Module 1: Chapter 1: Introduction

Overview

This chapter introduces the fundamentals of product development for engineered, discrete,
physical products. It emphasizes that successful product development requires cross-functional
collaboration between marketing, design, and manufacturing functions rather than being solely
a problem for any single department. For instance, developing a smart electric rickshaw for
Dhaka's unique traffic conditions would require marketing teams to understand local
transportation needs and pricing constraints, design teams to engineer for monsoon flooding
and narrow lanes, and manufacturing teams to work with Bangladesh's growing electronics
industry capabilities.

Key Definitions

• Product: Something sold by an enterprise to its customers

• Product Development: The set of activities from market opportunity perception to

production, sale, and delivery of a product

• Focus: Engineered, discrete, physical products (like the examples shown: Belle-V Ice
Cream Scoop, AvaTech Avalanche Probe, iRobot Roomba, Tesla Model S, Boeing 787,
or locally relevant products like smart rickshaws, jute fiber processing equipment, or
flood-resistant electronics)

Characteristics of Successful Product Development

The chapter identifies five critical dimensions for measuring product development success:

1. Product Quality: How well the product satisfies customer needs, robustness, and
reliability. For Bangladeshi products, this might mean ensuring electronics work
reliably in high humidity and frequent power fluctuations.

2. Product Cost: Manufacturing cost including capital equipment, tooling, and per-unit
production costs. Local context requires balancing imported components against
domestic manufacturing capabilities and labor costs.

3. Development Time: Speed of completion, affecting competitiveness and economic

returns. In Bangladesh's rapidly growing economy, quick market entry can be crucial
for capturing emerging opportunities.

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 4. Development Cost: Total investment required for development, particularly important
in resource-constrained environments where capital efficiency is critical.

5. Development capability: Enhanced ability to develop future products, vital for

building local industrial expertise and reducing import dependence.

Additional considerations include team satisfaction, community impact, safety standards, and
environmental responsibility - particularly relevant in Bangladesh's context of sustainable
development and climate resilience.

Who Designs and Develops Products?

Three core functions are central to product development:

• Marketing: Mediates firm-customer interactions, identifies opportunities, defines

market segments, sets pricing. In Bangladesh, this includes understanding diverse
economic segments and rural-urban differences.

• Design: Defines physical form (engineering design and industrial design). Local
considerations include designing for tropical climate, local maintenance capabilities,
and cultural preferences.

• Manufacturing: Designs and operates production systems, includes supply chain

activities. Must consider local supplier networks, infrastructure limitations, and
workforce skills.

Team Structure:

• Core team: Small enough to meet in conference room

• Extended team: May include dozens to thousands of members, potentially spanning

multiple cities or regions in Bangladesh

• External partners: Suppliers, consultants, partner companies - increasingly important

as Bangladesh integrates with global supply chains

Duration and Cost Reality

The chapter provides sobering statistics about development timelines and costs:

• Very few products can be developed in less than 1 year

• Many require 3-5 years

• Some take as long as 10 years

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The detailed comparison table shows dramatic scaling from simple products (Belle-V Ice
Cream Scoop: 1 year, $100K development) to complex ones (Boeing 787: 7 years, $15 billion
development). For Bangladeshi context, even modest products like improved textile machinery
or agricultural equipment may require 2-3 years and significant investment relative to local
economic scale.

Challenges of Product Development

Key challenges include:

• Trade-offs: Balancing conflicting requirements (weight vs. cost). For example,

designing flood-resistant electronics that remain affordable for local markets, or
creating solar-powered devices that work effectively during monsoon seasons.

• Dynamics: Constant technological and market changes, particularly relevant in

Bangladesh's rapidly evolving digital economy and changing infrastructure.

• Details: Thousands of critical decisions with major economic implications, such as

choosing between imported precision components versus locally manufactured
alternatives.

• Time pressure: Quick decisions without complete information, especially critical in

competitive markets with limited local R&D infrastructure.

• Economics: Large investments requiring appealing yet cost-effective products,

particularly challenging when developing for price-sensitive markets while building
local capabilities.

Appeals include:

• Creation and creativity: Developing solutions for unique local challenges

• Satisfying societal needs: Addressing development priorities like healthcare access,

education technology, or sustainable agriculture

• Team diversity: Combining international expertise with local knowledge

• Team spirit and camaraderie: Building national technical capabilities

Organizational Environment

The book assumes an effective organizational environment, noting that dysfunctional

characteristics can render good methods ineffective:

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 • Lack of team empowerment: Particularly relevant where hierarchical decision-
making may slow innovation

• Functional allegiances over project goals: Important consideration in organizations

building cross-departmental collaboration

• Inadequate resources: Common challenge requiring creative resource optimization

and phased development approaches

• Lack of cross-functional representation: Critical to address given the importance of

local market knowledge and manufacturing constraints

Process Framework

The book divides product development into six phases: 0. Planning: Market opportunity
assessment within local and export contexts

1. Concept Development: Generating solutions appropriate for local conditions and

capabilities

2. System-Level Design: Architecting products for local manufacturing and maintenance

3. Detail Design: Finalizing specifications considering component availability and costs

4. Testing and Refinement: Validation under local operating conditions

5. Production Ramp-Up: Scaling within available infrastructure and workforce

capabilities

This framework applies universally but requires adaptation to local contexts, regulatory
environments, infrastructure capabilities, and market conditions while maintaining the
fundamental approach of structured, cross-functional product development.

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Module 2: Chapter 2: Development Processes and Organizations
What is a Product Development Process?

A product development process is a sequence of steps that transforms inputs into outputs,
helping companies create, design, and sell products. Think of it like a recipe for making
products - just as Tyco International used a structured approach to develop their wireless
security alarm system that helps protect homes and businesses.

Why Companies Need a Clear Process

A well-organized development process helps companies in five important ways:

• Quality control through set phases and checkpoints

• Better teamwork by clearly defining who does what

• Planning with clear deadlines and milestones

• Management can track progress and spot problems

• Improvement by learning from each project

For example, when a Bangladeshi garment company like Pran-RFL wants to develop new food
packaging, having a clear process helps them coordinate between their design team,
manufacturing plants, and marketing department.

The Six Main Phases

Every product development follows six basic phases:

0. Planning ("Phase Zero"): The output of the planning phase is the project's mission
statement, which is the input required to begin the concept development phase and which
serves as a guide to the development team. Companies identify opportunities and set goals.
Tyco identified that customers wanted easier-to-install security systems, while a Bangladeshi
mobile phone company might identify the need for phones that work well in rural areas with
limited electricity.

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1. Concept Development: In the concept development phase, the needs of the target
market are identified, alternative product concepts are generated and evaluated, and one
or more concepts are selected for further development and testing. Teams figure out what
customers want and create different product ideas. Tyco explored various wireless security
features, just as Walton (a Bangladeshi electronics company) might explore different
smartphone features for local users like Bengali language support and mobile banking
integration.

2. System-Level Design: Initial plans for the production system and final assembly are
usually defined during this phase as well. The overall product structure is planned and broken
into parts. Tyco's security panel was divided into components like the display screen, wireless
parts, and power system.

3. Detail Design: The output of this phase is the control documentation for the product—
the drawings or computer files describing the geometry of each part and its production
tooling, the specifications of the purchased parts, and the process plans for the fabrication
and assembly of the product. Every part is completely specified with exact measurements,
materials, and manufacturing instructions.

4. Testing and Refinement: Companies build and test multiple versions. Early versions (alpha
prototypes) check if the product works, while later versions (beta prototypes) are tested by real
customers in their normal environment.

5. Production Ramp-Up: The purpose of the ramp-up is to train the workforce and to
work out any remaining problems in the production processes. Products are made using
the final manufacturing process, workers are trained, and any remaining issues are fixed before
full production begins.

