Chapter 4 Chapter 1 Economics in Product Design

Why does the freezer light up when I open the refrigerator, but the freezer doesn't? Why does a laptop work on any country's electricity standard, but most other appliances don't? Why is there a lock on the door of a 24-hour convenience store? Why is milk sold in square boxes, but Coke is sold in round bottles? Aluminum cans could be cheaper to produce, so why don't people do that? Why do vending machines allow customers to pay for several newspapers when they sell newspapers, but not when they sell drinks? Why do some cars have the fuel tank on the driver's side and others on the co-pilot's side?

Why are all the taxis in Manhattan yellow sedans, but most of the taxis in Ithaca are minivans of various colors? Why are the portraits on coins in profile, but the portraits on banknotes are frontal? Why are DVDs and CDs the same size, but the DVD case is much larger than the CD case? Why do women's clothes button on the left and men's clothes always button on the right? Why do different products have different shapes?No clever answer to this question can be considered satisfactory without a little consideration of the principle of cost-benefit.For example, Bill R.Toya's explanation is based on this principle.Manufacturers left Braille on highway ATMs because the cost of producing two different ATMs far outweighed the reasonable expected benefits.

Generally speaking, manufacturers have little incentive to add new features to products unless the product value (that is, benefits) brought by such features exceeds its cost.In almost all cases, product design must include the features that best suit consumers, while satisfying sellers' needs to keep prices low and competitive.That is to say, product design must achieve a balance between the two. The evolution of car functions subtly illustrates this balance.I bought my first car in the spring of 1961, when I was a high school student.The used car ad that caught my eye most was as follows: 1955 two-door Pontiac, V8 engine, radio, heater, manual transmission, $375, negotiable.Of course, all cars today have a heater, but in 1955 it was an option.When I lived in South Florida, a lot of the cars sold there didn't have heaters.However, during the coldest days of winter, it is quite comfortable to have a heater.At that time, people's income was much lower than it is now, and many buyers would rather give up temporary enjoyment in exchange for lower prices.If the manufacturer only sells models with heaters, it is likely that a lot of business will be lost to competitors who sell cheaper models without heaters.

However, as incomes rise, fewer consumers are willing to endure severe cold in winter to save a few bucks.Once demand for models without heaters drops below a certain threshold, dealers are reluctant to keep them in showrooms.Of course, if someone is willing to pay a premium for customization, dealers can also sell them models without heaters.But it is obvious that no one will pay a high price to deliberately not have a heater.Eventually, models without heaters disappeared.In 1955, Pontiac's V8 was the usual choice of buyers, because if you didn't buy a V8, you had to choose a six-cylinder engine. The benefit (and thus gain) of the V8 is that it revs up much faster than a six-cylinder engine.Its cost, in addition to the higher selling price, is also the higher fuel consumption, but the gas price was still very cheap in those days.

In the 1970s, the Arabs imposed an oil embargo.In mid-1973, a gallon of gasoline sold for thirty-eight cents; a year later it had risen to fifty-two cents.In 1979, the second oil crisis broke out, and in 1980, the price of oil rose to one.nineteen dollars.Due to soaring oil prices, the V8 could no longer pass the cost-benefit test, so many consumers decided to give up its superior acceleration.So, that engine pretty much all but disappeared.Six-cylinder engines are quite common, but four-cylinder engines, which were rare in the United States before the 1970s, quickly entered the market. However, by the early 1980s, oil prices remained flat in absolute terms and even fell slightly relative to the prices of other commodities.By 1999, the price of a gallon of gasoline was one.Four dollars, from the perspective of purchasing power, compared with 1973 ○.$38 is even less expensive (that is, $1.40 could buy fewer goods and services in 1999 than $0.38 in 1973) .It should come as no surprise, then, that engine specifications changed again in the 1990s.

As oil prices have climbed in recent years, the trend of the 1970s is repeating itself.For example, long before gas prices topped $3 in 2005, Ford Motor Company cut production of its largest SUV, the Excurosion, which weighs 7,500 pounds and consumes a gallon of gas per 10 miles.And fuel-efficient hybrids are so popular that dealers are selling them for more than the list price. In short, the function of product design should conform to the principle of cost-effectiveness.This principle states that an action should be taken if and only if the benefits are not less than the costs.Therefore, a product feature should only be added if the benefit (measured by the number of consumers willing to pay the extra fee) is equal to or greater than the cost (balanced by the number of additional consumers that the added feature will attract).

This principle is also reflected in the evolution of automotive gearboxes.My 1955 Pontiac had the standard three-speed transmission at the time.The car I drive now has long used a six-speed gearbox.But in 1955, it was not difficult for manufacturers to make six-speed gearboxes.Why don't they do it? Manufacturers must also weigh product gains against consumers' willingness to buy.In terms of cost, each additional forward gear in the gearbox will increase the manufacturing cost accordingly. The more forward gears, the higher the price of the vehicle.Are consumers willing to pay high prices?From the point of view of income, the forward gear can bring better acceleration and more fuel economy.So, the answer depends on how many consumers are willing to pay for these advantages.

A car gearbox should have at least two, or even three forward gears, to be called practical: so from the point of view of product design, the three-speed gearbox of my 1955 Pontiac obviously Only the bare minimum was reached. Because the economy is more prosperous today than it was in 1955, we are willing to pay more for acceleration.And because the fuel money saved by more forward gears is much more than before, their charm is even greater.Taken together, these changes explain the disappearance of the three-speed gearbox. The examples discussed in this chapter will show that not only the evolution of car design is governed by the cost-benefit principle, but that it can be applied to explain a variety of other products and services.The first three examples illustrate the fact that if a feature is useful but is rarely available, it is less likely to be added to the product.