Ethical Problems in Product Strategy


Product quality, planned obsolescence, brand similarity, and packaging questions are significant concerns of consumers, managers, and governments. Competitive pressures have forced some marketers into packaging practices that may be considered misleading, deceptive, and/or unethical. Some firms make package larger than necessary to gain shelf space and consumer exposure in the supermarket. Odd-sized packages make price comparisons difficult. The real question seems to be whether these practices can be justified in the name of competition. Growing regulatory mandates appear to be narrowing the range of discretion in this area.

Product testing is another area that raises ethical concerns. To help assure consumers of product quality, many companies use seals of approval for their goods and services. Recently however consumers have begun to question whether the use of these seals is ethical, since they have to be purchased at fees ranging from $10,000 to $1 million. The seals also do not promise that the product is the best one on the market. Many of the organizations that offer seals of approval do not conduct product testing themselves or even compare brands.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

The Utilities Created by Marketing


 

All of marketing’s functions are performed to move goods from products to consumers. During this process, marketing adds utility (value) to goods and services. There are five types of utilities: 1) form, 2) time, 3) place, 4) possession, and 5) information.

1)      Form utility: refers to the changing of raw materials into a finished product. Taking grains and turning them into cereal is an example of form utility. Form utility is usually considered a production function rather than a marketing function.

2)      Time utility: it helps consumers by making products available when the consumer wishes. Supermarkets that are open 24 hours a day provide time utility. Making fresh fruit available in the winter is also a form of time utility.

3)      Place utility: it makes sure that the goods and services are conveniently located where consumers want them.

4)      Possession utility: it helps make the exchange of goods between buyers and sellers easy.  Anything that helps complete the sale – delivery, installation, warranties, credit – is considered part of possession utility.

5)      Information utility: it informs buyers of the product’s existence, how to use it, the price, and other facts. Such information is provided through advertising, salespeople, and packaging.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

 

Manufacturing Inventories


Manufacturing inventories depend on how much value has been incorporated by the firm:

  1. Raw materials
  2. Components/Subassemblies/Unfinished items
  3. Work-in-process
  4. End items/Finished goods

Raw materials are any inventories by a company which the company has not yet processed in any way. This would include such obvious raw materials as iron ore, sand or glass. However, by definition, it could include computer chips or other expensive items which have not yet been processed.

Components/Subassemblies/Unfinished items have been processed to some extent by the company, but are not yet finished. They may leave production area and be stored off the line, but will still not revert to being called raw material. They already have value added.

Work in process is similar to components, et al. it is actually a mixture of raw materials and components that are currently a part of the production process. So some raw materials may be part of work-in-process, and some components may not be.

Finished goods are simply goods which are finished and ready for sale. They are almost never left in the work area, but are moved out into final storage or packaging.

There is often some ambiguity about classification, since a company may sell some unpainted furniture but paint some for final sale. Is a given unpainted piece to be considered finished goods or not? Perhaps we need a new term for such goods.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

Product Development Process


The product development process involves analysis of the marketplace, the buyer, the company’s capabilities, and the economic potential of new product ideas. This process may be both expensive and time consuming. To accelerate the process, many companies create multidisciplinary teams so that manufacturing and marketing plans can be developed in tandem while the product is being designed.

  1. Generation and Screening of Ideas: The first step is to come up with ideas that will satisfy unmet needs. A producer may get new product ideas from its own employees or from external consultants, it may simply adapt a competitor’s idea, or it may buy the rights to someone else’s invention. Customers are often the best source of new product ideas.
  2. Business Analysis: A product idea that survives the screening stage is subjected to a business analysis. At this point the question is: Can the company make enough money on the product to justify the investment? To answer this question, companies forecast the probable sales of the product, assuming various pricing strategies. In addition, they estimate the costs associated with various levels of production. Given these projections, the company calculates the potential cash flow and return on investment that will be achieved if the product is introduced.
  3. Prototype Development: The next step is generally to create and test a few samples, or prototypes, of the product, including its packaging. During this stage, the various elements of the marketing mix are put together. In addition, the company evaluates the feasibility of large-scale production and specifies the resources required to bring the product to market.
  4. Product Testing: During the product testing stage, a small group of consumers actually use the product, often in comparison tests with existing products. If the results are good, the next step is test marketing, introducing the product in selected areas of the country and monitoring consumer reactions. Test marketing makes the most sense in cases where the cost of marketing a product far exceeds the cost of developing it.
  5. Commercialization: The final stage of development is commercialization, the large-scale production and distribution of those products that have survived the testing process. This phase requires the coordination of many activities—manufacturing, packaging, distribution, pricing and promotion. A classic mistake is letting marketing get out of phase with production so that the consumer is primed to buy the product before the company can supply it in adequate quantity. A mistake of this sort can be costly, because competitors may be able to jump in quickly. Many companies roll out their new products generally, going from one geographic area to the next. This enables them to spread the costs of launching the product over a longer period and to refine their strategy as the rollout proceeds.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

The Essence of Competition


Competition, the rivalry among businesses for consumers’ dollars, is a vital element in free enterprise. Competition fosters efficiency and low prices by forcing producers to offer the best products at the most reasonable price; those who fail to do so are not able to stay in business. Thus, competition should improve the quality of the goods and services available.

