Economix analysis done


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Economix analysis done

  1. 1. Unit-12 Organizing For Product DevelopmentThe Booz, Allen, Hamilton study of new product introductionsuggests that the organizations which encounter the greatestsuccess in new product introductions are the ones that have giventhe greatest care to organizing for developing those products.Setting up an organizational form for new product developmentinvolves the following related questions: Who is to be responsible for new product development? What are the tasks to be accomplished? How are the tasks to be accomplished?Module 4 & 51
  2. 2. Setting Responsibility for New product Development:Responsibility for developing new product can be set at thecorporate level, the divisional level or the operating level.New product development at the corporate level:Involvement of the top management in new product developmentdepends upon the importance that has been assigned to newproducts in the overall plan.Module 4 & 52
  3. 3. Advantages:Greater effectiveness and control of innovative activitiesCentralized research unitsTechnical staff well equipped to handle a wider range ofproblems.Free from the daily pressures and crisis atmosphere-reporting directly to CEODisadvantages:No response to the urgencies of the market place-itsisolation from the commotion and turbulence of operationsmakes the corporate level new product unit responsive to theimmediate needs of the market.Organizational and spatial separation.Module 4 & 53
  4. 4. New product development at the divisional level:Divisional level responsibility for new product development ismost likely when operating units have highly differentiatedproduct lines.Module 4 & 54
  5. 5. Advantages:The new product development effort is set apart from the day-to-day activities of operations.The job is only an arm’s length away from top managementwhich aids the integrative process and gives direction to thedivision.Disadvantages:Friction between the developmental and functional levels.New product development is only a part of the firm’s productsmanagement.Module 4 & 55
  6. 6. New product development at the operating level:Responsibility for new product development lodged anywherebelow the divisional level becomes associated with operationalactivity.There are two options:assign responsibility for new product development to one of thefunctional departments, says marketingAssign it to product manager.In operating levels the changes occur only in the way anoperational unit functions.New product development in functional department:The assigning of responsibility for new product development isbetween marketing and research and development.Module 4 & 56
  7. 7. Chief Executivedivision Division head divisionMarketing R & D ProductionNew Product unitModule 4 & 57
  8. 8. Advantage :In choosing marketing for new product developmentresponsibility is that the marketing people are in a position tohave the best view of trends in sales, process, competitive actions,distribution and services - all very important in bringing a newproduct to commercialization.New product development in high technology fields is alsogreatly influences by the components of a marketing program.Disadvantages:Marketing personnel may run into difficulty when confrontedwith new products involving scientific concepts and complicatedtechnologies. Hence many industrial marketers recruit marketingpersonnel and sales force from among those with engineering andtechnical backgrounds.Personnel other than marketing lack market sense andsensitivity to the needs of customers.Module 4 & 58
  9. 9. New product development responsibility of Product Manager:This type of arrangement is usually made when a rapid Growthof products creates a burden too heavy for the chief marketingexecutive and his staff.e.g. ITC in case of cigarettes – it expresses a case of extremedecentralization.Such type of organization is called “product managementsystem”.Structural Units for New Product Development:In small companies new product development is often handledby the existing units. But large firms regard new productdevelopment as an on-going activityModule 4 & 59
  10. 10. The most common organizational units establishedspecially for new product development are new productdepartments, new product committees ad hoc committeesventure teams and task forces.Module 4 & 510
  11. 11. New Product development Corporate level Divisional level Operational levelNew product committee : it is usually at either thecorporate or divisional level.Ad hoc committee: they are specialists needed to managecertain aspects of new product development activity, such asbrainstorming, screening, coordinatingTask force: A task force is established to perform bothintegrative and coordinating functions.Venture team: it is a small interdisciplinary group whichworks full-time on a specific mission and discontinued afterthe conclusion of venture.Module 4 & 511
  12. 12. Function of the New Product development units:Theoretically when different types of structural unitsparticipate and share responsibility in new productdevelopment, each look after a separate function.But in practice all types take part in the developmentalsequence with varying extents of involvement.Module 4 & 512
  13. 13. Unit 13 : Generation, Screening and development of newproduct ideasIntroductionOne product idea was developed based on creative insight.Innovation and the new Product development process:Sometimes innovations are by accident or luck such as thevulcanization of the rubber process – discovered when a rubberymixture was spilled on a hot stove;Necessity, it seems was the mother of invention for the ice creamseller who ran out of paper cups and rolled pancakes into servingcones-the first ice cream cones.Module 4 & 513
