Lesson 4: PRODUCT DEVELOPMENT, OPERATIONS, AND FINANCIAL PLAN

From: DIWA Senior High School Series

Author: Ronaldo “Ron” S. Batisan

Objectives:
1. Understand the fundamentals of product development.
a. Develop a product or service description.
b. Create a prototype of the product or service
c. Test the product prototype.
d. Validate the service description of the product with potential customers to determine its market acceptability.

Business and financial plan play a crucial role in ensuring that the business is operationally feasible and financially viable.
These two will tell if the big idea generated through product development process is realistic.

FUNDAMENTALS OF PRODUCT DEVELOPMENT

Product Development is the process of developing, testing, and commercializing a product or service with the ultimate
objective of solving the problem of the primary target market.

4 SEQUENTIAL STEPS:
1. Developing a product or service description
The product or service description simply describes how a product or service works and how it benefits the customers. A clear
product or service description is important because this will serve as the blueprint of all business operations. Therefore, the
entrepreneur has to take note of the following regarding the product or service description:

a. It should directly address the primary target market in a personal manner using everyday language. The entrepreneur
should put himself/herself in the customer’s shoes, where the product description will be addressed to.

b. It should highlight the features that will cater to the customer’s needs or address the customer’s problems.

c. Realistic superlatives should be used for the product description. Motherhood statements such as “world-class service or
product excellence” may not matter to the customer at all.

2. Creating a prototype of the product or service

A prototype is a preliminary model or sample of a new product or service that is created to test a product concept or service
process. This is an exciting process for the entrepreneur because he or she will be able to see that his or her ideas will soon
become a tangible reality. The entrepreneur’s creativity and ingenuity will be used in creating the prototype.
According to Entrepreneur (www. Entrepreneur.com) creating a prototype lessens implementation/commercialization risks
and provides the entrepreneur a bunch of advantage as follows:

a. Creating a prototype enables the entrepreneur to engage in trial-and-error, provides room for improvements, and refines
the functionality of the product design or service process. It is very expensive and risk-intensive to commercialize a product
without creating a prototype.

b. Creating a prototype provides the entrepreneur a window to test the performance and specifications of various materials
and service processes. Every detail of the product or service should be scrutinized carefully, and all flaws be addressed right
away before commercialization.

c. A prototype helps the entrepreneur effectively describe the product or service to the product team. Members of the
product team include marketing, operations, engineers, suppliers, business partners, and legal and human resources. It
provides the product team the information needed to create the right product or service as planned.

d. Creating a prototype elicits respect from key stakeholders and customers. At the same time, a prototype gives credibility to
the entrepreneur. Some entrepreneurs only present vague and big ideas but no details as to its feasibility and implementation.
One technique for creating the best prototype is by studying the competitor’s product or service. The entrepreneur will try to
scrutinize the parts and functions, as well as the design and other attributes of that product, in hopes that s/he will be able to
address some problems in the competitor’s products and come up with the most efficient and effective prototype.
As for the services, the entrepreneur may try availing the competitor’s services and will take note of their operations, such as
service delivery, location, facilities, and ambiance. He or she will then take note of the pros and cons of the service to create
the prototype, simulate the service by trying it with his or her friends or relatives, and then get their feedback.
Some entrepreneurs create a video presentation or a miniature prototype, so they will be able to explain the details, if the
product is to be viewed by a panel of specialists (e.g., engineers, developers, scientists). The scope should be related to the
entrepreneur’s budget. After creating the prototype, he or she should be ready to test it.

