With technological capabilities allowing more availability and options (Grammarians et all, 2008), companies must continually thrive to discover new methods to achieve competitive advantage for the discriminating consumer pool. This essay will illustrate development and creation Of value through a hypothetical product. It will explain the difference between goods and services and define the theory of “total product concept” and its implication for a business needing to create a successful product which the customer is able to differentiate from the competitors offerings (Levity, 1980).
In its second part, four approaches to producing the physical product namely the aggregate production concept, mass production, the “just in time” as well the “optimized production technology’ will illustrate the advantages and disadvantages each approach ill have to offer for the hypothetical product of this essay. The third part will demonstrate which marketing strategy will lead to a successful value add process for the product. Furthermore, a well-managed marketing concept that communicates both tangible and intangible offerings may influence the potential buyer to make a favorable purchasing decision.
The hypothetical product which is used as a guideline through the production and marketing process has been chosen to be a a reusable Christmas Tree as the physical good itself and services surrounding it to add value to the customer. Goods and Services The differentiation between services and goods is fairly simple to define. Goods are a physical item that are a natural resource, commodities or raw materials or have been subject to a transformation process, that included the input of physical goods, chemical or mechanical action through the knowledge and skill of the operator to produce a new tangible output.
The physical goods may have attributes such as being perishable or not, it can be stored or not, it can be packaged, transported, its production can either be customized or standardized and quality can be checked (Slack et alarm 2010). Berry (1980) defines a service as a “deed, act or performance”. Similar to a physical good, service is also subject to a transformation process. However, service as opposed to a physical product, has characters that define it as intangible (Berry, 1980, Slack et al 2010). Slack further differentiates between professional services, service shops and mass services.
Professional services such as consultancies, legal counselors, architects etc require high level of customization as the client has specific needs that are part the service process. Mass services are defined as providing customer solutions on a less customized level for example supermarkets, airline transportation or online banking. A shop service is the intermediate level for example retail, where a customer receives advice from a sales person on a specific product. Services are rendered to an individual customer who are involved in the process of the service delivery.
Lovelace (1983) had looked at services from a managerial perspective and created a scheme placing services into four distinct view points: -Tangible actions to people’s bodies such as airline transportation – Tangible actions to goods and other physical possessions such as air fright or awn mowing -Intangible actions directed at people’s minds such as broadcasting and education -Intangible actions directed at people’s intangible assets such as investment banking or consulting Comparing Lovesick model of a four tier classification as opposed to Slack et al. He defines services as actions. Both agree that services and goods mostly form a common base in the sense that they are both products following the action and transformation process of an operation. Theodore Levity (1980) has illustrated that fabricators of products try to market their items though product features. In many instances product features are visually identifiable, however some are cosmetically implied and all too often, the differences are rhetorically claimed by the marketer promising results or values that differentiate the product from the competitors.
Levity proposed a new definition of products by calling it a “a combination of tangible and intangible attributes”, the product becomes a “complex cluster of value” that lead to satisfaction as the customer attaches value to the perceived ability to satisfy his needs. Since the actual generic product is hardly differentiable, companies eave to develop a package surrounding the product to influence the buying behavior of the customer in order to gain a competitive advantage, through the availability of technologies or the nature of the product itself. Levity names five areas that define a product.
First, the actual product, which in simple terms the actual physical good. Second, the expected product which includes the solution to the customer in terms of meeting a customers demands of flexibility, delivery, preferential treatment, available support to the customer. The actual product can only be sold successfully if these wider customer expectations are met. Third, Levity creates an area called “augmented product which in an essence is the ability of a product offering to exceed the customers expectation by including unexpected features or attributes that enhance the value to the customer.
Fourth, the potential product, which includes the efforts Of the seller to create and maintain a relationship to the customer in order to produce potential future transactions. These four steps form the total product concept as defined by Levity. The hypothetical product, the Christmas tree is defined in its nature as a physical good. It was produced from raw materials such as plastics, it was stored, delivered, available for purchase to a customer who is in need of Christmas decorations.
As part of the total product concept, it was available for purchase during the Christmas seasons and therefore meets the customer’s demand of the item being available at the right time. As part of the service product, the tree is easily assembled. As an added value, packaging includes tips on how to decorate the tree in different fashions. At a later stage of this discussion, the creation of a cult like product and its implications with a service will be outlined. Now that product has been defined as a composition of good and services to form a total product concept, the product manufacturing process will be assessed.
Different Production Approaches: The basic approach to manufacturing is referred to as aggregate production approach. It forms the base of operations as a whole. As the word aggregate implies, aggregate production is a combination of materials and services to form a new product. The operator is concerned with making decisions that involve the capacity the plant is able to offer in arms of storage, productivity and cash on hand while keeping the demand of the product in mind (Slack et al 2010).
The operator receives a demand forecast, which then determines the amount of material needed for production. Not only is the operator responsible for purchasing raw material, they must maintain its proper storage, functionality of the production process, available labor and other factors that might hamper smooth production. A further developed approach to production is called “Just In Time” or lean synchronization. As aggregate production forms a base of operations, “Just in time” is “both a philosophy and method of operations planning and control” (Slack et al, 2010 p 429).
This approach to production seeks to meet the demand instantaneously, with perfect quality and no waste. The flow of products and services always delivers exactly what customers want, in exact quantities, exactly when needed and exactly where required all at the lowest cost possible. While lean synchronization offers a wide array of advantages, it is a production approach that is more suitable for complex messmate goods such as cars or electronics that require a myriad f components to form the actual product.
The true advantages and the success delivered through this approach are measured in the long term effect of the synchronization of the flow of all these components over an extended period of time to maximize the value the goals this philosophy is trying to achieve. In the context of the Christmas tree, this approach might prove to be too complex to implement in relation to the simplicity of the actual product, its seasonality and wide demographics Of customer. Theory of constraints is a second development to improve aggregate production.
Developed as a management philosophy by Alleluia Goldwater in 1984, this approach seeks to identify the constraint in a production facility and design the entire production process around this constraint through focusing on five steps mainly the identification of the constraint, the decision how to exploit the constraint, organize all other process as sub process of that very constraint, take action to improve or break the constraint and do it all over once the next constraint is identified.
This technique will minimize costly factors such as queuing, storage of throughput items, over financing ND industrialization of other production capacities within the operating facility. Like the Just in time production approach, the theory of constraint is a philosophy that aims in improving production on a long-term basis. Through the five-step process though, it already starts to offer advantages in the production of the Christmas tree as it allows to streamline the capacity around constraints, which in turn allows for better costing.
Through this cost efficient model of production, value is added to the customer by reducing the price for the Christmas tree. The most appropriate way to produce this Christmas Tree is called mass or flow production. Beer (2010) and Carbonize (2008) point out the advantages of mass production, which was first widely introduced by Henry Ford with the use of assembly lines to build cars. Mass production leads to a reduction of time it takes to produce goods as tasks are repeated at each workstation.
This further reduces the potential for errors versus custom production leading to higher output per time. Of course this all flows into a reduction of production cost. The disadvantage of this manufacturing approach is the fact that once the manufacturing process is signed, it is difficult to alter as it shows great inflexibility. The demand for Christmas trees is most certainly seasonal. Hence the entire planning concept will be established around the fact that the demand for this product will be relatively short lived, estimating a month before Christmas.
The operator Uses the principals of the aggregate production model to meet that demand. The proper production method established for a mass produced, non complex seasonal item must go hand in hand with a proper marketing strategy that should communicate the value to the customer. Marketing strategy: As mentioned in the introduction of this essay, companies only succeed if they are able to establish a marketing concept around the perceived value of the product to the customer (Kettle 2005).
Marketing objectives help lead an organization to formulate a strategy, which contains value delivery process as outlined by Kettle. Seeking the basis of Nations (1961) growth vector matrix which places market penetration, market development, product development and market diversification into one matrix, the Christmas Tree company is seeking third choice named product development where a new product, the ewe Christmas Tree is presented to an existing market Of holiday celebrators.
The selection of a marketing strategy as a mean to achieve this objective can now be formulated. Porter (1980) suggests three approaches to formulating a marketing strategy: -Over all cost leadership, where the company seeks to deliver the total product concept at the lowest possible cost to the customer in order to gain competitive advantage. -Differentiation, where the company seeks to achieve superior quality in areas that benefit the customers -Focus, where a company focuses on niche segments of a market with either cost adhering or differentiation as a strategy base.
All three strategy approaches offer advantages and disadvantages as Kettle et al point out. However all three strategies are vulnerable to the competitor achieving better results, being more cost effective, achieving better qualities or entering the niche markets. Hence Kettle presented (2009) a value delivery process that consists of four steps. Discovering the required value through marketing research then segment, target and position the product which forms the essence of strategic marketing -Develop a suitable customer offering by putting together package of specific product and service benefiting the customer at appropriate price levels -Successfully deliver this value package and finally successfully communicate the values to the targeted customer. With the Christmas tree being a mass manufactured product, and with the intention to introduce the product into an existing market, it is the choice to use the over all cost leadership strategy as a mean to success.
However as outlined before, overall cost leadership is vulnerable to competitors seeking the same. A recent successful marketing campaign for a low cost mass product was the Tory of the Snuggle (Newman 2009). A blanket with sleeves, fairly simple to produce was marketed by Alistair Marketing Group. The marketing operator specializing in infomercials developed a clever commercial, which intentionally was over the top offering better value price than a competitor and priced at about ten million US Dollars.
Direct response campaign are aimed to create awareness Of a product, which then becomes available for purchase in retail stores with a special “as seen on W” tag to attract consumers. Very soon the Snuggle received a cult status and broke sales recasts with 4 million unites sold in the first three months of its introduction. Other initiatives such as marketing the product on youth and social networks like backbone and twitter continued to fuel the cult status of the product.
The Christmas Tree having similar attributes like the Snuggle, being a seasonal, non complex mass produced product might enjoy the advantages this marketing approach despite needing to take high entry investment hurdles. Conclusion With the company goal formulated to create a low cost product, mass produced, and marketed as a cult product, all three parts of this essay owe illustrate that a successful product is a hand in hand work Of manufacturing operators, service operators and marketers regardless of what kind of product is being used.
It was illustrated that products can combine both aspects of tangible goods and intangible services. The selection of a production methods largely depends on the product itself and its complexity or the ability to customize the product, the capacities and competences of the operator. Finally, marketing accompanies as a process the product from the development to after sales services with the goal to be the most competitive reduce on the market. All three sections have offered insights into how value can be added to the client.