Exploring Business 2.0 © 2012 Flat World Knowledge Chapter 10: Product Design and Development

Exploring Business 2.0 © 2012 Flat World Knowledge Chapter Objectives 1.Define product. 2.Describe the four major categories of product developments: new- to-the-market, new-to-the-company, improvement of existing product, and extension of product line. 3.Explain where product ideas come from. 4.Explain how an idea turns into a business opportunity. 5.Describe the four types of utility provided by a product: time, place, ownership, and form. 6.Explain how to research an industry. 7.Forecast demand for a product. 8.Learn how to use breakeven analysis to estimate the number of sales units at which net income is zero. 9.Describe the process of developing a product that meets customer needs. 10.Learn how to protect your product idea by applying for a patent.

Exploring Business 2.0 © 2012 Flat World Knowledge Product Product “…something that can be marketed to customers…provides…a benefit and satisfies a need.” Tangible v. Intangible (Good) v. (Service) (Good) v. (Service)

Exploring Business 2.0 © 2012 Flat World Knowledge Types of Product Developments 1.New-to-the-market 2.New-to-the-company 3.Improvement in an existing product 4.Extend existing product line

Exploring Business 2.0 © 2012 Flat World Knowledge Chief Characteristics of Entreprenerial Start-Ups Characterized by innovative products and/or practices. Goals include profitability and growth. Focuses on new opportunities. Owners are willing to take risks.

Exploring Business 2.0 © 2012 Flat World Knowledge How to Take a Calculated Risk Decision making regarding new products can be improved with input from: Information gathered from research Knowledge gained from personal experience

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?” Exploring Business 2.0 © 2012 Flat World Knowledge

Sources of New Product Ideas  Entrepreneurs and small business owners  Solicit ideas from people within the organization Marketing Sales Research Manufacturing  “Entrepreneurial” Units  Speak with customers and others outside the organization Customers Competition

Exploring Business 2.0 © 2012 Flat World Knowledge Sales from New Products

Exploring Business 2.0 © 2012 Flat World KnowledgeCustomers “…buy products to fill unmet needs and because they expect to derive some value or benefit from them.”

Exploring Business 2.0 © 2012 Flat World Knowledge Utility  Time  Place  Ownership  Form

Exploring Business 2.0 © 2012 Flat World Knowledge When Is an Idea a Business Opportunity

Exploring Business 2.0 © 2012 Flat World KnowledgeIndustry “…a group of related businesses.”

Exploring Business 2.0 © 2012 Flat World Knowledge Understand Industry How to Study an Industry Begin with overall industry (group of businesses that do similar things) Look at market (everyone who buys your product)

Assessing your Competition Is industry growing or contracting? –Subdivide market into market segments (customers with common characteristics) –Subdivide into niche (an unmet need) Exploring Business 2.0 © 2012 Flat World Knowledge

Assessing Competition  Industry sales growing/contracting?  Major competitors?  Opportunities/threats?  Recent changes/direction?  Importance of technology?  Mature/new company success?  Reasonable profits?

Exploring Business 2.0 © 2012 Flat World Knowledge When to Develop and Market a New Product

Exploring Business 2.0 © 2012 Flat World Knowledge Areas that need to be researched when marketing a new product People in Similar Businesses Potential customers Published Industry Data

Exploring Business 2.0 © 2012 Flat World Knowledge Breakeven Analysis “…total sales revenue must exactly equal all your expenses (both variable and fixed).”

Exploring Business 2.0 © 2012 Flat World Knowledge Breakeven Calculation Selling Price Selling Price -Variable Cost per Unit Contribution Margin Contribution Margin Fixed Cost Fixed Cost Contribution Margin Contribution Margin = Breakeven (Units) Breakeven (Units)

Exploring Business 2.0 © 2012 Flat World Knowledge Risks to Product Development  Trade-Offs  Time Pressure  Economics

Exploring Business 2.0 © 2012 Flat World Knowledge Development Process “…series of activities by which a product idea is transformed into a final product.”

Exploring Business 2.0 © 2012 Flat World Knowledge The Product Development Process

Exploring Business 2.0 © 2012 Flat World KnowledgePatent “…‘right to exclude others from making, using, offering for sale, or selling’ the invention in the U.S. for 20 years.” Requirement for getting a patent: Be new Not be obvious Have utility Website: