New Product or Service Design and Development (HSC SSCE Business Studies): Revision Notes
New Product or Service Design and Development
Businesses must continuously create and develop new products and services to remain competitive and achieve growth. The design and development of new offerings is a critical operations strategy that enables businesses to respond to market demands and leverage technological advances.
Why new product and service design matters
The operations function within a business is responsible for creating new goods and services. When a business successfully designs, develops, launches and sells new products, it can expand its market presence and gain competitive advantage over rivals.
Without ongoing innovation in product and service design, businesses risk becoming outdated and losing market share to more innovative competitors.
Both goods (physical products) and services (intangible offerings) require careful design and development processes. These processes must balance customer needs with operational capabilities and business objectives.
Approaches to new product design and development
Consumer-driven approach
The first approach places customer preferences at the centre of the design process. Businesses conduct market research to identify what consumers want, need or expect from products. The findings from this research directly shape which products are designed and what features they include.
This is known as market-oriented production, where customer demands determine the quality standards, attributes and features that must be incorporated into new products.
Consumer-Driven Design Example: Sports Footwear
A sports shoe manufacturer might survey runners to discover they want lighter shoes with better cushioning. The company would then design new shoes specifically addressing these preferences, ensuring the product directly meets identified customer needs.
Technology-driven approach
The second approach begins with technological innovations and advancements. When new technologies emerge, they create opportunities to develop products with enhanced functionality or entirely new capabilities. These technology-driven innovations enable businesses to create appealing products that use advanced techniques consumers may not have known they wanted.
Case Study: Apple Inc.
Apple demonstrates the technology-driven approach effectively. The company's continued success stems from maintaining complete control over both hardware and software design and development. Unlike competitors who outsource design to reduce costs, Apple integrates its design processes, creating innovative, consumer-oriented technology products.
Each iPhone generation introduces new technological capabilities that shape consumer expectations rather than simply responding to existing demands. The technology leads the market, creating desire for features customers didn't know they needed.
Similarly, smartphone manufacturers regularly introduce features like improved cameras, faster processors or new biometric security before consumers explicitly request them. The technology makes the feature possible, and effective design makes it desirable.
Steps in the product design and development process
New product creation follows a structured sequence of five key stages:
Stage 1: Market research, product concept and specification development
This initial stage involves gathering information about market opportunities, customer needs and competitive offerings. The business develops a product concept (the basic idea for the product) and creates detailed specifications (technical requirements and features the product must have).
This foundation guides all subsequent design decisions. Without clear specifications, the design process lacks direction and may fail to meet customer needs or business objectives.
Stage 2: Product design and prototype development, with quality parameters decided
Designers and engineers translate the product concept into actual designs. They create prototypes (working models of the product) that can be tested and evaluated. During this stage, the business establishes quality parameters – the standards the product must meet for performance, durability, appearance and other quality dimensions.
Stage 3: Prototype testing and assessment (includes market testing)
The prototype undergoes rigorous testing to ensure it functions as intended and meets quality standards. Market testing exposes potential customers to the prototype to gauge their reactions and gather feedback.
This testing reveals design flaws, performance issues or market appeal problems before full-scale production begins. Identifying problems at this stage is far less costly than discovering them after launch.
Stage 4: Product refinement and production processes refined
Based on testing feedback, designers make necessary improvements to the product. Simultaneously, operations managers refine the production processes – determining the most efficient methods, equipment and procedures for manufacturing the product at scale. This stage ensures the product can be produced consistently and cost-effectively.
Stage 5: Production, product launch, distribution and, over time, product line extension
The business begins full-scale production and launches the product to market. Distribution channels deliver the product to customers. As the product matures, the business may develop product line extensions – variations or enhanced versions that leverage the original product's success.
Key factors in product design and development
Operations managers must carefully consider four critical factors throughout the entire design and development process:
Quality
Quality refers to how well a product meets customer expectations and performs its intended function. In market-oriented production, customers demand specific quality levels and particular features. Quality considerations influence material selection, manufacturing precision, durability standards and overall product performance.
Poor quality damages brand reputation and leads to customer dissatisfaction, while appropriate quality creates customer satisfaction and loyalty. The quality level must match customer expectations and price point.
Supply chain management
Supply chain management involves coordinating the network of suppliers who provide materials, components and services needed for production. A new product often requires different or additional suppliers, expanding the range of supplies the business must source.
New products may also change the timing (when supplies are needed) or volume (how much is needed) of supply orders. Effective supply chain management ensures the business can obtain necessary inputs reliably and cost-effectively to support new product production.
Output capacity
Output capacity is the maximum amount a business can produce with its existing resources (equipment, facilities, workforce). Any new product affects capacity utilization. The new product may increase use of existing resources or require investment in additional capital equipment to expand capacity.
