New Product Planning, Strategy, and DevelopmentContentsI.docx

New Product Planning, Strategy, and Development
Contents
Introduction
Innovation Strategy
Opportunity Identification
Design Process
Testing and Improving New Products
Correlates of Success and Reasons for Failure
‹#›
MKTG 347

Drexel University
Dr. Girish Ramani
Chapter 4: Market Definition and Entry Strategy Part 1
Step 1: Identification of markets that offer the best
opportunities for the organization
Step 2: Detailed definition of these markets by determining
the boundaries of each market and
the relationship between the market and the product line
Step 3: Selection of markets for new products and product line
expansion, with the best prospects and organizational match
Chapter 4: Market Definition and Entry Strategy Part 2
Focus on the Bass Model
‹#›
MKTG 347

Drexel University
Dr. Girish Ramani
Revisiting Growth Potential : The Bass Model
The rate at which a product diffuses into a market is a measure
of its growth potential
A market for a product may be thought of as consisting of two
groups of adopters
Innovators
Imitators
The rate of innovation diffusion will be governed by the relative
size of these two groups and their respective propensity to
innovate or imitate
The Bass Model uses the sales data from the first few years of a
product category launch to create the estimated pattern of sales
for the product category during its entire lifecycle
‹#›

MKTG 347
Drexel University
Dr. Girish Ramani
Actual versus Fitted

Actual and Fitted Adoption of VCR's
1980-1989
0
2000
4000
6000
8000
10000
12000
80
81
82
83
84
85
86
87
88
89
Year
Adoption in Thousands

Actual Adoption
Fitted Adoption
‹#›
MKTG 347
Drexel University
Dr. Girish Ramani
4
Actual versus Fitted Data using the Bass Model
Note how similar the shapes of the actual and fitted adoption
curves are to the familiar shape of the product life cycle (PLC)
The adoption curves exhibit all the stages of the PLC

Introduction
Growth
Maturity
Decline
Thus the Bass Model possesses sufficient descriptive accuracy
and is also consistent with the theoretical concept of PLC
With limited data and by making realistic assumptions, the Bass
Model can be used by product managers to arrive at not only the
market potential for a product but also the estimated pattern of
sales for each year in the product’s life cycle
‹#›
MKTG 347
Drexel University
Dr. Girish Ramani
5

Revisiting Growth Potential: Market Growth Models
Sure, let’s dive right in and look at some equations
‹#›
MKTG 347
Drexel University
Dr. Girish Ramani
The Bass Model Equation
S t= P*(M- Yt-1) + Q*(Yt-1/M)*(M- Yt-1)
Where
S (t) = Sales in time period ‘t’.
P = Coefficient of innovation
Q = Coefficient of imitation
M = Market Potential
Yt-1 = Cumulative Sales up to time period ‘t-1’.

‹#›
MKTG 347
Drexel University
Dr. Girish Ramani
The Bass Model: The components of the equation
S t= P (M- Yt-1) + Q (Yt-1/M) (M- Yt-1)
M- Yt-1 = Remaining market potential at the beginning
of time period ‘t’
Yt-1/M = Ratio of cumulative sales at the beginning of
time period ‘t’ to
the total market potential
P(M- Yt-1) = Sales obtained in a given period(t) from
the “innovators”
group
Q(Yt-1/M) (M- Yt-1)= Sales obtained in a given period(t) from
the “imitators’ group
S (t) = Total Sales from both groups in time
period ‘t’.

Drexel University
Dr. Girish Ramani
The Bass Model Equation: An intuitive explanation
S t= P(M- Yt-1) + Q(Yt-1/M)(M- Yt-1)
Sales from innovators in any period given by P(M- Yt-1) is
a function of the remaining market potential M- Yt-1. P is
simply a constant fraction.
Sales from imitators in any period Q(Yt-1/M)(M- Yt-1) is
also a function of the remaining market potential M- Yt-1. But
in addition, sales from imitators is also a result of the pressure
exerted by the total number of people who have bought the
product so far (Yt-1) in relation to the total market potential
(M). In other words, sales from imitators is a function of Yt-
1/M. Hence the sales from imitators is a function of the
combination of the remaining potential M- Yt-1 and the ratio
Yt-1/M. This combination is represented by the product (Yt-
1/M)(M- Yt-1). Q is simply a constant fraction.
Hence the total sales S t is the combination of these two
elements
‹#›