Within a free enterprise system, there are four types of competitive environments:

  1. Pure competition exists when there are many businesses selling one standardized product. No one business sells enough of the product to influence the product’s price. And, because there is no difference in the products, prices are determined solely by the forces of supply and demand.
  2. Monopolistic competition exists when there are fewer businesses than in a pure-competition environment and the differences among the goods they sell is small. The products differ slightly in packaging, warranty, name, and other characteristics, but all satisfy the same consumer need. Businesses have some power over the price they change in monopolistic competition because they can make consumers aware of product differences through advertising. Consumers value some features more than others and are often willing to pay higher prices for a product with the features they want.
  3. Oligopoly exists when there are very few businesses selling a product. individual businesses have control over their products’ price because each business implies a large portion of  the products sold in the marketplace. Nonetheless, the prices charged by different firms stay fairly close because a price cut or increase by one company will trigger a similar response from another company. Oligopoly exists when it is expensive for new firms to enter the marketplace.
  4. Monopoly exists when there is one business providing a product in a given market. Utility companies are monopolies. The government permits such monopolies because the cost of creating the good or supplying the service is so great that new producers cannot compete for sales. Government-granted monopolies are subject to government-regulated prices.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

Accounting Information


Accurate cost data are required for the successful implementation of the integrated physical distribution management concept using total cost analysis, for the management and control of physical distribution operations, and to aid in setting selling prices and in justifying price differentials.

As the cost of physical distribution increases, the need for accurate accounting for the costs becomes increasingly critical. Since the physical distribution function is relatively more energy intensive and labor intensive than other areas of the firm, its ratio of costs to total company costs has been steadily increasing. Efficient and effective distribution policies cannot be determined until the costs related to separate functional areas and their interaction are made available to distribution decision makers.

The quality of the accounting data will influence management’s ability to exploit new markets, take advantage of innovative transportation systems, make changes in packaging, choose between common carriers and private trucking, increase deliveries or increase inventories, and determine to what extent the order-processing system should be automated.

The accounting system must be capable of providing information to answer the following questions:

a)        What are the impacts of physical distribution costs on contribution by product, by territory, by customer, and by salesperson?

b)        What are the costs associated with providing additional levels of customer service? What trade-offs are necessary and what are the incremental benefits or losses?

c)        What is the optimal amount of inventory? How sensitive is the inventory level to changes in warehousing patterns or to changes in customer service levels? How much does it cost to hold inventory?

d)        What mix of transportation modes and carriers should be used?

e)        How many field warehouses should be used and where should they be located?

f)          How many production set-ups are required? Which plants will be used to produce each product?

g)        To what extent should the order-processing system be automated?

To answer these and other questions requires knowledge of the costs and revenues that will change if the physical distribution system changes. That is, determination of a product’s contribution should be based on how corporate revenues, expenses, and hence profitability would change if the product line were dropped. Any costs or revenues that are unaffected by the decision are irrelevant to the problem. For example, a relevant cost woul be public warehouse handling charges associated with a product’s sales; a non-relevant cost would be the overhead costs associated with the firm’s private trucking fleet.

Implementation of this approach to deceision making is severely hampered by the lack of availability of the right accounting data or the inability to use the data when they are available. The best and most sophisticated models are only as good as the accounting input, and a number of recent studies attest to the gross inadequacies of distribution cost data.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, Lectures, Line of Sight

Everything is Tentative


It’s easy to imagine that building a new product is like building a house—first the foundation, then the frame, then the first floor, and so on. Unfortunately, product aspects are rarely locked in that way. Occasionally they are, as when a technical process dominates development, or when a semifinished product is acquired from someone else, or when legal or industry requirements exist.

We usually assume everything is tentative, even up through marketing. Form can usually be changed, and so can costs, packaging, positioning, and service contracts. So can the marketing date and the reactions of government regulators. So can customer attitudes, as companies with long development times have discovered.

This means two long-held beliefs in new product work are actually untrue. One is that everything should be keyed to a single Go/No Go decision. Granted, one decision can be

Decisive—at times, for example, when a firm must invest millions of dollars in one large facility or when a firm acquires a license that commits it to major financial outlays. But many firms are finding ways to avoid such commitments, for example, by having another supplier produce the product for a while before making a facilities commitment, or by negotiating a tentative license, or by asking probable customers to join a consortium to ensure the volume needed to build the facility.

The other untrue truism is that financial analysis should be done as early as possible to avoid wasting money on poor projects. This philosophy leads firms to make complex financial analyses shortly after early concept testing, although the numbers are inadequate.

Still another tentative matter is the marketing date. Marketing actually begins very early in the development process—for example, when purchasing agents are asked in a concept test whether they think their firm would be interested in a new item. Rollouts are now so common it is hard to tell when all-out marketing begins.

Often no one pulls a switch and marketing instantly begins. We more often sneak up on it, which clearly affects the evaluation system.