Operations managers must assess whether current capacity can accommodate the new product or whether capacity expansion is necessary. This decision has significant financial implications for the business.
Cost
Cost encompasses all expenses involved in creating the product, determined by the quantity and type of inputs, processing time and energy consumption. Beyond simple cost calculation, businesses must consider value – the customer's perception of the product's worth.
Product utility (the usefulness and value a product has from the consumer's point of view) directly relates to how much customers will pay.
Cost and Value Relationship
A product that costs $50 to produce but offers high utility might sell for $150, creating strong profit margins. The $100 difference represents the value customers perceive in the product beyond its production cost.
These four factors interconnect: quality improvements may increase costs, supply chain decisions affect capacity, and capacity investments impact overall costs. Operations managers must balance these factors to create viable, profitable products.
Service design and development
How service design differs from product design
Services possess unique characteristics that distinguish their design from physical products. Services are intangible (cannot be touched or stored) and are typically consumed as they are produced (customers experience the service during its delivery).
Because of these characteristics, service design has always placed the customer or client at the centre of the design process. Unlike products which can be designed and tested before customer interaction, services are experienced during delivery.
However, not all services require the same level of customer interaction:
Standardized services involve minimal customer interaction and follow consistent procedures. Examples include:
- Shelf packing in grocery stores
- Short-order cooking in fast-food outlets
- Petrol station attendants
Customized services involve significant customer interaction and are tailored to individual client needs. Examples include:
- Accountancy work
- Legal services
- Medical specialist consultations
- Journalism
Professional services like those provided by accountants, lawyers, medical specialists or journalists customize their work extensively to meet each client's particular requirements.
Explicit and implicit service
Effective service design must address two dimensions of customer experience:
Explicit service represents the tangible, measurable aspects of service delivery – the application of time, expertise, skill and effort. This includes:
- How long the service takes
- The professional qualifications of the service provider
- The specific tasks performed
- The technical competence demonstrated
Explicit Service Example: Dental Care
A dentist's explicit service includes the time spent examining teeth, their professional qualifications, the specific procedures performed (cleaning, filling, extraction) and their technical skill in performing these procedures. These are measurable, concrete aspects of the service.
Implicit service addresses the intangible, psychological aspects of service delivery. It encompasses the feeling of being looked after and the psychological wellbeing customers experience during service delivery. This creates emotional satisfaction beyond the technical service provided.
Implicit Service Example: Dental Care
Using the dentist example, implicit service includes:
- The welcoming atmosphere of the clinic
- The dentist's reassuring manner
- Feeling that individual concerns are heard and addressed
- Confidence that personal needs are being met
- Overall sense of care and attention
When designing services, businesses must embed appropriate levels of skill, time and expertise into the service delivery process. This ensures customers recognize their particular needs are being specifically catered for, creating both explicit satisfaction (the technical service was performed well) and implicit satisfaction (they felt valued and cared for during the experience).
Services using goods
Many services require physical goods to support their delivery. Operations managers must consider these supporting goods when designing and developing services, as they complement and enhance service delivery.
Examples of services requiring goods:
A surgeon performing knee surgery requires:
- Swabs and bandages
- Sutures (stitches)
- Specialized medical equipment
- An operating theatre with necessary facilities
A private tutor requires:
- Specialized textbooks and reference materials
- Access to networked computers
- Paper and stationery
- Potentially educational software or online resources
Technological breakthroughs and new services
Advances in technology can create entirely new service categories. Laser technology demonstrates this principle clearly. Developments in laser equipment have enabled new types of businesses offering services that previously did not exist:
- Laser eye correction surgery
- Cosmetic laser surgery
- Laser hair removal
- Laser skin treatments
These services could not be offered before the technology existed. The technology breakthrough created the service opportunity, and effective service design makes these treatments appealing and accessible to customers.
Remember!
Key Takeaways for New Product and Service Design:
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Businesses develop new products and services to achieve growth and gain competitive advantage through two main approaches: responding to consumer preferences identified through market research, or leveraging technological innovations and advances
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Product design and development follows five sequential stages: market research and concept development, prototype design with quality parameters, testing and assessment, refinement of product and processes, and finally production and launch
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Four critical factors must be considered throughout design: quality (meeting customer expectations), supply chain management (securing necessary inputs), output capacity (ability to produce required quantities), and cost (expenses balanced against customer perception of value)
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Service design differs from product design because services are intangible and consumed during production, requiring customer-centred design that addresses both explicit service (tangible application of time, expertise and skill) and implicit service (intangible feelings of psychological wellbeing and being cared for)
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Many services require supporting goods for delivery, and technological breakthroughs can create entirely new service categories that did not previously exist