3. Testing the prototype

Testing the prototype is vital process before an actual product or service is launched to the market. Testing the prototype will
uncover the final loopholes that need to be fixed before commercialization. It gives the entrepreneur a leeway to examine and
scrutinize the prototype and provide feedback as to what can be improved before the launch. These improvements and
changes must be completed first before moving forward to the next step. For a prototype that has already been refined,
testing it for the last time after the changes have been made will validate its readiness for commercialization. The following
testing methods are applied by the entrepreneur:

a. Focus Group Discussion – The participants will provide relevant insights about the new product or service. The objective of
the FGD is to identify errors, deficiencies, and issues that may impede the success of the product. Participants also need to
provide suggestions and practical solutions on how to improve these deficiencies.

b. Legality and Ethical Test – Prior to launching, the entrepreneur must ensure that the product or service complies with all
relevant laws and regulations and has a necessary license or permit to operate a particular business. For example, food
products must be cleared first with the Bureau of Food and Drugs (BFAD) before they are offered to the public. The
entrepreneur must also make sure that the manufacturing/production of goods or offering of the service does not generate
ethical issues such as being threats to health, safety, and environment.

c. Safety Test – The entrepreneur must ensure that the product is safe to use, safe to be consumed (food and beverages), and
safe to be applied (cosmetic products). The product should not in any way harm the customer or put the customer in peculiar
situations. In services, the entrepreneur must ensure that the processes to be performed by the service provider must not be
detrimental to the safety and health of the customer.

d. Product Costing Test – The entrepreneur must examine every stage of the manufacturing process or every process of the
service blue print to evaluate and finalize the costs involved. This is the time when the entrepreneur can match the expected
costs versus his/her budget. Modification in the manufacturing process or service blueprint can still be made at this point to
align with the cost objective of the entrepreneur.

e. Component Test – Each component of the product or service must be tested independently to identify component failures
for goods or service failures for services. Any failure identified must be redesigned and tested again until it becomes fully
operational and functional.

f. Competitor’s product/Service Test – The entrepreneur must test a similar line of products or the competitors’ product or
service itself to compare and get the best practices to be applied to the new product or service.

4. Validating the market Acceptability

Validation of Market Acceptability is the process of finding out if the intended primary target market will be buying the product
or availing the service. Market acceptability is a critical factor that the entrepreneur must validate before launching the
product or service, because this can strongly suggest if the business will be successful or not. It either validates or disconfirms
the perception of the entrepreneur about the suitability of the chosen primary target market. It also tests whether the value
proposition and unique selling proposition are appropriate or there’s a need to improve on them. This is also the time to
deeply understand the value that the product or service brings to the customer and their prospective purchase behavior,
because it helps the entrepreneur build a more relevant and meaningful product or service. This process is the last step before
the product or service can be introduced to the market. The following objective questions are more likely to be answered in
the whole process of market acceptability validation:

1. Will the primary market like the product or service?

2. Will the primary target market buy the product or service when it is already in the market?

These questions can easily be answered if the entrepreneur will perform the following activities:
1. Use the most strategic marketing research tool (FGD, survey, observation, interview, online survey, e-mail, or a combination
of these research tools), wherein the entrepreneur can get the most relevant answers in the cheapest way possible.

2. Prepare relevant open-ended questions that answer the objectives above. DO not go around the bush and be straight to the
point. Keep the questions to minimum because the target market might get bored and not finish the whole questionnaire.

3. Find market experts who also target the same market but are not directly competing with the entrepreneur. For instance, a
market expert sells cars to a specific market segment and it so happens that an entrepreneur sells real estate. The
entrepreneur can leverage on the knowledge of the market expert regarding that market segment because they almost have
the same demographic data requirements. The entrepreneur can use these data to improve the product or service.

4. Collate all the data, analyze them, and prepare a summative report that answers the objective questions that were
mentioned earlier.
Lesson 4: PRODUCT DEVELOPMENT, OPERATIONS, AND FINANCIAL PLAN
From: DIWA Senior High School Series
Author: Ronaldo “Ron” S. Batisan

Objectives:
2. Describe the 4Ms (method, manpower, machine, materials) of operations in relation to the business opportunity.
a. Select/pinpoint potential suppliers of raw materials as well as technology/machine requirements and other inputs necessary
for the production of the product or service.
b. Discuss the value/supply chain in relation to the business enterprise.
c. Recruit qualified people for one’s business enterprise.