MKTG 347
Drexel University
Dr. Girish Ramani
The Bass Model: Different forms of the same equation
With a little bit of algebraic manipulation the equation
S t= P(M- Yt-1) + Q(Yt-1/M)(M- Yt-1)
can be re-written as
S t = PM + (Q-P) Yt-1 – Q/M Y2t-1
= A + B Yt-1 + C Y2t-1
Where A = PM, B= (Q-P) and C= -Q/M
Mathematically, when all potential adopters have bought the
product,
S t = 0 and Yt-1 =M
Substituting in the equation
S(t) = PM + (Q-P) Yt-1 – Q/M Y2t-1
0= A + B M + C M2
This is a quadratic equation in M, and can be solved for M
‹#›

MKTG 347
Drexel University
Dr. Girish Ramani
We know a quadratic equation in the form
ax2 + bx + c = 0
is solved by the following formula:
Hence, in our equation
So if we are provided with the A, B, and C values in the
equation
A + B Yt-1 + C Y2t-1,
we can estimate the market potential M and also determine the
Coefficients P
and Q. We will look at an illustration of this application later.
The Bass Model (contd.)
‹#›

MKTG 347
Drexel University
Dr. Girish Ramani
With the help of basic calculus two other important formulae
can be derived:
The time period when sales will reach peak levels
T* = (1/(P+Q) )* In(Q/P)
(Note: ln is short for natural log)
The magnitude of peak sales in the time period T* S(T*) =
M(P+Q)2/4Q
Knowledge of these two bits of information would be very
useful in
capacity planning
The Bass Model (contd.)
‹#›

MKTG 347
Drexel University
Dr. Girish Ramani
Market Growth Models (contd.)
Other implications from the equation
S t = PM + (Q-P) Yt-1 – Q/M Y2t-1
If Q > P, sales curve will rise and fall
If Q < P, sales curve will fall continuously
‹#›

MKTG 347
Drexel University
Dr. Girish Ramani
New Product Diffusion- How the Times Are Changing
CategoryYears to reach 1 million units (USA)Telephones27TV
sets11VCRs6CDs5HP’s Office jet all-in-one printer-scanner-
fax-copier2
* Marketing Engineering, 2nd edition, Lilien &
Rangaswamy
Adoption rates across categories*
‹#›
MKTG 347
Drexel University
Dr. Girish Ramani

14
With the right product success can be achieved in a short span
Bass Model Applications
In real life, the Bass Model has been adapted to many complex
situations
In the next few slides, we will look at some simple problem
solving exercises that illustrate the possible applications of the
Bass Model
Please also refer to the Tutorials 3 and 4 available under Week
3
‹#›

MKTG 347
Drexel University
Dr. Girish Ramani
Problem # 1
For a particular product, the coefficient of innovation P
(for the
Bass model) is 0.05 and the coefficient of imitation Q is
0.2. The total number of potential buyers is 100, 000.
a. Determine the time when sales will reach its
peak.
b. Calculate the magnitude of peak sales
‹#›
MKTG 347

Drexel University
Dr. Girish Ramani
Problem # 1 ( contd.)
Coeff of innovation P = 0.05
Coeff of imitation Q = 0.2
Time to peak sales T* = 1/(P+Q) In (Q/P)
Peak sales magnitude S(T*) = M(P+Q)2/4Q
T* =
S(T*) =
‹#›

MKTG 347
Drexel University
Dr. Girish Ramani
Problem # 2
Suppose that the Bass model is fitted to empirical data,
resulting in the
following expression:
St = 410 + 0.39 Yt-1 - 10-6 Y2t-1
From this equation, determine the total number of potential
adopters M
‹#›
MKTG 347
Drexel University
Dr. Girish Ramani