Three Ways to Think About Development

The chapter explains three different ways to understand product development:

1. Starting with many product ideas and gradually narrowing down until you have
one product that can be made reliably

2. An information-processing system that turns company goals and available technology

into detailed production plans

3. A risk management system where various risks are identified and prioritized early,
then systematically reduced as questions are answered

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The Front-End Process: Concept Development

Core Sequential Activities:

1. Identify Customer Needs

o Understand and communicate customer requirements to the development team

o Create hierarchical list of customer need statements with importance weightings

o Special focus on latent needs (needs customers can't easily articulate and aren't
addressed by existing products)

2. Establish Target Specifications

o Translate customer needs into precise technical terms

o Set initial targets representing team's hopes

o Each specification includes a metric with marginal and ideal values

o Later refined based on chosen product concept constraints

3. Generate Product Concepts

o Thoroughly explore the space of possible product solutions

o Combines external search, creative problem solving, and systematic exploration

o Results in 10-20 concepts, each with sketch and brief description

4. Select Product Concept(s)

o Analyze and eliminate concepts to identify most promising option(s)

o Usually requires several iterations

o May trigger additional concept generation and refinement

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 5. Test Product Concept(s)

o Verify customer needs are met

o Assess market potential

o Identify shortcomings for further development

o Poor response may terminate project or require repeating earlier activities

6. Set Final Specifications

o Revisit and commit to specific target specifications

o Reflect constraints from chosen concept, technical limitations, and cost -

performance trade-offs

7. Plan Downstream Development

o Create detailed development schedule

o Devise strategy to minimize development time

o Identify required resources

o Results captured in contract book (mission statement, customer needs, selected

concept, specifications, economic analysis, schedule, staffing, budget)

Ongoing Support Activities:

Economic Analysis

• Build economic model for the new product

• Justify continuation of development program

• Resolve trade-offs between development and manufacturing costs

• Updated continuously as more information becomes available

Benchmarking Competitive Products

• Critical for successful market positioning

• Provides ideas for product and production process design

• Supports many front-end activities

Modeling and Prototyping

• Occurs throughout concept development

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 • Includes proof-of-concept models, form-only models, spreadsheet models, and
experimental test models

• Helps demonstrate feasibility, evaluate design, and set parameters

Different Types of Development Processes

Companies adapt the basic process based on their situation:

Technology-Push Products: Start with new technology and find uses for it (like when
researchers discovered new materials that later became Gore-Tex fabric)

Platform Products: Built using existing technology systems (like smartphones using Android
operating system, or Bangladeshi electronics companies using established chipsets but adding
local features)

Process-Intensive Products: Where how you make the product heavily affects the product
itself (like food manufacturing or chemical production)

Customized Products: Small changes to standard products (like motors or switches made to
customer specifications)

High-Risk Products: Address biggest uncertainties early and may work on multiple solutions
at once

Quick-Build Products: Allow rapid build-test-rebuild cycles (common in software

development)

Complex Systems: Require many teams working together (like building airplanes or cars)

A Bangladeshi pharmaceutical company developing generic medicines would likely follow a

process-intensive approach since manufacturing processes heavily influence drug quality and
effectiveness.

How Companies Organize Their Teams

Companies connect people through three main ways:

• Reporting relationships (who reports to whom)

• Financial arrangements (shared budgets and departments)

• Physical layout (working in the same office creates informal connections)

Types of Organizations

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Functional Organizations: People are grouped by their expertise (all engineers together, all
marketers together). Good for developing deep skills but can be slow for coordination. A
traditional Bangladeshi textile company might organize this way with separate departments for
design, production, and sales.

Project Organizations: People from different areas work together on specific products.
Everyone reports to a project manager. Fast for coordination but harder to maintain specialized
skills. Bangladeshi IT companies working on specific software projects often use this approach.

Matrix Organizations: Hybrid approach with two types:

• Heavyweight Project Organization: Project managers have strong authority over

team members and budgets

• Lightweight Project Organization: Project managers mainly coordinate while

functional managers keep most authority

Choosing the Right Organization

Companies should consider four questions:

1. How important is teamwork across different departments? Project organizations

work better for this

2. How important is maintaining specialized expertise? Functional organizations are

better for this

3. Can people be kept busy throughout the entire project? Functional organizations
help share people across projects

4. How important is speed? Project organizations are usually faster

For instance, a Bangladeshi fintech startup developing a new mobile payment app would likely
choose a project organization for speed and coordination, while an established bank adding
new features might use a functional organization to maintain regulatory expertise.

Real-World Implementation: Tyco's Approach

Tyco created the Rally Point process with nine phases and review meetings, adapting the basic
process for their needs. They use a functional organization with strong project management,
keeping specialized expertise while ensuring projects run smoothly through experienced
project managers.

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In recent years, Tyco has created new regional engineering centers at locations in high-
growth markets such as China and India, showing how companies can use global teams to
access specialized skills and understand local markets better.

This shows how companies must carefully balance having a clear process with organizing their
teams effectively, considering their specific situation, resources, and goals. Whether it's Tyco
developing security systems or a Bangladeshi company creating products for local market s, the
key is matching the process and organization to the company's needs and competitive
environment.

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 Module 3: Chapter 3: Opportunity Identification
What is Opportunity Identification?

Opportunity identification is the process of finding ideas for new products before st arting full
product development. An opportunity is basically an early-stage idea for a new product - it
could be a newly discovered need, a new technology, or a rough match between what people
need and a possible solution.

The chapter uses FroliCat as the main example - a pet products company from Chicago that
had success with laser-based cat toys like the Bolt (a device that creates random laser
movements to entertain cats). They wanted to expand their product line with more motion-
based cat toys but needed a systematic way to identify the best opportunities.

Types of Opportunities: The Three Horizons

Opportunities are categorized based on how familiar a team is with the technology and the
market:

• Horizon 1: Low-risk improvements of existing products for existing markets (like

making the Bolt laser toy smaller or cheaper)

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 • Horizon 2: Medium-risk opportunities that push into less known territory in either
market or technology (FroliCat focused here - new solutions for entertaining cats)

• Horizon 3: High-risk opportunities that are completely new to the world

Bangladeshi Example: A local company making traditional clay water pots (Horizon 1) might
explore adding filtration technology to purify water (Horizon 2), or develop smart IoT-enabled
water purification systems (Horizon 3).

Tournament Structure

The process works like a tournament - you start with many opportunities and filter down to
the exceptional few. FroliCat started with 50 raw opportunities, narrowed to 7 with concepts,
then 3 with prototypes, and finally 1 for full development (the "swinging ball" concept that
became the Sway product).

Making Tournaments Effective

Three key principles for better opportunity identification:

1. Generate many opportunities - More ideas mean better chances of finding exceptional
ones

2. Seek high quality - Use better methods and sources

3. Create high variance - Welcome "wacky ideas" and wild notions to increase chances
of breakthrough innovations

The Six-Step Process of Opportunity Identification

Step 1: Establish a Charter

Set clear boundaries and goals. FroliCat's charter was: "Create a physical product in the cat
toy category that we can launch within about a year through our existing retail sales channel."

Bangladeshi Example: A Dhaka-based company might charter: "Develop affordable kitchen

appliances for middle-class urban families that can be manufactured locally and sold through
our existing distributor network."

Step 2: Generate and Sense Many Opportunities

Seven techniques for generating opportunities:

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 1. Follow Personal Passion: The chapter shows Matt Kressy, an avid cyclist, developing
a nutrient delivery system for hydration backpacks based on his personal need to adjust
sugar and electrolytes while cycling.

2. Compile Bug Lists: List daily annoyances and frustrations. Any problem is an
opportunity. Bangladeshi Example: Traffic jams in Dhaka could inspire ride-sharing
apps, alternative transportation solutions, or productivity tools for commuters.

3. Pull from Capabilities: Use VRIN analysis (Valuable, Rare, Inimitable, Non-
substitutable resources). Apple's design excellence led them from computers to phones
to watches. Bangladeshi Example: A company skilled in traditional handicrafts could
explore modern applications like eco-friendly packaging or designer home accessories.

4. Study Customers: Shimano discovered through user research that most Americans
want simple, easy-to-ride bikes rather than complex gear systems, leading to the
Coasting component line and bikes like the Trek Lime. Bangladeshi Example:
Studying rural farmers might reveal needs for simple, affordable farming tools rather
than complex machinery.

5. Consider Trends: Demographic, technological, or social changes create opportunities.

Bangladeshi Example: Bangladesh's growing smartphone penetration could enable
mobile banking, digital education, or e-commerce solutions.

6. Imitate, but Better: Learn from others' successes. The chapter shows examples like
SpinBrush (cheap electric toothbrush vs. $100 models), Starbucks (premium coffee
vs. commodity coffee), and Altoids (premium mints vs. basic breath mints).

7. Mine External Sources: About 46% of opportunities come from internal sources,
23% from customers, and the rest from competitors, partners, inventors, etc.

Step 3: Screen Opportunities

Quickly eliminate poor opportunities using group judgment. Two effective methods:

• Web-based surveys with yes/no voting

• Workshop multivoting with stickers (need at least 6 independent judgments)

The goal is efficiency, not perfect accuracy. Consider advancing both popular ideas and those
with few but enthusiastic supporters.

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Step 4: Develop Promising Opportunities

Invest modest resources (days to weeks) in the best opportunities from screening. Focus on
resolving major uncertainties at lowest cost - like doing patent searches, customer interviews,
quick prototypes, or market size estimates.

FroliCat built functional prototypes and tested them with cats and owners, created packaging
concepts, and completed financial analysis.

Step 5: Select Exceptional Opportunities

Use the Real-Win-Worth-it (RWW) framework developed by 3M:

• Is it Real? Is there a real market? Can customers buy? Will they buy? Is the product
feasible?

• Can We Win? Do we have competitive advantage? Right timing? Superior resources?

• Is it Worth It? Will it make money? Do we have resources? Are risks acceptable?

FroliCat's swinging-ball concept scored well because it appealed to customers, engaged cats,
offered patent potential, and required modest investment.

Step 6: Reflect on Results and Process

Evaluate both outcomes and process effectiveness. Key questions include source diversity,
quantity of opportunities considered, charter focus, filtering bias, and team excitement.

Key Success Factors

The chapter emphasizes that about half of opportunities come from internal sources and
half from external sources. The tournament structure ensures resources go to the most
promising ideas, while the systematic process prevents good opportunities from being
overlooked.

Final Bangladeshi Integration: A Bangladeshi textile company might use this process by
starting with their charter to develop sustainable fashion products, generating ideas from
worker suggestions (internal), customer complaints about fast fashion (external), and trends
toward eco-consciousness, then filtering through workshops with designers and business
managers, developing prototypes of the most promising concepts like organic cotton basics or

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upcycled fabric accessories, and finally selecting opportunities that leverage their
manufacturing expertise while meeting growing demand for sustainable fashion.

The swinging ball opportunity that FroliCat pursued became the Sway product, demonstrating
how systematic opportunity identification can lead from initial brainstorming to market
success.

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 Module 4: Chapter 4: Product Planning
What is Product Planning?

Product planning is the process that happens before a product development project officially
starts. It's like creating a roadmap for what products a company should develop, when to
develop them, and how to use available resources wisely. Think of it as the strategic planning
phase where companies decide which products will help them compete better in the market.

The Core Purpose

Product planning addresses five critical questions:

• What product development projects should we undertake?

• What mix of new products, platforms, and improvements should we pursue?

• How do the various projects relate to each other?

• What will be the timing and sequence of projects?

• What should be each project team's mission?

Four Types of Product Development Projects

Companies typically work on four different types of projects:

1. New Product Platforms: Major development efforts creating entirely new product
families. Example: Xerox's Lakes project developed a completely new digital copier
platform that could support multiple future products. Bangladeshi perspective: When
Walton developed their first smartphone platform, it served as the foundation for
multiple phone models targeting different market segments.

2. Derivatives of Existing Platforms: Extending current products to better serve markets.

Example: Creating a new copier based on an existing light-lens technology.
Bangladeshi perspective: When Pran Foods uses their existing juice production
platform to launch new flavors like mango, lychee, or guava drinks.

3. Incremental Improvements: Small changes to keep products competitive. Example:

Minor updates to fix flaws in existing copiers. Bangladeshi perspective: When bKash
regularly updates its app with new features like bill payment options or improved
security measures.

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 4. Fundamentally New Products: Completely different technologies or markets.
Example: Xerox's first digital copier. Bangladeshi perspective: When Grameenphone
introduced mobile financial services (bKash) - a completely new service category for a
telecom company.

The Five-Step Planning Process

Step 1: Identify Opportunities

Companies collect product ideas from various sources - marketing teams, research
departments, customers, and competitor analysis. These opportunities are gathered in what's
called an "opportunity funnel."

Xerox example: They collected ideas ranging from desktop document delivery systems to
networked printing devices. One opportunity that became the Lakes project was: "Develop a
new black and white, digital, networkable, document center platform for the office market."

Bangladeshi perspective: Square Pharmaceuticals might collect opportunities like developing

affordable diabetes medications for rural areas, creating child-friendly vitamin supplements, or
expanding into herbal medicine products based on local traditional remedies.

Step 2: Evaluate and Prioritize Projects

Companies use four key perspectives to evaluate opportunities:

Competitive Strategy: How the company plans to compete:

• Technology leadership: Focus on innovation and new technologies

• Cost leadership: Compete through efficient production and lower costs

• Customer focus: Work closely with customers to meet their changing needs

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 • Imitative strategy: Follow successful competitors quickly

Bangladeshi perspective: Bashundhara Group follows a cost leadership strategy in tissue paper
manufacturing, while ACI focuses on customer needs in their consumer products division.

Market Segmentation: Dividing customers into groups and mapping products to serve each
segment effectively.

Technology Trajectories: Using S-curves to understand when to adopt new technologies. The
S-curve shows how technology performance improves over time - starting slow, then rapid
growth, then reaching maturity.

Product Platform Planning: Deciding whether to build new platforms or create derivatives
from existing ones.

Step 3: Allocate Resources and Plan Timing

This step involves realistic resource planning. Companies often discover they have too many
projects for available resources.

Xerox example: The Lakes project was so large that many other projects had to be eliminated
or postponed to free up engineers.

Bangladeshi perspective: When Robi wanted to expand 4G coverage nationwide, they had to
prioritize urban areas first due to limited technical resources and budget constraints.

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Key considerations for timing:

• When products should reach the market

• Whether technologies are ready

• If the market is prepared for the product

• What competitors are doing

Step 4: Complete Pre-Project Planning

A small cross-functional team creates a detailed mission statement that includes:

• Product description: One-sentence explanation of what the product does

• Benefit proposition: Why customers would buy it

• Key business goals: Financial targets, timing, market share goals

• Target markets: Primary and secondary customer groups

• Assumptions and constraints: Manufacturing, service, and environmental

requirements

• Stakeholders: Everyone affected by the product's success

Xerox Lakes mission example:

• Product: "Networkable, digital machine with copy, print, fax, and scan functions"

• Benefits: "Multiple functions in one machine, connected to office network"

• Goals: "Capture 50% of digital product sales, launch Q4 1997"

• Market: "Office departments, mid-volume users"

Bangladeshi perspective: When Daraz planned their grocery delivery service, their mission
might include: "Same-day grocery delivery app for urban Bangladesh," with benefits of
"convenience and time-saving for busy families," targeting "middle-class urban households,"
with constraints like "cold storage facilities in major cities only."

Step 5: Reflect on Results and Process

Teams ask critical questions:

• Is the opportunity funnel collecting diverse ideas?

• Does the product plan support company strategy?

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 • Are resources sufficient?

• Does the team accept the mission challenges?

• How can the process improve?

Portfolio Balancing

Companies use various methods to ensure a balanced mix of projects. One useful tool is the
product-process change matrix that maps projects based on:

• How much the product changes

• How much the production process changes

This helps identify if a company has too many breakthrough projects (risky) or too many
incremental improvements (not innovative enough).

Key Strategic Considerations

Manufacturing Strategy: Where and how products will be made must be decided early. Xerox
example: Input devices in Canada, output devices in Brazil, processing engines in US and
Europe. Bangladeshi perspective: When Aarong plans new clothing lines, they must decide
which items to produce in their own facilities versus outsourcing to partner manufacturers.

Service Strategy: How products will be supported after sale. Xerox goal: Reduce serviceable
parts and installation time by 90%. Bangladeshi perspective: When Walton launches new
electronics, they plan service center locations and training for technicians simultaneously.

Environmental Strategy: Sustainable design considerations. Xerox commitment: "Zero to

landfill" policy - all components must be remanufacturable or recyclable. Bangladeshi
perspective: When PRAN Foods develops new packaging, they increasingly consider
biodegradable materials and recycling programs.

The Importance of Technology Roadmapping

Technology roadmaps show when different technologies will be available and which products
will use them. This helps coordinate technology development with product planning.

Bangladeshi perspective: Mobile operators like Grameenphone create roadmaps showing the
progression from 3G to 4G to 5G technologies, planning which services to launch when each
technology becomes commercially viable.

Critical Success Factors

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 1. Resource realism: Don't take on more projects than you can handle

2. Strategic alignment: Ensure projects support overall company strategy

3. Market timing: Launch products when technology and market are ready

4. Clear mission: Give development teams specific, achievable goals

5. Flexibility: Update plans as conditions change

Product planning is essential because organizations without careful planning often suffer from
inadequate market coverage, poor timing, resource mismatches, project cancellations, and
frequent direction changes. By following this systematic approach, companies can make better
decisions about which products to develop and increase their chances of market success.

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 Module 5: Chapter 6: Product Specifications
Overview

This chapter explains how to translate customer needs into precise, measurable product
specifications. Using Specialized Bicycle Components' suspension fork development as the
main example, it shows how teams can establish clear targets for product development success.

What Are Specifications?

Specifications are precise, measurable descriptions of what a product must do. While
customer needs are expressed in subjective language like "the suspension is easy to install,"
specifications translate these into measurable targets like "average assembly time is less than
75 seconds."

A specification consists of two parts:

• Metric: The measurable characteristic (e.g., assembly time)

• Value: The target performance (e.g., less than 75 seconds)

Bangladeshi Example: For a local rickshaw manufacturer developing an improved seat, the
customer need "comfortable seating" would translate to specifications like "seat cushion
thickness: 5-8 cm" and "weight capacity: at least 150 kg."

When Are Specifications Established?

Specifications are established at two key stages:

1. Target Specifications: Set early after identifying customer needs but before selecting
product concepts. These represent the team's hopes and aspirations.

2. Final Specifications: Set after selecting the product concept, when technological
constraints and production costs are better understood. The team must frequently
make hard trade-offs among different desirable characteristics of the product.

Establishing Target Specifications

The process contains four essential steps:

Step 1: Prepare the List of Metrics

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The relationship between needs and metrics is central to the entire concept of
specifications. The goal is creating metrics that directly reflect how well the product satisfies
customer needs.

For the suspension fork example, the need "reduces vibration to the hands" translated into
metrics like:

• Attenuation from dropout to handlebar at 10 Hz

• Maximum value from the Monster test

• Minimum descent time on test track

Guidelines for creating metrics:

• Metrics should be complete - ideally one metric per customer need

• Metrics should be dependent, not independent variables - they specify what the
product must do, not how

• Metrics should be practical - measurable without excessive cost

• Some needs cannot easily be translated into quantifiable metrics - use subjective
measures when necessary

• Include popular criteria for comparison in the marketplace - consider trade media
evaluation standards

Bangladeshi Example: For a local garment manufacturer developing school uniforms,

customer needs would translate to metrics like:

• "Durable fabric" → "fabric tear strength: minimum 40 N"

• "Comfortable fit" → "fabric stretch: 15-25%"

• "Affordable price" → "manufacturing cost: maximum 250 taka"

Step 2: Collect Competitive Benchmarking Information

Unless the team expects to enjoy a total monopoly, the relationship of the new product to
competitive products is paramount in determining commercial success. Teams must gather
data on competing products to support positioning decisions.

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The competitive benchmarking chart shows how existing products perform on each metric. For
the suspension fork, this included comparing mass, stiffness, cost, and performance across six
competing forks.

Bangladeshi Example: A Bangladeshi smartphone manufacturer would benchmark against

Samsung, Xiaomi, and local brands like Symphony, comparing metrics like battery life, camera
quality, price, and local service availability.

Step 3: Set Ideal and Marginally Acceptable Target Values

Two types of target values are useful:

• Ideal value: The best result the team could hope for

• Marginally acceptable value: The value that would just barely make the product
commercially viable

There are five ways to express metric values:

• At least X: Lower bound (e.g., brake stiffness ≥ 325 kN/m)

• At most X: Upper bound (e.g., mass ≤ 1.4 kg)

• Between X and Y: Both bounds (e.g., spring preload 480-800 N)

• Exactly X: Specific target (avoid if possible)

• A set of discrete values: Multiple options (e.g., headset sizes: 1.000, 1.125, 1.250
inches)

Bangladeshi Example: For a local air conditioner manufacturer:

• Cooling capacity: at least 1.5 tons

• Power consumption: at most 1800 watts

• Price: between 45,000-65,000 taka

• Warranty period: exactly 3 years

Step 4: Reflect on the Results and the Process

Teams should consider:

• Are members of the team "gaming"? - Setting unrealistic targets hoping to achieve
more

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• Should the team consider offering multiple products or will one "average" product
suffice?

• Are any specifications missing? Do they reflect characteristics that will dictate
commercial success?

26
 Module 6: Chapter 9: Concept Testing
What is Concept Testing?

Concept testing is the process of getting feedback from potential customers about a new
product idea before fully developing it. Unlike concept selection (which relies on the
development team's judgment), concept testing gathers direct input from real customers in the
target market.

Key Example: emPower Corporation developed an electric scooter concept - a three-wheeled,

foldable electric scooter for personal transportation. They needed to test if customers would
actually want and buy this product before investing heavily in development.

When to Use Concept Testing

Teams should conduct concept testing when:

• Development costs and time are significant (unlike simple software that can be quickly
launched and improved)

• The product category has longer life cycles

• Failure would be costly or disastrous

Bangladeshi Perspective: In Bangladesh's growing tech startup scene, a company developing

a rickshaw-sharing app might skip extensive concept testing due to low development costs.
However, a company planning to manufacture electric rickshaws would need thorough concept
testing given the high manufacturing investment and regulatory considerations.

The Seven-Step Concept Testing Method

Step 1: Define the Purpose of the Concept Test

Primary questions to answer:

• Which of several alternative concepts should be pursued?

• How can the concept be improved to better meet customer needs?

• Approximately how many units are likely to be sold?

• Should development be continued?

Example: emPower wanted to decide whether to proceed with scooter development and
support their financing efforts.

27
Step 2: Choose a Survey Population

Key principles:

• Survey population must reflect the target market

• Include all major market segments when possible

• Choose appropriate sample size based on objectives

Sample size factors:

Factors Favoring Smaller Sample Size:

• Test occurs early in development

• Primarily gathering qualitative data

• Surveying is costly

• Small required investment

• Large fraction expected to value the product

Factors Favoring Larger Sample Size:

• Test occurs later in development

• Primarily assessing demand quantitatively

• Surveying is fast and inexpensive

• High required investment

• Small fraction expected to value the product

Example: emPower identified two primary segments (college students and urban commuters)
and conducted two different tests - a small qualitative test with about 12 customers early on,
and later a large purchase-intent survey with 1,000 customers for financing decisions.

Bangladeshi Example: A company developing a mobile payment solution for rural farmers
might survey both tech-savvy urban users (smaller segment) and rural farmers (larger segment)
to ensure the solution works for both groups.

Step 3: Choose a Survey Format

Available formats:

28
 • Face-to-face interaction: Mall intercepts, prearranged interviews, trade shows, focus
groups

• Telephone: Targeted calls to specific professionals or cold calls

• Postal mail: Slower with poor response rates, often needs incentives

• Electronic mail: Similar to postal but slightly better response rates

• Internet: Virtual testing sites with electronic recruitment

Format selection guidelines:

• Use face-to-face for exploratory testing and multiple concept comparisons

• Use structured formats (mail/phone) for focused questions

• Use third parties for demand forecasting to avoid sympathy bias

Bangladeshi Context: In Bangladesh, face-to-face interviews might work well in urban areas
like Dhaka, while phone surveys could be effective for reaching rural populations. Internet
surveys would be biased toward urban, educated populations.

Step 4: Communicate the Concept

Communication methods (in order of increasing richness):

1. Verbal description: Short paragraph or bullet points

o emPower example: "Lightweight electric scooter, 25 pounds, 15 mph, 12-mile

range, 2-hour charging"

2. Sketch: Line drawings with annotations

3. Photos and renderings: Realistic visual representations

4. Storyboard: Series of images showing product use sequence

o emPower example: Showed folding, carrying, and riding scenarios

5. Video: Dynamic demonstration of product use

o emPower example: Showed students and commuters using prototypes

6. Simulation: Software mimicking product function

7. Interactive multimedia: Combines video richness with simulation interactivity

8. Physical appearance models: "Looks-like" models made of wood/foam

29
 o emPower example: Built articulated model demonstrating folding

9. Working prototypes: "Works-like" models with actual functionality

o Risk: Respondents may equate prototype performance with final product

Bangladeshi Example: For a solar-powered water purification system for rural areas, a
storyboard might show a family getting clean water from contaminated sources, while a
working prototype could demonstrate the actual purification process.

Key Communication Considerations:

Promotional tone: Decide between neutral description vs. promotional language. Mirror
information customers would consider when purchasing.

Price inclusion:

• Omit price unless unusually high/low or central to concept

• Include if low price is main benefit or high price reflects premium features

• Ask about price expectations separately

Multiple concepts: Can present alternatives for comparison or against existing competitors

Step 5: Measure Customer Response

Standard purchase intent scale:

• Definitely would buy

• Probably would buy

• Might or might not buy

• Probably would not buy

• Definitely would not buy

Additional measurements:

• Reasons for responses

• Improvement suggestions

• Concept comparisons

• Open-ended feedback

30
Step 6: Interpret the Results

For concept comparison: Choose the preferred concept if one clearly dominates.

For demand forecasting (durables model):

Q=N×A×P

Where:

• Q = Quantity expected to be sold

• N = Number of potential customers expected to make purchases

• A = Fraction for whom product is available and customer is aware

• P = Probability of purchase if available and aware

P = (C_definitely × F_definitely) + (C_probably × F_probably)

Where:

• F_definitely = Fraction saying "definitely would buy" (top box score)

• F_probably = Fraction saying "probably would buy" (second box score)

• C_definitely = Calibration constant (typically 0.10-0.50, often 0.4)

• C_probably = Calibration constant (typically 0-0.25, often 0.2)

emPower Examples:

Factory Transportation Market:

• N = 150,000 units/year (existing market)

• A = 0.25 (single distributor with 25% market share)

• F_definitely = 0.30, F_probably = 0.20

• P = 0.4 × 0.30 + 0.2 × 0.20 = 0.16

• Q = 150,000 × 0.25 × 0.16 = 6,000 units/year

College Student Market:

• N = 2,000,000 students (those traveling 1-3 miles)

• A = 0.30 (awareness and availability through campus bike stores)

• F_definitely = 0.10, F_probably = 0.05

31
 • P = 0.4 × 0.10 + 0.2 × 0.05 = 0.05

• Q = 2,000,000 × 0.30 × 0.05 = 30,000 units/year

Bangladeshi Example: For a mobile-based telemedicine service:

• N = 50,000,000 smartphone users in Bangladesh

• A = 0.20 (awareness through digital marketing and availability via app stores)

• Survey results: F_definitely = 0.08, F_probably = 0.15

• P = 0.4 × 0.08 + 0.2 × 0.15 = 0.062

• Q = 50,000,000 × 0.20 × 0.062 = 620,000 users/year

Forecast Accuracy Factors:

Factors causing differences between forecast and actual sales:

• Word-of-mouth importance: Not captured in concept testing

• Fidelity of concept description: Actual product differs from description

• Pricing: Deviates from survey price or expectations

• Level of promotion: Advertising impact only weakly captured

Step 7: Reflect on the Results and the Process

Primary benefits:

• Qualitative insights from real customers (often most valuable)

• Numerical demand forecasts

• Understanding of key success factors

Reflection areas:

1. Market size (N): Consider alternative markets

2. Availability/awareness (A): Improve through distribution and promotion

3. Purchase probability (P): Improve through product design changes

Diagnostic questions:

1. Was the concept communicated to elicit true customer intent?

2. Is the forecast consistent with similar products' sales rates?

32
 Module 7: Chapter 14: Prototyping - Complete Summary
Introduction and Definition

A prototype is defined as "an approximation of the product along one or more dimensions of
interest." This broad definition includes everything from concept sketches to fully functional
preproduction versions. The chapter uses the iRobot PackBot - a tactical mobile robot used by
military and law enforcement for dangerous operations like bomb disposal and hazardous
material detection - as the main example throughout.

In Bangladesh, companies like Walton could use similar prototyping approaches when
developing new home appliances, creating foam models to test ergonomics before investing in
expensive injection molds.

Types of Prototypes

Prototypes are classified along two key dimensions:

1. Physical vs Analytical Prototypes

• Physical prototypes: Tangible artifacts you can touch and test (like the PackBot's
wheel prototypes that were physically dropped to test shock absorption)

• Analytical prototypes: Mathematical or computer models (like the finite-element

analysis used to study PackBot's stress distribution during impacts)

For Bangladeshi textile manufacturers, a physical prototype might be an actual fabric sample,
while an analytical prototype could be a computer simulation of how the fabric behaves under
different washing conditions.

2. Comprehensive vs Focused Prototypes

• Comprehensive prototypes: Include most/all product features (like PackBot's beta

prototype used for complete field testing)

• Focused prototypes: Test specific features only (like PackBot's individual wheel
testing for shock absorption)

A Bangladeshi motorcycle manufacturer like Runner might use focused prototypes to test just
the engine cooling system, while comprehensive prototypes would test the complete assembled
motorcycle.

33
Four Main Purposes of Prototypes

1. Learning

Prototypes answer "Will it work?" and "How well does it meet customer needs?" The PackBot
team built wheel prototypes and dropped them at various heights to test shock absorption and
strength.

In Bangladesh's ceramic industry, companies could drop-test clay pot prototypes to determine
optimal wall thickness for durability.

2. Communication

Prototypes help communicate with management, customers, and partners. PackBot's "looks-
like" prototype helped customers understand the robot's small size and mobility constraints,
which were hard to visualize from descriptions alone.

Bangladeshi furniture makers could use foam models to show customers exactly how a new
chair design would look and feel before expensive wood cutting begins.

3. Integration

Comprehensive physical prototypes ensure all components work together. PackBot's alpha
and beta prototypes revealed integration issues - the alpha showed exposed radios that needed
protection, leading to design changes in the beta version.

A Bangladeshi electronics company developing smartphones would need comprehensive

prototypes to ensure the camera, battery, circuit board, and casing all fit and function together
properly.

4. Milestones

Prototypes demonstrate progress and provide project goals. PackBot had to pass a critical U.S.
Army test where the prototype was thrown from a moving vehicle and operated by a minimally-
trained soldier with zero failures allowed.

Bangladeshi pharmaceutical companies must create milestone prototypes that pass regulatory
approval tests before proceeding to full production.

34
Key Principles of Prototyping

Principle 1: Analytical Prototypes Are More Flexible

Mathematical models are easier to modify than physical objects. Changing a motor's stall
torque parameter in PackBot's drivetrain equations was much easier than swapping actual
motors in physical prototypes.

For Bangladeshi garment manufacturers, computer simulations of fabric draping can test
hundreds of design variations quickly, while sewing physical samples for each variation would
take weeks.

Principle 2: Physical Prototypes Detect Unexpected Problems

Physical prototypes reveal unanticipated phenomena because all laws of physics operate
simultaneously. PackBot's gripper coating tests revealed that some materials with good grip
had poor durability - something analytical models missed.

A Bangladeshi bicycle manufacturer might discover through physical testing that their new
brake design creates unexpected noise, even though computer simulations showed perfect
performance.

Principle 3: Prototypes Can Reduce Risk of Costly Iterations

The chapter shows how building a prototype part before creating expensive injection molds
can increase success probability from 70% to 95%, potentially saving massive tooling costs.

Bangladeshi ceramic tile manufacturers could test slip-resistance with small prototype batches
before committing to expensive large-scale production, avoiding costly redesigns.

Principle 4: Prototypes Can Expedite Other Steps

Building prototypes can actually speed up subsequent activities. Creating a physical model of
geometrically complex parts helps mold designers work faster than trying to visualize from
drawings alone.

Principle 5: Prototypes Can Restructure Task Dependencies

Prototypes enable parallel work instead of sequential tasks. Building a prototype circuit board
allows software testing to proceed while production boards are being manufactured.

In Bangladesh's shipbuilding industry, creating scale model prototypes could allow testing of
stability and sea-worthiness while full-scale hull construction proceeds simultaneously.

35
Modern Prototyping Technologies

3D CAD Modeling

Three-dimensional computer models serve as analytical prototypes, enabling visualization,

automatic property calculation, and engineering analysis. PackBot engineers used 3D CAD for
finite-element analysis of structural integrity and thermal dissipation.

Bangladeshi architectural firms use 3D CAD models as "digital prototypes" to detect space
conflicts before expensive construction begins.

3D Printing (Rapid Prototyping)

Introduced in 1984, 3D printing creates physical objects directly from computer models.
PackBot's communication prototype (Exhibit 14-3a) was made using stereolithography in just
four days.

Bangladeshi jewelry designers could use 3D printing to create complex prototypes for customer
approval before expensive gold/silver casting, significantly reducing material waste and costs.

Four step Planning Method for Prototypes

The chapter presents a four-step planning method to avoid the "hardware swamp" (building
prototypes that don't contribute to project goals):

Step 1: Define Purpose

Clearly state learning, communication, integration, or milestone needs. PackBot wheel

prototypes aimed to "determine shock absorption characteristics and robustness using various
geometry and materials."

Step 2: Establish Level of Approximation

Decide what aspects must be accurate and what can be simplified. PackBot wheel prototypes
needed correct materials and geometry but could ignore color, production methods, and
attachment systems.

Step 3: Outline Experimental Plan

Define variables, test protocols, measurements, and data analysis. PackBot testing used 12
wheel variations (6 materials × 2 spoke shapes) with controlled drop tests at increasing heights.

Step 4: Create Schedule

36
Set key dates: "bucket of parts" (components ready), "smoke test" (first testing), and final
results. PackBot wheel testing was planned for 8 days of testing plus 2 days of analysis.

Milestone Prototypes Planning

Most engineered products require multiple comprehensive prototypes:

Alpha Prototypes

Test basic functionality using prototype production processes. Parts have correct
materials/geometry but aren't made with final manufacturing methods.

Beta Prototypes

Test reliability and identify remaining problems. Use actual production processes but not final
assembly facilities. Often given to customers for real-world testing.

Preproduction Prototypes

First products from complete production process, used to verify manufacturing capability and
supply to preferred customers.

The key is avoiding overlapping prototyping phases where there's insufficient time to learn
from one prototype before building the next, creating the dreaded "hardware swamp."

Risk vs Cost Framework

The chapter provides guidance on when to use comprehensive prototypes based on:

• High risk + Low cost: Many prototypes (software, consumer products)

• High risk + High cost: Carefully planned prototypes (airplanes, automobiles)

• Low risk + Low cost: One verification prototype (printed goods)

• Low risk + High cost: Few/no comprehensive prototypes (buildings, ships)

For Bangladesh's context, a new rickshaw design would be low risk + low cost (one prototype
for verification), while a new pharmaceutical drug would be high risk + high cost (requiring
carefully planned multiple prototypes).

37
 Module 8: Chapter 16: Patents and Intellectual Property
What is Intellectual Property?

Intellectual property refers to legally protectable ideas, concepts, names, designs, and processes
associated with new products. Unlike physical property that can be locked away, intellectual
property needs legal protection to prevent unauthorized use.

Four Types of Intellectual Property

1. Patents: A temporary monopoly (20 years from filing) granted by government to exclude
others from using an invention. Coffin's sleeve invention received U.S. Patent 5,205,473 for
using corrugated materials to create insulating air pockets. In Bangladesh, a local inventor
could patent a innovative rickshaw design or a new method for processing jute fibers.

2. Trademarks: Exclusive rights to use specific names or symbols with products. JavaJacket
is a trademark for insulated cup holders. In Bangladesh, "Pran" for food products or
"Bashundhara" for tissue papers are examples of trademarks.

3. Trade Secrets: Confidential business information that provides competitive advantage.

Coca-Cola's formula is the most famous example. A Bangladeshi restaurant's secret spice
blend for biriyani could be a trade secret.

4. Copyright: Exclusive rights to copy and distribute original works (literature, graphics,
music, software) lasting up to 95 years. A Bangladeshi software developer's code or a local
artist's graphic designs would be protected by copyright.

Patent Requirements

For an invention to be patentable, it must be:

• Useful: Must serve some practical purpose

• Novel: Not publicly known before (not in existing products, publications, or patents)

• Nonobvious: Not clearly evident to someone with ordinary skill in that field

Coffin's sleeve met these requirements because using corrugated cardboard for insulation in a
specific tubular form wasn't obvious to packaging experts at the time. A Bangladeshi inventor
creating a solar-powered water purification system using locally available materials could
meet these requirements if the specific combination is new and nonobvious.

38
Seven-Step Patent Process

Step 1: Formulate Strategy and Plan

Timing: Must file within one year of public disclosure. Coffin had to file before showing his
sleeve at trade shows or selling products.

Application Types:

• Provisional Patent Application: Cheaper option ($100 filing fee) that preserves rights
for one year while allowing "patent pending" label

• Regular Patent Application: More expensive but starts examination process

• PCT Application: For international protection

A Bangladeshi startup developing a new water filtration technology should file a provisional
application before presenting at investor meetings or trade shows.

Step 2: Study Prior Art

Research existing patents and products to understand what's already been invented. Coffin
found 19 prior patents, including a 1930 Benson patent for a corrugated holder that fit
underneath cups. This helped him design his sleeve to fit around cups instead.

A Bangladeshi inventor working on improved fishing nets should research existing net designs
and patents to ensure their innovation is truly novel.

Step 3: Outline Claims

List unique features of the invention. Coffin's outline included:

• Use of corrugations for insulation

• Vertical orientation of flutes

• Tubular form with openings at both ends

• Recyclable materials

For a Bangladeshi solar cooker invention, claims might include: reflective panels
arrangement, adjustable cooking chamber, use of local materials like bamboo frame.

Step 4: Write Description

39
The description must teach someone skilled in the field how to make and use the invention.
Coffin disclosed specific adhesive types (R130 adhesive by Fasson Inc.) and material
specifications.

Required Elements:

• Title

• List of inventors

• Field of invention

• Background and problem solved

• Summary of invention

• Brief description of drawings

• Detailed description with figures

A Bangladeshi inventor's description of an improved rice milling machine must include specific
measurements, materials available in Bangladesh, and step-by-step assembly instructions.

Step 5: Refine Claims

Claims are numbered phrases that precisely define the invention using formal legal language.
They follow a logical structure where infringement requires ALL elements to be present.

Coffin's Claim 1: A beverage container holder comprising a corrugated tubular member with
cellulosic material, at least one opening, and fluting means for containing insulating air, with
flutes adhesively attached using recyclable adhesive.

Key Guidelines:

• Make claims as general as possible

• Use modifiers like "substantially" or "approximately"

• Create hierarchical dependent claims

A Bangladeshi inventor's claim for an improved rickshaw might read: "A three-wheeled
passenger vehicle comprising a lightweight frame, a passenger compartment, and an improved
pedaling mechanism, wherein said mechanism reduces operator fatigue through gear ratio
optimization."

Step 6: Pursue Application

40
Most inventors work with patent attorneys for formal filing. Options include:

• Filing provisional application immediately

• Filing regular U.S. application

• Filing PCT for international protection

• Deferring indefinitely (risky due to disclosure deadlines)

A Bangladeshi tech company should consider international filing through PCT if planning to
export their innovation globally.

Step 7: Reflect on Results

Evaluate the strength of patent protection, timing of future actions, and lessons learned.
Consider whether the patent provides meaningful protection or just deters direct copying.

Strategic Considerations

Competitive Landscape: Jay Sorensen later patented a dimpled cup holder that didn't infringe
Coffin's patent, showing that patents provide limited protection. Smart competitors can design
around patents.

Commercial Reality: Patents alone rarely have value without product development, market
validation, and business execution. Coffin's sleeve became commercially successful because it
solved a real problem when restaurants switched from foam to paper cups.

In Bangladesh's context, an inventor of an improved solar panel mounting system would need
to consider local manufacturing capabilities, cost constraints, and whether the patent provides
meaningful protection against local competitors who might design around the claims.

41
 Module 9: Chapter 17: Design of Services
What Are Services?

Services are intangible offerings that customers experience rather than own, unlike physical
products that customers can touch and keep. While Toyota makes cars (physical products),
Zipcar provides car-sharing (a service). Most businesses today combine both - called product-
service systems. For example, when you buy a smartphone, you get the physical device plus
services like network connectivity, cloud storage, and customer support.

Bangladeshi Example: Pathao combines physical motorcycles with ride-sharing services, app-
based booking, and digital payments - creating a complete product-service system for urban
transportation.

Key Differences Between Services and Products

Services have several distinctive characteristics that make them different from physical
products:

Customer Involvement: Unlike buying a product from a shelf, customers actively participate
in service delivery. At Zipcar, customers must register, reserve vehicles online, and follow
specific check-out procedures. Every interaction point (called touch points) can make or break
the customer experience.

Timing: Services happen in real-time and customers care deeply about waiting times and
service speed. Zipcar's success came from making vehicle access quick and convenient -
customers could reserve and use cars within minutes.

Matching Capacity and Demand: Services can't be stored like products. A restaurant meal or
airplane seat must be consumed when produced. Zipcar had to carefully balance how many
cars to place in each location to avoid long wait times or underused vehicles.

Modular Architecture: Services consist of connected process steps that can be easily
modified. Zipcar could add new features like mobile apps or GPS tracking without redesigning
their entire service.

Repeated Use Cycles: Most services are used multiple times by the same customers. Zipcar
focused heavily on member retention and relationship building since customers would use the
service regularly.

42
Customization: Services can be easily adapted to individual needs. Zipcar offered different
vehicle types, rental durations, and pricing options for different customer segments.

Bangladeshi Example: bKash demonstrates these characteristics - customers actively

participate in transactions, timing is crucial for money transfers, the service must match
capacity with demand during peak hours, features are modular (adding new services like bill
payments), customers use it repeatedly, and it can be customized for different transaction types.

The Service Design Process

The Service Concept

The service concept is a clear description of how the service works - the "big idea" explained
in simple terms. Unlike physical products that can be shown in sketches, services need written
explanations.

Zipcar's concept was: "Automobile rental for 30 minutes to 4 hours, with vehicles parked in
convenient marked spaces. Users join the service, receive membership cards, reserve vehicles
online, access cars with their cards, and return to the same spot with automatic billing."

This concept can be enhanced with storyboards - visual sequences showing key customer
experience steps. Zipcar's storyboard showed: (1) Customer deciding to use Zipcar, (2)
Reserving online, (3) Accessing the vehicle with a card, (4) Returning the car with automatic
billing.

Bangladeshi Example: Foodpanda's service concept could be described as "On-demand food

delivery connecting customers with restaurants through a mobile app, with delivery riders
bringing orders to customers' locations within 30-60 minutes, featuring online payment and
order tracking."

Service Process Flow Diagram

The service process flow diagram visually maps out all the steps in delivering a service,
showing how different activities connect, what information flows between steps, and where
customers interact with the system.

Zipcar's process flow diagram organized activities into three categories:

Customer Acquisition and Relationship Management: Recruiting members, checking

driving records, mailing access cards - everything needed to onboard and maintain customers.

43
Transaction Processing: The core service cycle of reserving vehicles, checking out, using,
and returning cars with automatic billing.

Physical System: Behind-the-scenes operations like purchasing vehicles, installing

technology, maintaining cars, and managing parking spaces.

The diagram uses different symbols: boxes for process steps, regular arrows for sequence,
heavy arrows for physical items moving, dashed arrows for information flow, and human
figures for customer touch points.

Bangladeshi Example: A Daraz delivery service process flow would include: customer order
processing, inventory management, packaging, rider assignment, delivery tracking, payment
processing, and customer feedback - with clear touch points at ordering, delivery, and support
interactions.

44
Downstream Development Activities in Services

Service Prototyping

Creating Service Prototypes: Unlike physical products, service prototypes involve creating
approximations of the intended process. Web-based services use website prototypes, while
physical services (restaurants, retail) use pilot facilities in temporary locations.

Services often use alpha and beta phases like software - Gmail stayed "in beta" for years,
signaling ongoing improvements. Testing can happen with real customers in actual settings
(more realistic but risky) or in controlled pilot environments (safer but less realistic).

Zipcar's Pilot Study: Conducted a 2-month pilot with one vehicle and 22 participants before
full launch. Key learnings included customers losing access cards, lending cards to friends, and
forgetting to return keys inside vehicles. This led to tethering keys to steering wheels instead
of hiding them in glove boxes.

Growing Services

Geographic Expansion Pattern: Most services start locally then expand region by region,
unlike products that can be manufactured centrally. Location matters because customers are
geographically distributed.

