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A Simple Model for Demand and Product Management

A Simple Model for Demand and Product Management. H.E. Cook Department of General Engineering UIUC. The Question Addressed. Can a simple model of product demand give both qualitative and quantitative insight into managing the development of new products?. Outline.

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A Simple Model for Demand and Product Management

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  1. A Simple Model for Demand and Product Management H.E. Cook Department of General Engineering UIUC

  2. The Question Addressed Can a simple model of product demand give both qualitative and quantitative insight into managing the development of new products?

  3. Outline • The inter-connectivity between customers, society, and the firm. • Fundamental & bottom-line metrics. • A simple market transaction. • Product demand: theory & experiment. • Marketing research for Product Value. • Conclusions.

  4. Societal Customer Cash Flow Profit Needs Needs Demand Environmental System Attributes Attributes Price Societal Customer Cost Value Value Society & Customer & Manufacturer Manufacturer Loop Loop Inter-connectivity BetweenFirm, Customer, and Society Metric types: Green=Fundamental Blue= Bottom-line

  5. P-C V-P Quantitative ModelingSimple Transaction Manufacturer Buyers If buyer and seller bargain with equal strength, they arrive at a price which allows them to share the free value created: Price Agreed To = (Value + Cost)/2 Source: Cook, H. E. Product Management: Value, Quality, Cost, Price, Profit and Organization. Kluwer Academic Publishers, Norwell, MA, 1997.

  6. Fundamental Driving Forces A reduction in free energy drives transformations in the inanimate world. An increase in free value drives transformations in animate world.

  7. Societal Customer Cash Flow Profit Needs Needs Demand Environmental System Attributes Attributes Price Societal Customer Cost Value Value Society & Customer & Manufacturer Manufacturer Loop Loop Demand Is Key Variable in Terms of Constructing Model

  8. Taylor Expansion D=D(V,P) for N Competitors (Discard Higher Order Terms) N simultaneous equations Average value for segment is approximately twice price Negative slope of demand with price

  9. Demand V 0 V0 V0+V Price Linear Demand Curve for a Monopoly But you only need to focus on changes in demand and value!

  10. Fit of Linear Model to Demand Curve

  11. Value Change with Linear Model

  12. Test of Linear Model Simulated Purchase of Two Lottery Tickets Source: Cook, H. E. and A. Wu, On the evaluation of goods and selection of the best design alternative, Research in Engineering Design. 13. 42-54 (2001).

  13. Combining Logit and Linear Models Logit model Combined model

  14. S-Model Universal Metric for Product Management Agrees with findings, obtained from comparative studies, that highly successful companies lead in quality, speed to market, and control of costs.

  15. Using Historical Demand & Price InfoTo Solve for Value over Time

  16. Value of Two Competing Minivans over Time Solve for value from historical demand and price data. Source: Cook, H. E. and A. Wu, On the evaluation of goods and selection of the best design alternative, Research in Engineering Design. 13. 42-54 (2001).

  17. Direct Value Method for Marketing Research When demands are the same, the price difference is equal to value difference.

  18. Value of Added Rear Sliding Dooron Minivan Price where demands are the same. Source: Cook, H. E. and A. Wu, On the evaluation of goods and selection of the best design alternative, Research in Engineering Design. 13. 42-54 (2001).

  19. Experiment for Value of Interior Noise Source: Pozar M. and Cook H E (1998) On Determining the Relationship Between Vehicle Value and Interior Noise. SAE Transactions, Journal of Passenger Cars106:391-401

  20. Resulting Value Curve for Interior Noise Points from human factor studies. Source: Pozar M. and Cook H E (1998) On Determining the Relationship Between Vehicle Value and Interior Noise. SAE Transactions, Journal of Passenger Cars106:391-401

  21. Experiment for Value of Pickup Attributes Source: Monroe, E.M. and Cook, H.E., Determining the Value of Vehicle Attributes Using a PC Based Tool, 1997 SAE International Congress & Exposition, Detroit, Michigan, February 24 - February 27, 1997

  22. Values Found for Pickup Attributes Source: Monroe, E.M. and Cook, H.E., Determining the Value of Vehicle Attributes Using a PC Based Tool, 1997 SAE International Congress & Exposition, Detroit, Michigan, February 24 - February 27, 1997

  23. Summary & Conclusions • A simple model of demand provides both qualitative and quantitative insight for managing new product development. • Taguchi’s cost of inferior quality can be determined from the value curve of the attribute. Recommend replacing Taguchi’s loss function with the cash flow function. • The model also provides the foundation for a more direct and transparent approach for determining customer value using either written or computerized surveys. • A single, Universal Metric exists for product management equal to the time rate of change of value minus variable cost.

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