BUS300 Study Guide

Unit 3: Product Design and Process Selection

3a. Describe the steps in the product/service design process

  • What are the sources of innovation?
  • How are ideas generated and screened?
  • What are the steps management takes to conduct business analysis for a new business idea?
  • What questions need to be asked for the technical and marketing development of a new product idea?
  • What is involved in new product manufacturing, test marketing, and product release?

Corporate innovation is a function of a recognized need, the availability of skilled and knowledgeable workers, and financial resources. As companies identify market needs, they can utilize formal structures to conduct research both internally and externally. Additionally, innovations can be revealed through less formal activities such as making on-the-job revisions, reviewing consumer buying habits, and applying past experiences.

Ideas for new products come from customers, a company's internal research department, and other departments, the competition, market research, employees, and external sources. Brainstorming sessions are a popular strategy for new idea generation.

Once an idea has been determined, it is screened to determine whether it is worth pursuing. Some of the issues evaluated include whether customers will benefit from the product if it is technically possible for the company to produce the item and whether the company can realize a profit at a price consumers are willing to pay.

Once a new idea has been determined to be viable, management then determines a price for the product. This is based on the competition in the marketplace, as well as feedback from customers. This is followed by an estimate of potential sales, profitability, and the break-even point.

The first step in the technical development of a new product is to identify product specifications, followed by creating a prototype. At the same time, the marketing department will introduce the product to potential customers and create a marketing mix.

Questions that need to be answered include identifying the appropriate target market, the product features and benefits that will be most important to customers, potential customer reactions, production costs, and how to produce the item for maximum profitability.

Once a product is ready to be manufactured, a company must ensure that proper tooling, resources, finances, and skilled workers are in place. Marketing plans are ready to be implemented to coincide with product completion, and then the product is released to the public.

To review, see Innovation, Brainstorm to Box: Good Design, Igniting Creativity to Transform Corporate Culture, Increasing Returns on New Product Development Investments, and Following a Product Development Process.


3b. Discuss how managers can use the cost-volume-profit model to estimate profit level by volume

  • How does sensitivity analysis address changes in the variables that can alter profit levels?
  • What is the purpose of finding the target profit in units, and how is the profit equation used to determine this figure?

Variables that can impact profits include price adjustments, volume changes, and variations in fixed and variable costs.

When specifically exploring this interrelationship for volume, it is important to recognize that any sales volume changes will impact profit. Using a spreadsheet that illustrates all of the factors that can impact profits can enable an organization to clearly see how all of the elements are dependent on each other. Doing so makes it easy to see how a change in any one criterion can impact the others and enable a company to make more effective business decisions.

The profit equation can enable a company to set the target profit it would like to achieve. This can be based on various factors, with volume, or quantity, being of primary importance. The elements of this equation are:

S = Selling price per unit

V = Variable cost per unit

F = Total fixed costs

Q = Quantity of units produced and sold

Therefore, to determine the profit level by volume or quantity, the formula to use can be expressed as:

Q=(F+Target Profit) / (S-V)

To review, read Using Cost-Volume-Profit Models for Sensitivity Analysis and Cost-Volume-Profit Analysis for Single-Product Companies.


3c. Apply customer needs research methods as a way to improve design

  • What are the factors that define consumer behavior?
  • How do marketers influence consumer buying decisions?
  • How do companies utilize personal factors to meet our needs?

Consumers base their purchase decisions based on personal, situational, psychological, and social reasons. When a company understands the rationale behind these factors, they can better meet consumer needs and create products that offer features and benefits consumers are seeking.

Companies spend a great deal of time, money, and effort in researching trends to determine customer needs and how purchase decisions are made. Companies can also influence those decisions by creating store environments that reflect how consumers behave in a retail environment. Traffic patterns are carefully monitored, atmospherics are carefully controlled, and locations are carefully selected to ensure that our needs are met while also meeting organizational goals.

Organizations seek to understand our self-concept as well as our ideal self. Coupled with demographics and life-cycle, companies can determine what products and services improve the likelihood of purchasing those items.

To review, read Consumer Behavior and Product Development.


3d. Evaluate the appropriateness of applying project, batch, mass, and continuous process types

  • What are the benefits of a job/project production process, and how does it compare to mass production?
  • What are the characteristics of the batch process, and what are the common uses of this method?
  • What are the benefits of using a continuous process, and what industries most frequently utilize this method?

The job production process is used for one-off items such as a wedding cake or custom suit. This requires a great deal of time and a small number of workers. On the other hand, mass production processes are used to manufacture large numbers of items and are more likely to be produced by an automated mechanical process.

The batch process enables the shift of activities to periods of time when computer resources are less busy. It helps to reduce overtime by running a program only once for many transactions. It enables the systems to use different priorities for interactive and non-interactive work. The most common uses of a batch process include bulk database updates, the editing of image files, and converting files from one format to another.

In a continuous process, operations run on a 24-hour basis, 7 days a week, with only occasional shutdowns for maintenance or needed modifications. This process allows for production without interruption and is cost-effective since starting and stopping equipment takes time, effort, and is cost-effective. Operations are carefully planned, in advance, to maximize equipment, materials, and output. To ensure the safety of the environment and the workers, safety measures are adhered to at all times, and workers take rotating shifts.

To review, read Methods of Production, Batch Processing, and Continuous Production.


Unit 3 Vocabulary

This vocabulary list includes terms that might help you with the review items above and some terms you should be familiar with to be successful in completing the final exam for the course.

Try to think of the reason why each term is included.

  • innovation
  • idea generation
  • idea screening
  • product specifications & prototypes
  • marketing strategies
  • manufacturing readiness
  • product release
  • consumer behavior
  • personal factors
  • demographics
  • life cycles
  • retail atmospherics
  • in-store traffic patterns
  • self-concept
  • consumer trends
  • job production
  • mass production
  • batch process
  • continuous process
  • sensitivity analysis
  • cost-volume-profit
  • target profit in units
  • profit equation