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EXPLORING BUSINESS V. 2.1 By Karen Collins

CHAPTER 10 PRODUCT DESIGN AND DEVELOPMENT

CHAPTER OBJECTIVES Define product and identify sources of product ideas Explain how an idea turns into a business opportunity Explain how to research an industry and forecast demand for a product Describe the calculation and purpose of breakeven analysis Describe the process of developing a product that meets customer needs Discuss the approach used to protect your product

PRODUCT Tangible vs. intangible Good vs. service SOMETHING THAT CAN BE MARKETED TO CUSTOMERS, PROVIDES A BENEFIT AND SATISFIES A NEED

TYPES OF PRODUCT DEVELOPMENTS New to the market New to the company Improvement in an existing product Extension of an existing produce line

SALES FROM NEW PRODUCTS

WHERE DO PRODUCT IDEAS COME FROM? Entrepreneurs and small business owners People within the organization Creativity consultants “Entrepreneurial” Units in large and medium size organizations Customers, competitors and others outside the organization

UTILITY OR BENEFITS TIMEPLACEOWNERSHIPFORM

IDEA = BUSINESS OPPORTUNITY

CUSTOMERS BUY PRODUCTS TO FILL UNMET NEEDS AND BECAUSE THEY EXPECT TO DERIVE SOME VALUE OR BENEFIT FROM THEM

WHEN COMING UP WITH A NEW PRODUCT IDEA DO NOT ASK: “WHAT DO I WANT TO SELL?” INSTEAD ASK: “WHAT DOES THE CUSTOMER WANT TO BUY?”

INDUSTRY How to Study an Industry –Begin with overall industry –Segment (subdivide) industry into smaller market segments –Subdivide further to find a niche – a group of customers with fairly specific set of needs. A GROUP OF RELATED BUSINESSES

ASSESSING COMPETITION Is industry growing or contracting? Who are the major competitors? What opportunities/threats exist? Where is the industry headed? Are new companies entering? Do those in the industry make reasonable profits?

FORECASTING DEMAND Are there enough customers willing to buy my product at a price that allows me to make a profit? Talk with: –People in Similar Businesses –Potential Customers –Utilize published industry data

DEVELOP/MARKET NEW PRODUCT

BREAKEVEN ANALYSIS Calculations: –Determine fixed costs –Identify variable cost per unit –Revenue per unit less variable cost per unit = contribution margin per unit –Fixed costs divided by contribution margin per unit = breakeven units USED TO ESTIMATE THE NUMBER OF SALES UNITS AT WHICH NET INCOME IS ZERO

DEVELOPMENT PROCESS SERIES OF ACTIVITIES BY WHICH A PRODUCT IDEA IS TRANSFORMED INTO A FINAL PRODUCT

PRODUCT DEVELOPMENT IDEAANALYSISDEVELOP

RISKS TO PRODUCT DEVELOPMENT Trade-Offs Time Pressure Economics

THE PRODUCT DEVELOPMENT PROCESS EVALUATE OPPORTUNITIES AND SELECT THE BEST PRODUCT IDEAGET FEEDBACK TO REFINE THE PRODUCT CONCEPTMAKE SURE THE PRODUCT PERFORMS AND APPEALS TO CONSUMERSDESIGN WITH MANUFACTURING IN MINDBUILD AND TEST PROTOTYPESRAMP UP PRODUCTION AND RUN MARKET TESTSLAUNCH THE PRODUCT Focus of team members involved in design

PATENT Requirements for a new patent: –Be new –Not be obvious –Have utility RIGHT TO EXCLUDE OTHERS FROM MAKING, USING, OFFERING FOR SALE, OR SELLING THE INVENTION IN THE U.S. FOR 20 YEARS