Problem # 2 (contd.)
St = 410 + 0.39 Yt-1 - 10-6 Y2t-1
St = PM + (Q-P) Yt-1 – Q/M Y2t-1
A=PM = 410 ------ 1
B=Q-P =0.39 ------ 2
C=-Q/M = -10-6 ------ 3
Mathematically, when all potential adopters have bought the
product,
S t = 0 and Yt-1 =M
Solving this quadratic equation by using
we obtain the value of Potential Adopters M = 391,048
‹#›

MKTG 347
Drexel University
Dr. Girish Ramani
The Bass Model: Giving the numbers the finishing touches…..
‹#›
MKTG 347
Drexel University
Dr. Girish Ramani
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New Product Planning, Strategy, and Development
Contents
Introduction
Innovation Strategy

Design Process
Testing and Improving New Products
Correlates of Success and Reasons for Failure
‹#›
MKTG 347
Drexel University
Dr. Girish Ramani
Steps in Opportunity Identification
Chapter 4: Market Definition and Entry Strategy

Chapter 5: Idea Generation
Step 4: Generation of product ideas to tap the potential of
selected markets
Step 5: Refinement and screening of these ideas
‹#›
MKTG 347
Drexel University
Dr. Girish Ramani
Chapter 4: Market Definition and Entry Strategy (Part 1)

Chapter 4: Market Definition and Entry Strategy (Part 2)
Focus on the Bass Model
‹#›
MKTG 347
Drexel University
Dr. Girish Ramani
Step 1: Identification of markets :Desirable Characteristics of
Markets-The Seven CriteriaGeneral
CharacteristicMeasureGrowth PotentialSize of market, Stage of
life cycle or growth rateEarly EntryOrder of entryEconomies of

scaleCumulative sales volume, LearningCompetitive
attractivenessShare of market potential, Rivalry
intensityInvestmentInvestment in dollars, technology and
managerial talentRewardProfits, Return on investment
(ROI)RiskStability , Probability of losses
We shall examine each of the seven criteria in detail
‹#›
MKTG 347
Drexel University
Dr. Girish Ramani
Growth Potential
Market Potential is measured by:
Size of the market in dollar sales
Growth rate of the market
Size is important, but growth potential is more important since a
growing market is also where prices and margins are generally
higher and therefore more desirable
To fully understand the growth potential of a market we need to

be able to estimate the size and the growth rate
‹#›
MKTG 347
Drexel University
Dr. Girish Ramani
Growth Potential: The Bass Model
The rate at which a product diffuses into a market is a measure
of its growth potential
A market for a product may be thought of as consisting of two
groups of adopters
Innovators
Imitators
The rate of innovation diffusion will be governed by the relative

innovate or imitate
The Bass Model uses the sales data from the first few years of a
product category launch to create the estimated pattern of sales
for the product category during its entire lifecycle
‹#›
MKTG 347
Drexel University
Dr. Girish Ramani

Actual and Fitted Adoption of VCR's
1980-1989
0
2000
4000
6000
8000
10000
12000
80
81
82
83
84
85
86
87
88
89
Year
Adoption in Thousands
Actual Adoption
Fitted Adoption
‹#›

MKTG 347
Drexel University
Dr. Girish Ramani
7
Note how similar the shapes of the actual and fitted adoption
curves are to the familiar shape of the product life cycle (PLC)
The adoption curves exhibit all the stages of the PLC
Introduction
Growth
Maturity
Decline
Thus the Bass Model possesses sufficient descriptive accuracy
and is also consistent with the theoretical concept of PLC
With limited data and by making realistic assumptions, the Bass
Model can be used by product managers to arrive at not only the
market potential for a product but also the estimated pattern of
sales for each year in the product’s life cycle
We will explore the Bass Model in greater detail in Part 2 of
this chapter

‹#›
MKTG 347
Drexel University
Dr. Girish Ramani
8
Early Entry
Significant rewards accrue to successful pioneering brands
Early –entry advantage can be sustained
Pioneers on average have a dominant 40 % of market
Early entry advantage occurs due to
best initial position
entry barriers

