions.

Advantages:

• Ability to cover rise in demand or unexpected orders

• Ability to make bulk orders, incur discounts and less transport costs - economies of scale

• Less production downtime - not waiting on any one piece of inventory to arrive.

Disadvantages:

• High storage costs due to need for storage space and ongoing utilities/warehouse staff.

• Wastage - spare inventory gives little incentives to zero defects, plus spoilage when inventory goes out of date or becomes obsolete.

JUST IN TIME

Method that focuses on receiving inventory when needed to fulfil predicted current demand.

• Minimum buffer levels of inventory

• More frequent deliveries (lead time predictable)

• Inventory order to fulfil current needs only

• Requires clear organisation and control.

When to use:

• Demand is predictable

• Inventory supply chains reliable - local area, does not need to pass through multiple customs processes

• Clear and reliable lead times due to relationship with suppliers.

Advantages:

• Reduce cost in storage requirements

• Better cash flow - large amounts of capital not waiting in inventory in storage or future sales

• Customisation - goods produced when customer orders which allows for customisation

• Focus on zero defects - mindset that limited inventory so can’t make mistakes.

Disadvantages:

• Relies on relationship with suppliers

• Cannot cope with sudden increase in demand - customers may need to wait longer, could result in less sales if out of stock

• Small deliveries expensive and effect public image because increased carbon emissions

• Reliance on tech (inventory management software that can automatically track and reorder inventory) and trained staff which can be costly.