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Operations Management
OPERATIONS MANAGEMENT
HANDOUT 4
PRODUCT AND PROCESS STRATEGY
What is a Product?
In marketing, the term “product” refers to solutions a marketer provides to its target market. We will follow this approach and permit the term
“product” to cover offerings that fall into one of the following categories:
 Goods – Something is considered a good if it is a tangible item.
 Services – Something is considered a service if it is an offering a customer obtains through the work or labor of someone else.
 Ideas – Something falls into the category of an idea if the marketer attempts to convince the customer to alter their behavior or
their perception in some way.
Attributes of a Product
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Tangible Attributes: design, price, availability, performance etc.
Intangible: image, perceived value tec.
Total Product Concept
The total product consists of more than what is consumed. The total product offering and the decisions facing the marketer can be broken
down into three key parts:
1.
Core Product: functionality and key benefits for buying the product.
2.
Actual Product: Features, ingredients, design, packaging, colour, texture etc.
3.
Augmented Product: aftersales service, guarantee, brand, training, repairs etc.
Product Strategy
The Ansoff Matrix is an important tool in making product strategy. Marketing management should first review opportunities for improving
existing business. Ansoff proposed a useful framework for detecting new growth opportunities called a “product –market expansion grid”
or the Ansoff Matrix.
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Operations Management
Market penetration
The company will try to gain more market share for its current products. Possible strategies include:
1.
Encourage current consumers to consume more.
2.
Attract competitors’ consumers.
3.
Convince non users to use the product ( if the market is not saturated)
Market Development Strategy
The company finds whether it can develop new markets for its current products. Possible strategies include:
1.
Finding new uses for the product.
2.
Seek new distribution channels
3.
Market to new geographical areas e.g. foreign markets.
Product Development Strategy
The company may decide to develop new products that can be sold to its current customers.
Diversification Strategy
Enter in totally new and unrelated businesses and markets. This can also be used to reduce business risk exposure
NEW PRODUCT DEVELOPMENT (NPD)
New Product Development
What is a new Product?
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New to the word
New to the company
New improvements
Sources of Product Ideas
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Internal: Sales staff, SWOT analysis, suggestion boxes, customers complaints , Research and Development
External: Market research, competitors, customers, industry research, inventors.
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Operations Management
NPD Process
The development of a new product involves the following process:
1.
Idea Generation:
2.
 This is the first stage of new product development.
 A pool of new product ideas is generated.
 Ideas can be obtained from the following sources:
 Customers who uses the product
 Company’s sales representatives, distributors and dealers.
Idea Screening
3.
 Is carried out to select the best idea for new product.
 Involves evaluating ideas and discarding ones which are worthless.
Concept development and testing
Concept development
Attractive ideas need to be developed into product concept. A product concept is an elaborated version of the idea expressed in
meaningful consumer terms i.e. symbolic description of the new product or prototype of the product.
Concept testing
This calls for testing the product concept with an appropriate group of target consumers. The concept may be presented physically or
symbolically i.e. in pictures descriptions.
In concept testing, the consumers are asked to answer the following questions:
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4.
Are the benefits of this products/service clear to you?
Do you see this product as solving a problem or filling a need for you?
Do products currently meet this need and satisfy you?
Is the price reasonable in relation to the value of the product?
Marketing Strategy development
The new product manager will have to develop a preliminary marketing strategy statement for introducing the product into the market
The marketing strategy consists of:
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Describing the size, structure and behaviour of the target market.
Outlining the product planned price, promotional and distribution strategy,
Estimating the marketing budget for the first year.
Describing the planned long run sales, profit goals and marketing mix strategies over time.
5.
Business analysis
6.
 Deals with estimating sales, costs and profits of the product
 The management needs to estimate whether sales will be high enough to return a satisfactory profit to the firm.
Product development
If the product concept passes the business test, it moves to manufacturing/production stage to be developed into a physical product.
The product development stage answers whether the product can be translated into a technically commercially feasible product.
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Operations Management
7.
Market testing
The purpose of market, testing is to learn how consumers and dealers react to handling using and purchasing the actual product and
how large the market is.
Market testing can also yield valuable information about marketing programs to be adopted.
In market testing, the company usually works with and outside research firm to locate a few representative test cities or towns in which
the company’s sales for force will put on a full advertising and promotion campaign in those markets similar to ones that would be used
in national marketing
8.
Commercialization
Market testing gives management enough information to make a final decision about whether to launch the new product in the market
If the market testing results shows good sales prospect, the company will go ahead with commercialization.
PROCESS STRATEGY
Process strategy refers to the pattern of decisions made in managing processes with the aim of achieving competitive priorities. It can be
utilized to guide a variety of process decisions, operations strategy, and your business' ability to obtain the resources necessary to support
them.
In understanding process strategy, there are three main principles that are particularly important:

The key to successful process decisions is to make choices that fit the situation. They should not work at cross-purposes, with one
process optimized at the expense of other processes. A more effective process is one that matches key process characteristics
and has a close strategic fit.
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Individual processes are the building blocks that eventually create the firm's whole supply chain.
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Management must pay close attention to all interfaces between processes in the supply chain, whether they are performed
internally or externally.
A process involves the use of an organisation's resources to provide something of value. For example, without processes, services can't be
provided and products can't be made. Therefore, to properly manage processes, you must be able to decide how you are going to go about
providing your services and/or developing your product.
With the vast amount of options available, operations managers must be careful when selecting a strategy to ensure it's the most suitable
for their business. For example, you can choose to keep production in-house, outsource all operations, or to have a combination. Ultimately,
their decision will help define the organisation's supply chain.
Process decisions directly affect the process itself and indirectly the services and the products that it provides. Whether dealing with
processes for offices, service providers, or manufacturers, you must consider four very important process decisions.

Process structure: determines the process type relative to the kinds of resources needed and how resources are partitioned
between them. A layout, which is the physical arrangement of operations created from the various processes, puts these
decisions into tangible form.
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Operations Management
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Customer involvement: reflects the extent of customers’ participation in the processes. Customer involvement refers to ways
which customers become part of the process and the extent of their participation. This is particularly important if your business
involves a high level of customer contact.
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Resource flexibility: refers to the ease with which employees and equipment can handle a wide variety of products, output
levels, duties, and functions.
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Capital intensity: is the mix of equipment and human skills in a process. As the relative cost of equipment increases, so does
capital intensity.
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