What results in some cases is a sort of a rolling evaluation. The project is being assessed continuously, figures are penciled in, premature closure is avoided, and participants avoid mind-sets of good and bad.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, Line of Sight

Creative Management of Product Design


An emerging area of importance is product/process design. In increasingly competitive, sophisticated markets, attractively designed products or processes sell well; shoddily designed products are left alone on the shelves. Excellent product design requires high orders of essence creativity (novel ideas), elaborative creativity (contextually relevant elaborations of ideas that are unique because of the kinds of components utilized and the way they are fitted together), and expressive creativity (unique aesthetic features). There can be following basic steps for coming up with successful and creative product design:

a)    The designing unit should have members with diverse expertise so that their brainstorms can result in unique product design concepts that are also practical.

b)   It is imperative that the design unit has an in-depth understanding of the client and the market, the technologies needed or involved, and the nature of the problem and the constraints that need to be kept in mind.

c)    The design unit must take the trouble to observe people in real-life situations to identify their needs, difficulties, likes, dislikes, etc. Creative design needs creative observation, that is observation that is not only accurate but also multi-angled so as to yield interesting design possibilities. Innovation begins with eyes. The design unit needs to create a ‘bug-list,’ that is, a list of the problems that presently bug the likely users of the future products.

d)   The design unit needs to visualize a new product concepts and the customers who could be captivated by them. This can involve building several physical models and prototypes, simulations on the computer, and creation of videos that portray high the new product may be used by people well before it comes into existence.

e)    The design unit needs to evaluate and refine the prototypes/models through several quick iterations, each one involving changes and improvements. Inputs should be secured not only from members of the design unit, but also from experts, the client, and the potential consumers. Exceptional design seldom come right the first time around. Serially generated improvements based on the reactions and suggestions of the product’s stakeholders can quickly get the design unit to an exceptional design.

f)     Effective implementation that leads to the commercial use of the product. This is often a long and tedious process that creative teams frequently neglect. But the planning of milestones, cost cutting and cost control efforts, packaging and so forth are indispensable if a product design is to taste commercial success.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, Line of Sight

Transformation into an Enterprise Colony


Modern corporations need to transform themselves into enterprise colonies that can tap, build and realize the entrepreneurial potential within their people. Companies should provide venture teams with development capital, marketing assistance and central services in return for an appropriate equity stake in new initiatives.

Empowerment and delegation are being championed in many companies. But empowerment to do what, and delegation for what purpose? General drives need to be matched with specific steps to promote enterprise and build entrepreneurial qualities.

Confident companies encourage people to better understand their inner selves, and take advantage of their unique qualities and distinctive strengths:

  • They invite suggestions for new ways of exploiting corporate capabilities, and building and delivering value to customers.
  • They stimulate diversity, establish working environments that are conducive of reflection, and introduce ways of working and learning that raise spirits and fire the imagination.
  • They encourage the creation, packaging, sharing, application and exploitation of new knowledge and understanding.
  • They are also prepared to share rewards with those primarily responsible for successful entrepreneurship.

Personal and corporate transformation must go hand in hand. Increasingly, people need to think for themselves and make choices. Many intending entrepreneurs require new skills and knowledge, and specialist support. Many traditional management tools and techniques are simply not appropriate for those who seek both business success and personal fulfillment.

Small and medium sized enterprises (SMEs) and new corporate ventures are the primary source of tomorrow’s work opportunities. In recent years governments and corporate leaders around the world have put a higher priority upon enterprise and entrepreneurship. The aspiration is clear. However, many people lack the competence and experience either to become entrepreneurs, or to manage corporate relationships with them.

Enterprise needs its own entrepreneurs. Slimmed-down organizations require the services of counsellors with the experience, sensitivity and intuition to help others to become successful entrepreneurs, while the resulting ventures will need learning and enterprise support services at various points in the enterprise life cycle.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, Line of Sight

New Product Process


New products actually build up the way rivers do. Great rivers are systems with tributaries that have tributaries. Goods that appear complex are just collections of metal shapes, packaging material, fluids, prices, and so on. A good anology is the production of automobiles, with a main assembly line supported by scores of subsidiary assembly lines scattered around the world, each of which makes a part that goes into another part that ultimately goes into a car in that final assembly line.

 If you can imagine the quality control people in auto parts plants evaluating each part before releasing it to the next step, you have the idea of a new product evaluation system. The new product appears first as an idea, a concept in words or pictures, and we evaluate that first. As workers turn the concept into a formed process of metal, or software, or a new factory site preparation service, that good or service is then evaluated. When a market planner puts together a marketing plan, its parts are evaluated separately (just as minor car parts are) and then evaluated again in total, after it is added to the product.

 The fact that we evaluate the product and its marketing plan as separate and divisible pieces is what lets us telescope the development process into shorter periods of time. There was an era when we went through a new product’s development step by step, nothing “ahead of its time.” But today we may be working on a package before we actually have finished product, we may be filming part of a commercial before the trademark has been approved and finalized.

 This sometimes causes some backtracking, but the cost of that is less than the costs of a delayed introduction. It does require, however, that we have thought through carefully the item’s overall development needs—and, which of those needs are crucial, and which not crucial. Any evaluation system must cover the crucial ones.

 My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, Line of Sight

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