‹#›
MKTG 347
Drexel University
Dr. Girish Ramani
Economies of Scale/Experience Curve
Experience curve indicates that for many manufacturing
industries, the unit cost of producing and distributing a product
declines at a constant rate for each doubling of the cumulative
sales by the firm
If the experience curve exists, high market share in a large
market is a good way to move to lower unit costs
Large share in a market gives control over strategy in the
market
‹#›

MKTG 347
Drexel University
Dr. Girish Ramani
Competitive Attractiveness
Watch out for hostile competitive environment
US auto industry was vulnerable to higher quality and fuel
efficient cars produced in Japan and Europe (1980s)
Jergens was vulnerable to Vaseline Intensive Care lotion
Google wiped out many search engines through a combination
of superior product and marketing strategy
If entry is likely to precipitate a price war and strong retaliatory
actions from existing players, the market is less attractive
‹#›

MKTG 347
Drexel University
Dr. Girish Ramani
Investment
Investment
Higher the investment required by a market, the less attractive it
is
Besides direct financial requirements, an organization must
consider scarce resources like managerial talent, capital
equipment, laboratory resources, etc
‹#›

MKTG 347
Drexel University
Dr. Girish Ramani
Reward
If ROI is high, large investments are justified
If ROI is low, even low investments are not justified
Decision will depend on whether the organization has excellent
financial resources or good channels of distribution,
advantageous location or not
‹#›
MKTG 347

Drexel University
Dr. Girish Ramani
Risk
Markets characterized by uncertainty are less attractive
If demand is unknown or subject to rapid and large fluctuations,
the risk of product failure is high
Uncertainty can also be evident in supply of key raw materials
and their prices
‹#›
MKTG 347
Drexel University
Dr. Girish Ramani
Opportunity Identification Technique-Market Profile Analysis
1. Enumerate and weigh the market-selection criteria for
your
organization. You may select from among the seven

criteria
presented earlier
2. Rate each market on each chosen criterion
3. Calculate the overall weighted sum of the rating for
each
market
4. Examine the summary ratings to identify the market
with the
best overall appeal
‹#›
MKTG 347
Drexel University
Dr. Girish Ramani

Opportunity Identification Technique-Market Profile Analysis
(contd.)
The market with the highest ratings would reflect the best
opportunity for continued investigation
Markets with very low ratings are eliminated
The final choice is based on managerial judgment, aided by
careful interpretation of the ratings
‹#›
MKTG 347
Drexel University
Dr. Girish Ramani
Step 2a: Detailed Definition of the Market: Definition by
Segmentation
Market Segmentation is the identification of a group of
relatively similar consumers who have needs or responses
that are different from other consumers

A product intended for the total market may have only marginal
success if the market consists of several segments very distinct
from one another
‹#›
MKTG 347
Drexel University
Dr. Girish Ramani
Market Definition- Criteria for Segmentation
Demographics
families with young children are interested in safer cars
younger people like sweeter taste
SIC code to decide on size and allocation of sales and account
teams to organizations

‹#›
MKTG 347
Drexel University
Dr. Girish Ramani
Market Definition- Criteria for Segmentation
Attitudes
Computer haters, functional adopters and computer literates
react differently to product/market stimuli
‹#›

MKTG 347
Drexel University
Dr. Girish Ramani
Market Definition- Criteria for Segmentation (contd.)
Preference for product benefit
Superior washing effectiveness versus environmentally safe
detergents
Large economy pack versus small easy to carry and store packs
Price Sensitivity
Premium customers
Midrange customers
Bargain customers
‹#›
MKTG 347

Drexel University
Dr. Girish Ramani
Decision Rules
Customers are grouped based on similarities and differences in
decision making processes e.g. centralized purchases versus
regional office purchases
Usage behavior
Heavy users may need special service
With products that have several possible uses, segmentation as a
function of use is appropriate e.g. computers for home users
versus computers for educational institutes
‹#›
MKTG 347
Drexel University
Dr. Girish Ramani

Product Form
Liquid detergent versus detergent cakes
Canned versus fresh vegetables
Competitive Products
Defined as the product that a consumer switches to if the
preferred product is unavailable
Shaving foam and shaving gel therefore may not be competitive
products after all
‹#›
MKTG 347
Drexel University
Dr. Girish Ramani
Methods for Market Segmentation
Cluster Analysis
Based on the principle that consumers within a cluster are
similar and consumers in one cluster are dissimilar from
consumers in the other clusters