  14. 14. The standard new product development processmodel comprises the following stages:Idea generation, idea screening, concept development,and testing, marketing-strategy development, businessanalysis, product development, market testing andcommercialization.This unit is concerned with only the first three stages:1.Generation2.Screening3.Development of New product ideas.Module 4 & 514
  15. 15. Generation of New product ideas:A creative approach is needed for the creative process.Creativity v/s innovationSources of New product ideas:Inside Company Sources Outside company sourcesSales personnel CustomersMarketing personnel Competitive productsResearch and development Foreign productsTop management executives ConsultantsProduction department Advertising agenciesPurchase department Researchers / inventorsCustomer service division Distribution channelsEmployees suggestion system Public – unsolicited ideasModule 4 & 515
  16. 16. Methods of generating new product ideas:Direct MethodsIndirect MethodsIndividual TechniquesGrouptechniquesMorphologicalAnalysisConsumerSurveysConsumerAttribute listing Conjoint analysis Brainstorming EngineeringmagnitudeHeuristic Ideation Multi-dimensionalscalingFocus group EstimationForcedrelationshipsMarket-gapanalysisInterviews Quadrant analysisTransfer analysis MotivationresearchsynecticsProblem detectionUser solutionanalysisModule 4 & 516
  17. 17. Attribute Analysis:By decomposing existing products into combinations ofspecific parts, qualities or attributes. Attribute listing seeksto modify one or more of these to improve the wholeproduct.e.g. company planning to bring out a toothpaste, it maywant to know a package of optimum level and combinationof various attributes and benefits:•Whitening of teeth•Breath freshening•Decay prevention•Taste•PriceModule 4 & 517
  18. 18. Osborn has suggested that useful ideas can bestimulated(Make) by putting the following questions toan object and its attributes:Put to other uses?Adapt?Magnify?Reduce?Substitute?Rearrange?Reserve?Combine?Module 4 & 518
  19. 19. Heuristic ideation Technique (HIT)In attribute analysis, alternative combination maypractically run into millions. This may make the analysisvery difficult, if not impossible.For example, in the household cleaning agent, productingredients is one of the many dimension.Benefit – structure analysis:Benefit-structure analysis proposed by Myers…,thisanalysis begins with 25 to 50 in-depth individual orgroup interviews wherein the respondents are asked torecall all occasions when a product class was used.Module 4 & 519
  20. 20. Brainstorming:Brainstorming is a rather popular creative technique with a longtrack-record. It was first developed by Alex F. Osborn in 1938 andgained acceptance by the business world in the 1950s.Osborn feels that creativity is fostered(Promote the growth of) in aninformal meeting where participants are free to express any and allideas they concoct.Criticism is ruled out until the end of the meeting as this inhibitspeople from contributing ideas that might prove useful to others.To ensure creativity the following ground rules are suggested:1.Do not permit evaluation of ideas2.Encourage participants to think ‘far out’3.Put emphasis on creating a large quantity of ideas4.Encourage participants to modify or build upon ideas of othersModule 4 & 520
  21. 21. Focus Groups:It relies on the spontaneous interaction of the group and themembers of the group are consumers.Focus group interviews can be thought of as brainstormingwith consumers/potential consumers.Screening of New Product ideas:Screening is essentially an elimination technique. If thepurpose of ideas generation is to have a large number ofideas.The purpose of screening is to reduce this number toprofitably viable few.Criteria for Screening New Product ideas:1.Screening criteria are established as evaluative standardsin new product development.2.They make arbitrary decisions less likely.3.They provide a unity of purpose.4.They provide a perspective for new product planners.Module 4 & 521
  22. 22. “Must have” criteriaFill a perceived need with a sufficiently defined groupof heavy users for the product.Have a unique product characteristics that offerdistinctive benefits to the user.Have a sufficient trading profit contribution. E.g. 20%to 50% in case of grocery products.Be saleable in large, expanding territories.“Would like” criteriaBe compatible with and able to carry the company’sbrand name.Provide the basis for a continuing businessLend itself to mass media advertisingModule 4 & 522
  23. 23. Preliminary Screening:1.Preliminary screening is the first, rather rough, attempt to judge thevalue of a new product idea.2.e.g. in case of consumer goods company the following statements canserve as primary criteria to screen new product ideas:The item should be in a field of activity in which the corporation isengaged.The item should be capable of being produced on the type and kind ofequipment that the corporation normally operates.The potential market for the product should be at least Rs.-(Dependingon the industry)Return on investment after taxes must reach a minimum level of….Product profile ratings – Ranked DataThis technique basically calls for the ideas to be evaluated in terms of anumber of key characteristics.One type of such a rating system is the simple ordinal measure whereineach characteristic is scored on a five-point scale,.e.g. each idea can be rated on ten different criteria from very good (A)to Very Poor(E).Module 4 & 523
  24. 24. Product profiles – summated DataThis method of screening new product ideas is very much like that ofranked data but there are some modifications:The ratings are in terms of numerical values. Scores by differentpeople are averaged.Each criterion is given a weight in accordance with its supposedimportance to the success of a new product.Scores and weights are multiplied and their products added to obtaina single overall rating for an idea.The overall rating is described as follows:nR = ∑ WiSii=1R is overall rating, Wi is weight of the ith criterionSi is score of the idea on the ith criterion,n is number of ideas used in screeningModule 4 & 524
