A competitive product must address factors such as cost, performance, aesthetics,schedule or time-to-market, and quality. The importance of these factors will varyfrom product to product and market to market. And , over time, customers or usersof a product will demand more and more, e.g., more performance at less cost.Cost will become a more important factor in the acquisition of a product in twosituations. First, as the technology or aesthetics of a product matures or stabilizesand the competitive playing field levels, competition is increasingly based on costor price. Second, a customer's internal economics or financial resource limitationsmay shift the acquisition decision toward affordability as a more dominant factor.In either case, a successful product supplier must focus more attention onmanaging product cost.The management of product cost begins with the conception of a new product. Alarge percentage of the product's ultimate acquisition or life cycle costs, typicallyseventy to eighty percent, is determined by decisions made from conceptionthrough product development cycle. Once the design of the product has beenestablished, relatively little latitude exists to reduce the cost of a product. Decisionsmade after the product moves into production account for another ten to fifteen percent of the product's costs. Similarly, decisions made about general andadministrative, sales and marketing, and product distribution activities and policiesaccount for another ten to fifteen percent of the product's cost.When a company faces a profitability problem and undertakes a cost reduction program, it will typically reduce research and development expenditures and focuson post-development activities such as production, sales, and general andadministrative expenditures. While not suggesting that these are inappropriatesteps to take, the problem is that it is too late and too little. Most of the coststructure in a company has been locked into place with the design decisions madeabout the company's products. A cost reduction or profitability program has to startwith the design of the company's products at the very beginning of thedevelopment cycle.