Product substitution methods
Degree of substitution in use
Observe sequence of issues considered and decisions made by
consumers when substituting
Observe or measure Product Switching in a panel of consumers
‹#›
MKTG 347
Drexel University
Dr. Girish Ramani
Methods for Market Segmentation (contd.)
Product Consideration sets
Design and promote the product so that it follows a particular
branch in the hierarchy of categorization by consumers ( e.g.
country of origin, luxury, power, price, psychological image,
etc.)

‹#›
MKTG 347
Drexel University
Dr. Girish Ramani
Step 2b: Determining the relationship between the market and
the product
Roger’s Five Factors:
Diffusion of innovation as a function of product differences
‹#›

MKTG 347
Drexel University
Dr. Girish Ramani
Innovation Diffusion –Roger’s Five Factors
Why do some products diffuse rapidly, while others diffuse
slowly, or not at all?
Relative advantage
The degree to which a product is better than the product it
replaces
Compatibility
The degree to which a product is consistent with existing values
and experiences
Complexity
The degree to which a product is difficult to understand and use
Trialability
The degree to which a product may be experimented with on a
limited basis

Observability
The degree to which product usage and impact are visible to
others
These five factors together are known to explain 49% to 87% of
the variance in the rate of diffusion
‹#›
MKTG 347
Drexel University
Dr. Girish Ramani
Important
A product needs to be perceived as new by the given set of
people (a mature product in one market may be perceived as
new by another market)
‹#›

MKTG 347
Drexel University
Dr. Girish Ramani
Relative Advantage
Relative Advantage: The degree to which a product is better
than
the product it replaces or the idea it supersedes
Perceived economic benefits
Reduced costs (decrease in time, effort, or dollars) (Store
brands)
Increased or new benefits (greater productivity, greater efficacy
or greater reach) (Google)
Subjective benefits
Social status, prestige (Related WSJ Article: One Thing is
Clear)

‹#›
MKTG 347
Drexel University
Dr. Girish Ramani
Relative Advantage
Relative advantage as perceived by the potential adopter is what
really matters
Relative advantage is a necessary , but not sufficient, product
based driver of innovation diffusion
‹#›

MKTG 347
Drexel University
Dr. Girish Ramani
Compatibility
Compatibility: The degree to which a product is consistent with
existing values and experiences of the potential adopter
Compatibility with values and beliefs
Fine wine bottles will be sealed with cork stoppers
Compatibility with previously adopted ideas
Concentrated liquid laundry detergent requires lower dosage
Avoid compatibility with failed ideas
Clear Coke
Avoid compatibility with successful ideas when both firms and
consumers want to be on the cutting edge
Zune, Music
‹#›

MKTG 347
Drexel University
Dr. Girish Ramani
Compatibility
Generally, as the compatibility of an innovation with existing
concepts, habits, and experiences increases, the rate of product
adoption also increases
‹#›

MKTG 347
Drexel University
Dr. Girish Ramani
Complexity
Complexity: The degree to which a product is difficult
to understand and use
Complex: PC, VCR, TiVO
Simple: Google
‹#›

MKTG 347
Drexel University
Dr. Girish Ramani
Complexity
As the perceived complexity of an innovation increases, the rate
of adoption decreases
‹#›

MKTG 347
Drexel University
Dr. Girish Ramani
Trialability
Trialability: The degree to which a
Product may be experimented with on a
Limited basis
Test drive a car
Free limited period trial (Bose)
In store demo (HDTVs in Circuit City)
‹#›

MKTG 347
Drexel University
Dr. Girish Ramani
Trialability
As the trialability of a product increases, the rate of product
adoption also increases
‹#›
MKTG 347
Drexel University
Dr. Girish Ramani
Observability
Observability: The degree to which product usage and

impact are visible to others
Second car
Satellite TV
Turbo-tax
Hummer SUVs
‹#›
MKTG 347
Drexel University
Dr. Girish Ramani
Observability

