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Lec 03 Product Policy of An Organization and Selection of Profitable Products
Product design and development
Overview
This lecture focuses on establishing a product policy for an organization and selecting profitable products. It explains that product policy is a strategic, top-management decision influenced by factors like market needs and brand image. The video outlines four primary product policies: lowest cost, highest quality, a compromise between cost and quality, and safety. It also touches upon how product features like durability and reusability influence these policies. The second part introduces SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) as a crucial tool for evaluating a company's position and identifying potential profitable product opportunities.
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Chapters
- Product policy is a strategic decision made by top management, influencing the company's direction in product design and development.
- Decisions on product policy are long-term, high-risk, and require significant investment.
- A well-defined product policy can become a company's unique selling proposition (USP), building strong customer confidence.
- Companies can adopt different product policies for different product lines, catering to diverse market segments.
Understanding product policy helps align a company's overall strategy with its product offerings, ensuring that product development efforts support long-term business goals and market positioning.
A company might have a policy of offering the absolute cheapest product in the market for everyday consumables, while for a luxury line, their policy might be to focus solely on the highest quality materials and craftsmanship.
- Lowest Cost Policy: Focuses on offering the most competitive price, often relying on high sales volume for profitability.
- Highest Quality Policy: Prioritizes superior quality regardless of cost, targeting niche markets willing to pay a premium.
- Compromise Policy: Seeks an optimal balance between cost and quality to appeal to a broader customer base.
- Safety Policy: Emphasizes safety as the primary feature, crucial for products where user well-being is paramount.
Choosing the right product policy dictates the company's competitive strategy, target customer, and operational focus, directly impacting product design, manufacturing, and marketing efforts.
The aircraft industry exemplifies the highest quality policy, where safety and reliability are non-negotiable, justifying significant costs. Conversely, manufacturers of disposable items like paper bags often focus on the lowest cost policy.
- Product policies are also shaped by inherent product characteristics such as durability, reusability, and recyclability.
- Durable products (e.g., automobiles) require different policy considerations than non-durable ones (e.g., hairspray).
- The method of production (mass production vs. craft production) is closely linked to the chosen product policy and cost objectives.
- These features help determine how a product aligns with policies like lowest cost or highest quality.
Considering product features allows companies to refine their policies, ensuring that the product's design and manufacturing process effectively support the intended market position and customer value proposition.
A company aiming for a lowest-cost policy for socks would avoid extremely durable fibers that would prevent repeat purchases, opting instead for materials with a lifespan of perhaps one to two years.
- Before selecting a product, organizations must conduct a SWOT analysis to understand their Strengths, Weaknesses, Opportunities, and Threats.
- Strengths might include financial resources, brand reputation, and skilled management; weaknesses could be limited R&D or poor marketing.
- Opportunities arise from market growth, changing customer needs, or declining substitute products.
- Threats include foreign competition, new substitute products, and economic downturns.
- SWOT analysis helps in making informed, logical decisions about which products to develop or launch.
SWOT analysis provides a structured framework for evaluating a company's internal capabilities and external market landscape, enabling strategic decisions that leverage strengths, mitigate weaknesses, capitalize on opportunities, and defend against threats.
A company with strong R&D (strength) and a growing market demand for eco-friendly products (opportunity) might decide to develop a new line of recyclable packaging, while a company with limited financial resources (weakness) facing intense foreign competition (threat) might choose to focus on a niche market.
Key takeaways
- Product policy is a fundamental strategic decision that guides all product-related activities within an organization.
- Companies must choose a core policy (e.g., lowest cost, highest quality) that aligns with their resources, market position, and brand identity.
- Product features like durability and production methods are critical considerations when formulating product policies.
- SWOT analysis is an essential diagnostic tool for assessing a company's current standing and identifying viable product opportunities.
- Successful product selection requires a deep understanding of both internal company capabilities and external market dynamics.
- A product's potential profitability is influenced by its alignment with the company's overall product policy and its ability to address market needs effectively.
Key terms
Product PolicyStrategic PlanningCorporate PlanningOperational PlanningUnique Selling Proposition (USP)Lowest Cost PolicyHighest Quality PolicyCompromise PolicySafety PolicyDurabilityReusabilityRecyclabilityMass ProductionCraft ProductionSWOT AnalysisStrengthsWeaknessesOpportunitiesThreatsProduct Life Cycle
Test your understanding
- What are the four main types of product policies an organization can adopt, and what is the primary focus of each?
- How do product features like durability and reusability influence the formulation of a company's product policy?
- Why is SWOT analysis considered a crucial step before selecting a profitable product?
- Explain the relationship between a company's product policy and its unique selling proposition (USP).
- How can a company leverage its strengths and opportunities, as identified through SWOT analysis, to select a profitable product?