  25. 25. Development of New product ideas:In the process of new product development, screened ideas need to beconverted into product concepts.“ A product concept is an elaborated version of the idea expressed inmeaningful consumer terms”, says Philip Kotler.e.g. Cadbury India, gets the idea of producing a powder to add to milk toincrease its nutritional level and taste.1. Who is to use this product? ( infants, children, teenagers, etc)2. What primary benefit should be built into this product?( taste, nutrition, energy)3. What is the primary occasion for this drink? ( breakfast,midmorning, lunch, etc)The concept emerge:1. A tasty midday snack drink for children.2. An instant breakfast drink for adults.3. A health supplement for elderly people at night.Module 4 & 525
  26. 26. Elaborated version of each concept can be presented tosample consumers.Then, the consumers can be asked some questions.Respondents answers to the questions can lead to theconcept’s communicability and believability , The need level The gap level Perceived value And the purchase intentionA Summary of these answers can tell if the concept has astrong and broad enough appeal.Module 4 & 526
  27. 27. Unit – 14Economic Analysis – Evaluation of New Product ideas /ConceptsIntroductionProduct managers are involved directly or indirectly in thepreparation and presentation of investment proposals fornew facilities, new markets, new products or new projects.what are the financial calculations required to make thecase?Essentially, the product manger needs to present afinancial logic that demonstrates a financial return at least asattractive as other identified opportunities before the topmanagement.Module 4 & 527
  28. 28. Purpose of economic analysisEconomic analysis is only a continuation of the evaluative process thatbegan when the new product idea was first generated.Once the product concept is developed, economic analysis can evaluatethe business attractiveness of the proposal.Market potential:The starting point for any economic analysis should be an estimate oftotal market potential.It is not a projection of actual sales.Rather, it is the maximum quantity an entire industry can sell if itsmarketing effort is the utmost.e.g. the market potential for baby food logically should be ‘total numberof infants’ multiplied by (some estimated) number of feedings.In case of industrial products firms rather than people become therelevant units of estimation.Module 4 & 528
  29. 29. Market demandMarket demand for a product is the total volume that would be boughtby a defined customer group in a defined geographical area in adefined time period in a defined marketing environment under a definedmarketing program”The ratio of company to industry sales gives a company’s marketshare.Estimating market demand involves two steps:1. Projecting industry sales and2. Projecting company salesEstimating sales:A firm needs to estimate the minimum and maximum of sales todetermine if the sales will be profitable.Sales can accrue from one-time purchase of a product, infrequentpurchases of a product or frequent purchases of a product.Module 4 & 529
  30. 30. Estimating first-time sales:Bass has used an epidemic equation to forecast sales of applianceswhen they were first introduced, including room air-conditioners,refrigerators, etc.Estimating replacement sales:The estimate of replacement sales begins with an idea of products lifeor survival age.Practically, replacement sales are difficult to estimate before theproduct is actually in use. That is why marketers prefer estimates offirst-time sales for launching a new product.Estimating Repeat sales:Both the first-time sales as well as repeat sales are to be estimated fora frequently purchased new product.Module 4 & 530
  31. 31. Sales forecasting methodologiesSales forecast for new products can be made using differenttechniques.The output of the most new products forecasting systems issales or share of market.Forecasting via judgmental estimates:Sales force judgment is also used – sales people, salesmanager, or even dealers can be asked to make forecastsfor their respective market areas, and these forecasts canbe totaled,Module 4 & 531
  32. 32. Forecasting via Awareness-trial-repeat purchaseSay for example a market consists of 3 millionscustomers. The purchasing rate per customer is 15 unitsper year. Also the firm has the following data fromcontrolled sales test:Awareness = 40% of customersTrial = 30% of those who are awareRepeat purchase = 60% of those who tried.The method suggests that the awareness trial and repeatdata can be multiplied by the total market availability toget a forecast of sales.Module 4 & 532
  33. 33. Forecasting via mathematical modelsIntent-to-buy percentagesRank order preference dataEstimating costs, sales and profits:The next required estimates, after the sales forecasts will bethe expected costs and profits of the new product project.1. Sales revenue2. Costs of goods sold3. Gross margin4. Development costs5. Marketing costs6. Allocated overhead7. Gross contribution8. Supplementary contribution9. Net contributionModule 4 & 533
  34. 34. Break – even analysis:The break-even analysis, in which the marketer estimates howmany units of the product the firm will have to sell to break-even(no profit, no-loss) with the given price and cost structure.Return on investment:Return-on-investment (ROI) analysis involves fourconsiderations: amount of return, duration, timing and risk.The most common methods of assessing return on investmentsare1.Payback: it is mainly concerned with how long it will take thefirm to get back its initial investment.2.Rate of return, and3.Discounted cash flow: the discount method of handling cashinflow accounts for the time value of money.Module 4 & 534