New Products Management- CHAPTER 8 THE CONCEPT EVALUATION SYSTEM docx

CHAPTER 8THE CONCEPT EVALUATION SYSTEM McGraw-Hill/Irwin Copyright ©2006 The McGraw-Hill Companies, Inc.. Planning the Evaluation System: Four Concepts  Rolling Evaluation tentative nat

PART THREE

CONCEPT/PROJECT EVALUATION

McGraw-Hill/Irwin Copyright ©2006 The McGraw-Hill Companies, Inc All right reserved

Concept/Project Evaluation

Figure III.1

CHAPTER 8

THE CONCEPT EVALUATION SYSTEM

McGraw-Hill/Irwin Copyright ©2006 The McGraw-Hill Companies, Inc All right reserved

The Evaluation System

Figure 8.1

Cumulative Expenditures Curve

% of

expenditures

Many high-tech products

Many consumer products

Figure 8.2

Risk/Payoff Matrix at Each Evaluation

different cost and probability dimensions.

Stop the Project Now

B Continue to Next Evaluation

A Product would fail if

B Product would succeed if

Figure 8.3

Planning the Evaluation System: Four Concepts

 Rolling Evaluation (tentative nature of new products process)

 Potholes

 People

 Surrogates

Rolling Evaluation (or, "Everything is

Tentative")

 Project is assessed continuously (rather than a

single Go/No Go decision)

 Financial analysis also needs to be built up

continuously

 Not enough data early on for complex financial

analyses

 Run risk of killing off too many good ideas early

 Marketing begins early in the process

 Key: new product participants avoid "good/bad"

mindsets, avoid premature closure

 Know what the really damaging problems are for your firm and focus on them when evaluating concepts.

1 Manufacturing Cost

2 Taste

 Proposal may be hard to stop once there is buy-in on the concept.

 Need tough demanding hurdles, especially late in new products

process.

 Personal risk associated with new product development.

 Need system that protects developers and offers reassurance (if

warranted).

 Surrogate questions give clues to the real answer.

Real Question Surrogate Question

product we gave them

manufacturing skills?

An A-T-A-R Model of Innovation

Diffusion

Profits = Units Sold x Profit Per Unit

Units Sold = Number of buying units

x % aware of product

x % who would try product if they can get it

x % to whom product is available

x % of triers who become repeat purchasers

x Number of units repeaters buy in a year

Profit Per Unit = Revenue per unit - cost per unit

Figure 8.5

The A-T-A-R Model: Definitions

 Buying Unit: Purchase point (person or

department/buying center).

 Aware: Has heard about the new product with

some characteristic that differentiates it.

 Available: If the buyer wants to try the product,

the effort to find it will be successful (expressed

as a percentage).

 Trial: Usually means a purchase or consumption

of the product.

 Repeat: The product is bought at least once

more, or (for durables) recommended to others.

Figure 8.6

A-T-A-R Model Application

10 million Number of owners of video cellphones

x 40% Percent awareness after one year

x 20% Percent of aware owners who will try product

x 70% Percent availability at electronics retailers

x 20% Percent of triers who will buy a second unit

x $50 Price per unit minus trade margins and

discounts ($100) minus unit cost at the

intended volume ($50)

= $5,600,000 Profits

Points to Note About A-T-A-R Model

1 Each factor is subject to estimation.

development phase.

2 Inadequate profit forecast can be

improved by changing factors.

factor and see which can be improved, and at what cost.

Getting the Estimates for A-T-A-R

Model

xx: Best source for that item.

x: Some knowledge gained.

Figure 8.7

Item Market

Research

Concept Test Product Use

Test

Component Testing

Market Test