The more visible or observable the usage and outcome of an
innovation, the greater the rate of product adoption
‹#›
MKTG 347
Drexel University
Dr. Girish Ramani
Importance of Roger’s Five Factors
Understanding and managing these five factors is important to:

Predict the rate of product diffusion
Develop products that are more likely to be adopted
Tailor marketing efforts to leverage positive factors and
overcome negative factors
‹#›
MKTG 347
Drexel University
Dr. Girish Ramani
Using the Five Factors to Understand the Adoption of the
Telephone in the early 1900s
Relative advantage
Need to reach out and touch someone- In 1900, the relative
advantage is not obvious
Not enough people own a telephone
Compatibility
A voice coming out of a metal box was unsettling or even
frightening for many in the late 1800s

Complexity
It was strikingly complex to understand (can it transmit
diseases, can I get electrocuted, does it speak my language?)
Trialabilty
Initially the telephone was limited to the very wealthy and to
high-end business
Observability
Wiring
‹#›
MKTG 347
Drexel University
Dr. Girish Ramani
It has taken more than a century of diffusion to get here…..

Thus, the Roger’s Five Factors provide us some guidelines to
answer the question:
Why do some products diffuse rapidly, while others diffuse
slowly, or not at all?
‹#›
MKTG 347
Drexel University
Dr. Girish Ramani
Diffusion of Innovation: A summary of the different approaches
available
Rogers and Moore (People Differences)
The Bass Model (People Differences)
Roger’s Five Factors (Product Differences)
‹#›

MKTG 347
Drexel University
Dr. Girish Ramani
Rogers and Moore Categorization of Adopters (People
Differences)
Innovators
Early adopters
Early majority
Late majority
Laggards
Adapted from Everett Rogers, Diffusion of Innovation
‹#›

MKTG 347
Drexel University
Dr. Girish Ramani
Innovators and Imitators-The Bass Model (People Differences)
Only two groups
Innovators
Imitators
Rate of innovation diffusion will be governed by the relative
innovate or imitate
‹#›

MKTG 347
Drexel University
Dr. Girish Ramani
Innovation Diffusion –Roger’s Five Factors
(Product Differences)
Rate of diffusion depends on:
Relative advantage
The degree to which a product is better than the product it
replaces
Compatibility
The degree to which a product is consistent with existing values
and experiences
Complexity
The degree to which a product is difficult to understand and use
Trialability
The degree to which a product may be experimented with on a
limited basis
Observability
The degree to which product usage and impact are visible to
others

‹#›
MKTG 347
Drexel University
Dr. Girish Ramani
Summary
Product based (Roger’s Five Factors) versus people based
(Rogers and Moore Categorization and The Bass Model)
approaches to diffusion are alternative but complementary
methods for defining markets
‹#›

MKTG 347
Drexel University
Dr. Girish Ramani
expansion, with the best prospects and organizational match:
Product Portfolio Considerations
Array all products in the portfolio on a grid of market
attractiveness and competitive advantage before allocating
resources to new product
* - Existing market-maintain position
Ø- Existing market-expand industry or move to more attractive
segment
@- Existing market- build competitive advantage
X - Existing market- exit, divest
Δ - Priority new markets to enter
δ - New markets- low priority
- Direction to move portfolio
Very StrongStrongWeakVery WeakVery
Attractive
*
Δ@
Δ@
δXAttractiveØ

Δ@
δXXUnattractiveØ
δXXXVery
UnattractiveXXXX
Market attractiveness
Competitive advantage
Related WSJ Article: General Mills Tries to Persuade
Americans to Cook Chinese
‹#›
MKTG 347
Drexel University
Dr. Girish Ramani
Laggards
Late
Majority
Early
Majority

Early
Adopters
Innovators
"The Chasm"
Technology Adoption Process
Laggards
Late
Majority
Early
Majority
Early Adopters
Innovators
"The Chasm"
Technology Adoption Process
Assignment #2
MKTG 347-900
(Due: 11:59PM Sunday, March 2nd)
(TOTAL 100 points)
1. A group of customers is asked to rate five different
brands of coffee on two characteristics; strength and body. Each
brand is rated on a scale of 1to 7 for each characteristic. Each
consumer is also asked to rate an ideal coffee. The average
brand ratings are as follows:

