Pricing and Review
"Price is what you pay. Value is what you get."
- Warren Buffett
What is product pricing?
Product pricing is a process that entails the translation of product value into quantitative terms. Pricing decision is usually made before their initial release to the market, however, businesses can change the selling price at any point for a variety of reasons.
In determining the price of the product, various factors are considered. Some of these include the following.
- total fixed costs
- variable costs and semi-variable costs
- target audience and their willingness to pay
- market trends
- seasonal trends
- competitor's prices
This week, the team concluded with the development of the bill of materials, and finally, also the market research was concluded. The bill of materials would serve as the basis for the total variable costs, while the reports from the market survey would serve as the basis for determining the market trends.
The bill of materials developed for the electronic circuit is shown below.
However, the physical material costing was not included at the time of this reporting. From the BOM above, the entire product cost is not likely to go above £12 to £15, giving room for a profit margin for the company. The materials were sourced from LCSC - an e-commerce site that offers a wide range of genuine high-quality electrical and electronic components.
Product Development Considerations
The group also took out time to review various considerations that affect product development. Some of these considerations are highlighted below.
Design for sustainability: What about the environment?
The increased environmental awareness in society is leading companies in various sectors of industry, such as the electrical and electronics sectors, to consider the environmental impacts resulting from their activities. In the review of our product, we put eco-design into consideration (i.e., DfE – Design for Environment).
This is a key aspect to consider because our product requires energy to be manufactured as European Parliament and the Council has highlighted the environmental performance of energy-using products in the Directive 2005/32/EC. Also, the electronic/mechanical components should come from recycled products (at least 50%) in order to encourage environmental sustainability.
Global climate change:
It is known that our human actions are releasing a lot of CO2 and greenhouse gases causing the depletion of the ozone layer which in turn is warming up the earth daily and the greenhouse effect. Our company is abiding by the recent Glasgow COP26 environmental summit objective which is committing to more ambitious targets to reduce greenhouse gas emissions by 2030.
As part of our Corporate Social Responsibility, the product is designed with low carbon emissions. Our major source of power supply is renewable energy.
Design for manufacturing (DFM)
Product design and process planning are combined in Design for Manufacturing (DFM) and Design for Assembly (DFA). The objective is to create a product that can be produced quickly and cheaply. The significance of developing for manufacturing is underscored by the fact that creative decisions account for around 70% of a product's manufacturing expenses (materials, processing, and assembly), whereas production decisions (such as process planning or machine tool selection) account for only 20%.
Design for assembly (DFA)
Design for assembly is the steps taken before the parts of the product are manufactured or set up so that some steps are followed for easily assembling the product parts to manufacturing the product.
Human assemblers can employ dexterity, judgment, and skill but Manual assembly, on the other hand, is rarely of constant quality. As a result, parts and assembly should be designed to reduce the likelihood of mistakes and their repercussions. Components that are symmetrical so they don't need to be orientated, assemblies built so parts can't go in the incorrect place, assemblies designed so omissions are visible, and test/inspection designed to capture all manual mistakes are some instances of reducing errors. If done well, establishing and sustaining craftsmanship standards is a tremendous task.
Design for Reliability
Reliability may be defined as the ability of a system to fulfill its design functions for a specific period of time under specific environmental conditions (Ayyub & McCuen, 2011). Design for reliability is a critical consideration during the design stage which comes before physical prototyping. This factor affects the overall strategy for design for excellence. Design for reliability is generally used by companies and requires the integration of both product design and process planning into a cohesive, interactive activity known as concurrent engineering. The process of designing for reliability is a lot more cost-effective than having to carry out tests for reliability.
In designing for reliability on this project, the team ensured that during the concept feasibility stage, all decisions were made having reliability in mind. The product is thus, expected to have a reliability of about 99.7% since it is practically impossible to have a 100% reliability of any product (Chatterjee, 2021).
Design for Maintainability
Maintainability is defined as the probability that a failed component or system will be restored or repaired to a specified condition within a specified period of time when maintenance is performed in accordance with prescribed procedures.
The product is a low-maintenance product that should have a useful life of at least 15 years. Maintenance on the product would thus, be done once in 3 years. The part that is likely to need replacement during maintenance is the battery which has a specific number of cycles and can be depleted over time.
Design for Production
It is essential for a business looking to manufacture a product to consider the various stages of the product development process and identify the activities it can carry out independently and those for which it will require external assistance (Ulrich and Ellison, 2005). More recently, it has appeared more cost-effective for some firms to complete design and outsource production, depending on the type of industry they operate in. This allows generating suggestions and assumptions for our business as we could apply a similar approach to that of the computer industry, which has a prevalence of internalising design and production in the same firm.
Figure 1: Motives for activity Internalisation or Outsourcing. Source: (Ulrich and Ellison, 2005)
In the diagram presented in Figure 1, reasons for internalising and outsourcing a specific activity are also presented. Activity A could be completed using the resources in the company’s possession due to the specificity or competitive edge it provides, and the company might therefore prefer to maintain a certain level of confidentiality. Reasons to outsource can include increased competition among suppliers, external economies of scale, instantaneous access to supplier resources, and a significant reduction in the financial investments employed. In both instances, it will be vital for the design to possess feasibility to provide the company with enough possibility to make the right choice (Southwood, 2018).
Environmental Life-Cycle Assessments
Life-Cycle Assessments was ideated in the 1970s and developed and expanded during the 1990s by SETAC and SETAC-Europe (Klöpffer, 1997). The conclusions were summarised into a simple structure known as the SETAC-triangle (Figure 2).
Figure 2: SETAC-triangle. Source (Klöpffer, 1997)
From this, we can swiftly identify how the definition of a goal and identification of scope is directly affected by the assessment of the product impact and improvement as well as the analysis of the inventory.
DESIGN FOR USE: How long will the design work
The life of a product is the length of time at which a product is introduced to consumers into the market until its lifespan declines. The life cycle of a product is broken into four stages introduction, growth, maturity, and decline. This concept is used by management and by marketing professionals as a factor in deciding when it is appropriate to increase advertising, reduce prices, expand to new markets, or redesign packaging. Every product pass through an almost similar type of phases, which is known as the product life cycle. Though all products have a different life cycle and several products do not pass through all phases.
The concept of product life cycle indicates that sooner or later all products die and that if management wishes to sustain its revenues, it must replace the declining products with the new ones. The product life cycle concept also indicates what can be expected in the market for a new product at various stages. When a product is introduced into the market, demand increases, therefore increasing its popularity. These newer products end up pushing older ones out of the market, effectively replacing them. Companies tend to curb their marketing efforts as a new product grows. That's because the cost to produce and market the product drop. When demand for the product wanes, it may be taken off the market completely.
The pet LED reflective collar with GPS and the hidden camera has been designed with durable materials that give it a long-lasting usage. The product uses a lithium-ion battery which is better than conventional batteries in the market, it charges faster, lasts longer, and has a high-power density. The typical estimated life of a Lithium-Ion battery is about two to three years.
The body of the product is made from a polymer material that is highly resistant to chemicals, they are lightweight, which makes it perfect for the design and gives our product a long lifespan of up to 10-15years.
In summary, all these aforementioned features make our product durable and long-lasting meeting the customers' need for a lasting product.
Thank you for reading. Feel free to share your thoughts and suggestions below. Watch out for more weekly publications from VOSCUU Novus.
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