Yes, it is a great idea! And, your research shows that customers are willing to part with their hard-earned cash for your next product. Provided, of course, your price fits within the perceived value of the product. You are convinced your team can develop it with a reasonable profit margin. You give the “go ahead” to the team, they work diligently and, voila, the product is ready. Next, the suppliers’ final quotes come for production runs. Opps, now your product is too expensive to produce, eating away all the profits you accounted for. What happened here?
Is this scenario your “regular” product development? It should not be. It is very possible to meet cost targets with a level of discipline and diligent enforcement of the target price during development. Here are the basic steps towards eliminating product cost surprises:
- Determine your target selling price BEFORE the start of product development.
It is difficult to set a price to a yet-to-be-developed product but this is where the strength of your market research team shows. At this stage, there are many assumptions around the target price, record them. Derive from it the target cost for the development team to meet.
- Make the target cost a requirement for the development team.
The target cost and the assumptions for it need to be visible and transparent for the development team. Identify an owner, who monitors the estimated cost of as-designed product during development.
- Make product cost a component of regular design reviews.
Estimated cost and the assumptions need to be reviewed regularly. Treat any indicators for creeping cost seriously and immediately. Do not allow “it will come down when we start producing in quantity” to be an excuse for high-cost designs to get by.
- Feedback to design team the actual cost of product after development is complete.
It is educational for the design team to know the actual cost of their design when it hits production. Make it a point to gather the design team after the product is in the market and compare the cost estimations from design reviews to the actuals.
These simple and effective steps were successfully implemented in a number of development projects I managed or oversaw. While the steps are simple, just like everything else, the devil is in the details. I would be more than happy to help you with your product development needs and tailor solutions to meet your objectives.
I hope you find this posting helpful. I invite comments and feedback on my posting. You may reach me by writing to firstname.lastname@example.org.