11.1: The Production Process

Every business that produces goods or services has a specific production process. Production refers to the process of transforming inputs (such as labour, capital, and raw materials) into outputs (goods and services) that a firm wishes to sell. Refer to the production transformation process in Figure 11.1.

The decisions made in the planning stage have long-range implications and are crucial to a firm’s success. Before making decisions about the operations process, managers must consider the goals set by marketing managers. Does the company intend to be a low-cost producer and to compete on the basis of price? Or does it plan to focus on quality and go after the high end of the market? Many decisions involve trade-offs. For example, low cost doesn’t normally go hand in hand with high quality. All functions of the company must be aligned with the overall strategy to ensure success.

Value

The transformation process gives the finished products and services value. Value is the customer’s perception of the benefits they receive compared to the cost or effort required to obtain the product. It is subjective and influenced by factors like branding, emotional appeal, and customer experience. The value of the product or service equals the ratio of the product’s benefit to its cost (value = benefits/costs). The price you will pay for a product or service often depends on the benefits it brings and the value it has for you. Value is about how much the product matters to the customer (subjective).

Utility

Utility refers to the inherent usefulness or the ability of a product or service to satisfy a customer’s needs and wants. It is often measurable and tied directly to functionality. Utility is about what a product can do (objective).

There are four types of utility:

• Time utility: Availability when needed (e.g., seasonal availability of bathing suits)
• Place utility: Accessibility (e.g., where are the goods or services available)
• Form utility: Design (e.g., does the design or structure of the the goods or services meet the needs of the customer)
• Ownership utility: Satisfaction (e.g., benefits of ownership, functional and emotional)

Companies can enhance ownership utility by offering after-sales service, providing financing options, promoting lifestyle benefits and pride of ownership, and allowing buyers to personalize the product to enhance its appeal.

Media Attributions

“Figure 11.1: The Production Transformation Process” is reused from The transformation process. © 2022 by Kindred Grey, licensed CC BY 4.0 and includes build, Computer, and Couch by Adrien Coquet; Hammer by Nawicon; Money Bag by Nawicon; Factory by Abdul Wahhab; Handshake by Susannanova; manager by Chrystina Angeline; and Travel by Gregor Cresnar, used under the Noun Project license.

Image descriptions

Figure 11.1

A flow chart of the production transformation process.  At the top is a stylized silhouette of a person labelled “Operations Manager” with arrows pointing downwards to a large rectangular box divided into three sections. The left section is labelled “Inputs” and contains four circular icons: a brick wall labelled “Materials,” a hammer labelled “Labour,” a bag with a dollar sign labelled “Money,” and a computer monitor labelled “Information.” The middle section is labelled “Transformation Processes” and includes two circular icons: a factory labelled “Goods” and a handshake labelled “Services.” The right section is labelled “Outputs” with two circular icons: a couch labelled “Products” and an airplane labelled “Services.” Arrows point rightward from “Inputs” to “Transformation Processes” and from “Transformation Processes” to “Outputs” and indicate how inputs are transformed into outputs.

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