Lecture 1: of Consumer Utility
Drivers
Consumer Utility: a measure of the customer preference of a product or service.
Drivers of consumer utility
Consumer Utility
Drivers of Consumer Utility
Price: the total cost of owning a product or receiving a service.
Including expenses such as shipping and financing etc.
Inconvenience: the reduction
Stefan Waldherr
in utility that results from the effort
Introduction to Operations and Processes 7
Consumer Utility
of obtaining the product or service.
Drivers Location: the place where customer can get a product or service.
of Consumer Utility
Timing: the amount of time that passes between ordering and
receiving a product or service.
Consumption Utility: is a measurement of how much you like a
service, ignoring the effects of price and its inconvenience.
Consumption ability comes from various attributes such as
Performance and Fit.
Stefan Waldherr Introduction to Operations and Processes 8
Performance: subcomponent of consumption utility capturing how
much a consumer desires a product or service (we all desire
“cleaner”, “newer”,Consumer
“moreUtility
efficient”...).
Fit: subcomponent of consumption utility that captures how well the
Example
product or service matches with the uniqueness of a given
consumer. On some attributes consumers disagree what the best
is.
Example:
Restaurants:
What drives your utility of where
Stefan Waldherr totogo
Introduction to dinner?
Operations and Processes 9
Consumption utility:
Performance: freshness, nutrition level, cleanliness
Fit: style of food, taste, style of restaurant
Price: price for the food order
Inconvenience:
Location: closeness of the restaurant
Timing: Fast food vs longer waiting time
Stefan Waldherr Introduction to Operations and Processes 10
, Strategic Trade-offs and the Efficient Frontier
The Company’s View
Strategic trade-offs and the efficient frontier
Company’s view
Strategic Trade-off: When selecting inputs and resources, the
firm must choose between a set that excels in one direction of
customer utility or another, but no single set of inputs and
resources can excel in all dimensions.
Strategic Trade-offs and the Efficient Frontier
Capabilities: The dimensions of the customer’s utility function a
firm is able
Strategic to satisfy. Capabilities allow a company to do well on
Trade-offs
some but not all components of customer utility.
Stefan Waldherr Introduction to Operations and Processes 13
Market Segments: A set of customers who have similar utility
Strategic Trade-offs and the Efficient Frontier
functions
The Efficient (Pareto) Frontier
Stefan Waldherr Introduction to Operations and Processes 14
Stefan Waldherr Introduction to Operations and Processes 16
, Strategic Trade-offs and the Efficient Frontier
Towards (and beyond) the Pareto Frontier
Operations Management
Operations Management
Operations management
Improving the way a business does its work in order to be part of
the efficient frontier
Stefan Waldherr
(“The Science for the Better”).
Introduction to Operations and Processes
Operations Management 17
Managing processes to efficiently (e.g. reduced cost, better
Costs
utilized resources) match demand and supply.
Costs:
Costs for inputs:
Inputs are the things that a business purchases:
A fast food restaurant purchases meat, salad, buns, soda, etc.
Car manufacturers buy steel, seats and tires.
Hospitals purchase medications, bandages and food.
Stefan Waldherr Introduction to Operations and Processes 19
Costs for resources:
Resources are the things in a business that help transform input
into output that match customers demand:
In a fast food restaurant, the resources are the cooking equipment,
the real estate of the restaurant and the employees.
Car manufacturers have plants, warehouses and employees.
Hospitals have doctors, nurses and their building.
Stefan Waldherr Introduction to Operations and Processes 20
, Operations Management
Three System Inhibitors
Three system inhibitors:
Waste: The consumption of inputs and resources that do not add
value to the customer
Restaurant: disposes expired food, bad layout (e.g. employees
waste time looking for the sauce)
Variability: Predictable or Unpredictable changes in the demand
or the supply process
Customer arrival: we can never predict exactly the number of
customers we need to serve today
Customer requests: what customers want to order and how much?
Customer behavior: you wait for customer because he is on the
phone Operations Management
Inflexibility: The inability to adjust to either changes in the supply
Key Decisions
process or changes in customer demand
Small waiting rooms with limited number of seats
Limited range of offered products and services
key decisions
Stefan Waldherr Introduction to Operations and Processes 21
Process Analysis and Improvement.
Process Productivity and Quality.
Anticipate Customer Demand.
Respond to Customer Demand.
What products/services to offer?
Who are targeted customers?
How much do we charge?
How efficiently are products/services delivered?
Where will demand be fulfilled?
When will demand
Introduction be fulfilled?
to Processes
Process View
Processes:
Process: A set of activities that take a collection of inputs, perform
some work or activities with those
Stefan Waldherr inputs
Introduction to byProcesses
Operations and means of resources, and 22
then yield a set of outputs
Stefan Waldherr Introduction to Operations and Processes 24
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