Zipcar's Growth Journey:

• June 2000: Launched in Cambridge with 15 vehicles and 400 members by September

• September 2001: Expanded to Washington D.C. (similar market size, high public
transport usage). Tested no-security-deposit pricing model successfully

• February 2002: Launched in New York City after proving scalability

• Following years: Expanded across US and Europe, becoming world's largest vehicle-
sharing organization

Scaling Challenges: As operations grew, previously rare events (accidents, speeding tickets,
lost cards) became frequent, requiring new operational processes to handle increased volume.

Continuous Improvement

Easy Customer Feedback: Since customers and employees interact directly during service
delivery, obtaining feedback is simpler than with physical products.

Zipcar's Improvement Culture:

45
 • All employees took customer calls for first two years

• Employees got service discounts to experience it firsthand

• Made pricing adjustments (25% increase after 6 months) with personal explanations to
members

• Continuously upgraded reservation system: basic vehicle list → filtered by

price/location → showing previous reservations → mobile app with GPS and horn-
sounding features

Strategic Evolution: Avis acquired Zipcar in 2013, providing infrastructure and scale to
handle weekend demand peaks and enable new levels of service sophistication.

Key Insight: Services benefit from their ability to evolve continuously based on direct
customer interaction and feedback, making iterative improvement a core competitive
advantage.

46
 Module 10: Chapter 18: Product Development Economics
The Two-Part Analysis Approach

Quantitative Analysis (Number-Based)

This part looks at measurable money flows - cash coming in from sales and cash going out for
costs. The main tool is Net Present Value (NPV), which shows what future money is worth
in today's dollars. In the coffee maker example (AB-100), the team calculated an NPV of
$125.5 million when including both machine and capsule sales, making it a very profitable
project.

Bangladeshi Context: A Dhaka-based company developing a rice cooker with smart features
might track development costs of ৳50 lakh, production costs of ৳2,000 per unit, and expected
sales of 10,000 units annually at ৳8,000 retail price.

Qualitative Analysis (Factors Hard to Measure)

This examines things difficult to put numbers on, like competitor reactions, learning benefits
for future products, and how well the product fits company strategy. The coffee maker team
had to consider how competitors might respond and whether knowledge gained would help
other projects.

Bangladeshi Context: The rice cooker company might consider how their smart features could
help them enter the broader home appliance market or how this technology could benefit rural
customers with unreliable electricity.

When to Use Economic Analysis

Go/No-Go Decisions

Teams use this analysis at major project milestones to decide whether to continue. Should we
develop this product? Should we launch what we've created? The AB-100 team's positive NPV
supported their decision to proceed.

Bangladeshi Context: A Chittagong textile company might use this analysis to decide whether
to invest in eco-friendly fabric production technology.

Day-to-Day Operational Decisions

47
Teams also use it for smaller choices during development. Should we spend ৳10 lakh to hire
outside help and save two months? Should we launch now at ৳260 per unit or wait three months
to reduce the price to ৳240?

The Four-Step Process

Step 1: Build Base-Case Financial Model

Estimate Cash Flows: Teams identify all money coming in and going out over the product's
life. For the AB-100, major categories included:

• Sales revenues from machines and capsules

• Development costs ( ৳5M over 1 year)

• Equipment and tooling ( ৳4M)

• Production costs ( ৳55 per unit)

• Marketing expenses ( ৳5M per year)

Bangladeshi Context: A Sylhet tea company developing premium tea bags might track:
plantation development costs, processing equipment, packaging materials, distribution to
Dhaka markets, and ongoing marketing.

Calculate NPV: Convert all future cash flows to present value using a discount rate (usually
5-15%). The AB-100 used 7% annually, showing the project would earn more than this
minimum return rate.

Step 2: Perform Sensitivity Analysis

This "what-if" analysis shows how changes in key factors affect profitability. For AB-100:

• 20% reduction in development cost increased NPV by only ৳0.96M (0.76%)

• 25% increase in development time decreased NPV by ৳15.1M (12.1%)

• Changes in capsule sales volume had huge impacts since capsules provided most profit

Bangladeshi Context: The tea company might find that export price changes have massive
impact on profits, while packaging cost changes matter less.

Tornado Charts: These visual tools show which uncertainties matter most. For AB-100, sales
volume and capsule pricing created the biggest swings in NPV, while development costs had
minimal impact.

48
Step 3: Understand Trade-Offs

Teams use sensitivity analysis to make smart trade-offs. If spending ৳1M more on development
could increase sales by just 0.60%, it would pay for itself in the AB-100 case. This helps answer
questions like:

• Is extra development spending worth it for better features?

• Can we still profit if competitors force price cuts?

Bangladeshi Context: The tea company might discover that spending ৳20 lakh on better
processing equipment only needs to increase premium tea sales by 2% to break even.

Trade-Off Rules: Simple guidelines help daily decisions:

• AB-100: Each quarter of delay costs ৳15.1M in NPV

• Each ৳1 increase in production cost reduces NPV by ৳575,000

• Each 1% increase in sales volume adds ৳1.6M to NPV

Step 4: Consider Qualitative Factors

Numbers can't capture everything important. Teams must think about:

Company Interactions: How does this project help or hurt other company activities? The AB-
100 built on existing capsule technology, sharing development costs across multiple products.

Bangladeshi Context: The tea company's premium product might help their brand reputation,
making their regular tea more appealing too.

Market Interactions: How will competitors, customers, and suppliers respond? When a
competitor lowered their coffee maker price, the AB-100 team had to respond quickly with
their own price cut.

Macro Environment: Big economic changes, government rules, and social trends can
dramatically affect success. Currency fluctuations, new regulations, or changing consumer
preferences could make or break a project.

Bangladeshi Context: New government incentives for organic farming might create
opportunities, while climate change effects on tea growing regions create risks.

Key Success Factors

Revenue Streams Matter Enormously

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The AB-100 example shows how associated sales can dominate profits. Machine sales alone
gave ৳13.1M NPV, but adding capsule sales increased this to ৳125.5M - nearly ten times more!
The machines could even be sold at a loss if customers bought enough capsules.

Bangladeshi Context: A mobile phone company might make little profit on handsets but earn
substantial ongoing revenue from data services and mobile banking.

Timing Is Critical

Getting to market early often matters more than perfect features. The AB-100 analysis showed
huge benefits from faster development - each quarter delay cost ৳15.1M.

Volume Sensitivity

Small changes in sales volume often create large profit swings. A 10% increase in AB-100
machine sales added ৳16.1M NPV because each machine generated ongoing capsule
purchases.

Limitations and Cautions

Quantitative Analysis Problems

• Measurement Focus: Analysis emphasizes what's measurable, potentially ignoring

important intangible benefits

• Assumption Dependence: Results are only as good as underlying assumptions about

future sales, costs, and market conditions

• Gaming Risk: Teams can manipulate models to show any desired result by tweaking
assumptions

Bangladeshi Context: A Dhaka software company might underestimate the value of building
local technical expertise, which is hard to quantify but crucial for long-term success.

Reality Check Needed

The AB-100 team's sophisticated model calculated NPV to millions of dollars, but this
precision doesn't guarantee accuracy. Market conditions, competitor actions, and customer
preferences can change dramatically.

Practical Applications

Platform Strategy Value

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The AB-100 succeeded partly because it built on existing capsule technology. This "platform"
approach spreads development costs across multiple products and creates options for future
variants.

Bangladeshi Context: A Dhaka fintech company might develop a core digital payment platform
that enables multiple services - mobile banking, e-commerce payments, and remittances.

Competitive Response Planning

Quantitative analysis helped the AB-100 team respond quickly when competitors cut prices.
They knew a 10% price reduction would cut NPV by ৳8M but still leave the project highly
profitable at ৳117.5M.

This integrated approach of quantitative modeling plus qualitative thinking helps product
development teams make better decisions, understand key risks and opportunities, and
maximize their chances of commercial success. The method works for any product, from high-
tech gadgets to traditional goods, by forcing teams to think systematically about what drives
profitability and how various factors interact.

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