(349f) Microeconomics Helps Seeing That the “Best Product” Is Not the “Best Product”

It has been claimed (Bagajewicz, 2005 AIChE Annual Meeting) that product design has to be merged with microeconomics, process design and supply chain design. More specifically, it is suggested that pricing theory has to be used to determine profitability of potential new products. To do this, there is a need to establish consumer preferences and construct a consumer utility function that will measure satisfaction. In addition, supply chain considerations, market choices, manufacturing costs are to be considered which force cosidering the design of these parts. All these alter the product structure and/or composition.

We will show first through several examples that a model that considers product structure and/or composition, its manufacturing capital and operating expenses, as well as the supply chain issues needs to be merged with a model of a consumer, which will determine relations between consumer preferences, prices, demands. To make this model a reality, what is needed is to establish a connection between consumer preferences, consumer satisfaction and product structure/composition. We have developed these models and we will show several examples.

In particular we will show examples were maximization of consumer preference or satisfaction leads to products that are the ?Best? from the consumer point of view, but not the ?Best? from the profitable venture perspective. To show this we will demonstrate that profitable products have far different structure/composition from those that maximize consumer satisfaction. We will also illustrate the influence of manufacturing and suplly chain costs in this profitable products structure/composition.