Brand
Strength
Body
A
3
4
B
6
2
C
6
3
D
2
3
E
1
1
Ideal
5
5
a. Represent these perceptions in Euclidean 2- dimensional
space (X and Y axes), and compute the rank order of the brands
according to their probable market share (assuming these
product characteristics are the only factors that determine the
brands’ market shares). (20 points)
b. Suppose that an empirical analysis finds the following
model to be true:
Where Mi = market share of brand i
K = Constant
d i = distance for brand i from ideal

i. Find K (Hint: Mtotal = MA + MB + MC + MD + ME =1)
ii. Calculate the shares of brands A through E (MA, MB, MC,
MD, ME)
from the model. (i + ii) =10 points
c. Suppose a new brand F is found to be rated as follows:
Strength = 3, Body = 3
What would the estimate of its market share be?
Based on the model in part b, how would brand F draw that
share from other brands? (Hint: Compare the shares of other
brands before and after brand F comes into the market)
(10 points)
2. Please answer the following questions using the principles of
the Bass model:
We know the market potential M= 10000; the coefficient of
innovation P= 0.025; the coefficient of imitation Q= 0.1. In the
table below, please fill in the appropriate numbers in all the ten
cells containing a question mark. Show your calculations
separately. (20 points)
Period, t
Innovators
Imitators
Sales in period t, S(t)
Cumulative Sales till period t-1 , Yt-1
Remaining Potential, M-Yt-1

0
0
0
0
0
10000
1
?
?
?
?
?
2
?
?
?
?
?
3. ADC Inc. plans to launch a new product in the market. From
past experience, the managers of ADC know that the probability
of a new product becoming a super success is 8%. The managers
also know that the likelihood of a new product achieving
moderate success is 48%. According to the managers’ estimates,
the total profits that ADC would make, if the product is a super
success, would be USD 28 million. If the product turns out to be
a moderate success, the profits would be USD 6 million. If the
product fails, ADC would incur a loss of USD 7 million. Should
ADC launch the product? Show the detailed calculations that
helped you arrive at the decision to launch or not to launch the

new product. (10 points)
4. KZT Inc. is a company that follows a proactive new product
development strategy. The typical costs and likelihood of
success at each stage of the proactive process have been
documented in the given table. Use the table to answer the
following questions: (20 points)
1. Compute the overall probability of success at the start of a
new project. ( 6 points)
1. Compute the appropriate numbers represented by the
highlighted question marks in the table. (8 points)
1. What is the expected total cost incurred by KZT to launch
one successful product in the market? (6 points)
(For all parts of this question, show your detailed
calculations)

Cost accrued at each stage (per product that passes through the
stage)
Likelihood of success
# of products required at the start of each stage to achieve a
single successful launch
Expected cost at each stage to finally achieve a single
successful launch
Opportunity identification
$800
30%
?
?
Design
$3000
50%
?
?
Testing
$1500
80%
?
?
Introduction
$8000
60%
?
?
5. Please answer the following questions using the principles of
the Bass model:
We know the market potential M= 10000; the coefficient of
innovation P= 0.025; the coefficient of imitation Q= 0.1. (10

points)
1) What is the time to reach peak sales? (5 points)
2) What is the sales in the year sales peak? (5points)
Suggested Formulae*:
BASS DIFFUSION MODEL:
1. S (t) = A + BYt-1 + C Y2 t-1 or S(t)=P(M-Yt-1)+Q(Yt-
1/M)(M-Yt-1)
2. Size of the market (Market Potential)
3. Coefficient of Innovation
P = A / M
4. Coefficient of Imitation
Q = B + P
5. Time to reach peak sales
6. Peak sales
(*not necessarily exhaustive)

Neatness and Visual Quality of Written Presentation. (5 bonus
points)
Q
Q
P
M
t
S
4
)
(
*)
(
2
+
=
C
CA
B
B
M
2
4
2
-
±
-
=
)
/
ln(
1
*
P

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