Concept Evaluation
Concept/Project Evaluation
Concept Evaluation System
Cumulative Expenditures Curve
Evaluate the cost of developing new product
Representation of planned expenditure for the project
R&D/ Technical costs
Marketing costs
Cells AA and BB are “correct” decisions.
Cells BA and AB are errors, but they have different cost and probability dimensions.
To estimate possible outcomes
At any single evaluation point in the new product process, the new product faced four situations (4 cells matrix): two broad outcomes (success or failure) and two decisions options (move on or kill the project).
profits from a winning product are bound to be much greater than all of the development costs combined.
The exception is the opportunity cost – when good candidates wait in the wings, the losses of dropping a winner are much less because the money diverted will likely go to another winner.
In general, the new product team should consider 4 generic risk strategies
Avoidance eliminate the risky project altogether, though an opportunity cost is incurred.
Mitigation reduce the risk to an acceptable level.
Transfer move the responsibility to another firm (joint venture or subcontractor).
Acceptance develops a plan or deal with the risks as they come up.
An A-T-A-R Model of Innovation Diffusion
The last tool used for designing an evaluation system for new project is based on how we forecast sales and profit on a new item (sale forecasting)
The model is taken from diffusion of innovation :
for a person to become buyer of innovation, there must be awareness that it exists, there must be a decision to try, then the person must find the item available, and there must be the type of happiness with it that leads to adoption and repeat usage.
Help estimate the adoption rate in each year
Awareness
Trial
Availablity
Repeat
Has heard about the new product with some characteristic that differentiates it.
If the buyer wants to try the product, the effort to find it will be successful
(expressed as a percentage)
Usually means a purchase or consumption of the product.
The product is bought at least once more, or (for durables) recommended to others.
Awareness
Trial
Availablity
Repeat
become repeat purchasers
x Number of units repeaters buy in a year
Profit Per Unit = Revenue per unit - cost per unit
Example
10 million Number of owners of video cellphones
(market size for new product)
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 Profit per unit
= $5,600,000 Profits
Concept Testing
Why do we do the concept testing?
…to identify poor concept…
Help screen and refine new product idea
The biggest cause of new product failure is that the intended buyer did not see a need for the item – no purpose, no value, and not worth the price.
In concept testing, we get our first confirmation that this will be a quality product. We save time by gathering information and making decisions that help assure the product will move through development fast.
The PIC will eliminate many new product ideas as firms will reject ideas that violate PIC guidelines.
Estimate sales and provide guidance for other marketing issues
Market Analysis and Initial Reaction
Market analysis: in-depth study of market area that the PIC has selected for focus.
Conducted immediately after PIC approval.
Initial reaction: preliminary, inexpensive assessment of concepts, which may be flowing very quickly at this point (both inside and outside)
Market Worth
Firm Worth
Competitive Insulation
recall Product concept statement
Procedure for a Concept Test
Prepare concept statement
Clarify specific purposes
Decide format(s)
Select commercialization
Determine price(s)
Select respondent type(s)
Select response situation
Define the interview
Conduct trial interviews
Interview, tabulate, analyze
Some Key Issues in Concept Testing
Concept statement: narrative, drawing, model or prototype?
Respondent group: Lead users? Large users?
Response situation: Where? How? Mail, phone, individual, group?
Interviewing sequence: Believable? Important? Interesting? Would it work? What problems do they see? Would they buy?
…Test procedure, change and implement, study findings.
Narrative Format
Mail Concept Test -- Sketch
Benefit Segmentation in Swimsuit Market
Through benefit segmentation, a firm may identify unsatisfied market segments and concentrate efforts on developing concepts which suit those needs.
customers rate how important each attribute was in determining their preference among brands
Cluster analysis puts observations together into relatively homogeneous groups (it is also a data reduction method like factor analysis). It groups together individuals into a small number of benefit segments.
Joint Space Map Showing Ideal Poin
integrate both the consumer’s perceptions of the various competing brands along with the preferred/ideal needs for the different consumer segments in the market.
We expect the brand that is located closest to a segment’s ideal brand will be preferred by that segment.
Full Screen
Summarize what must be done for NPD
Summarize what must be done for NPD
Forces pre-technical evaluation, and summarizes what must be done
Methods range from simple checklists to complex mathematical models.
Purpose of the Full Screen
To decide whether technical resources should be devoted to the project.
Feasibility of technical accomplishment -- can we do it?
Feasibility of commercial accomplishment -- do we want to do it?
To help manage the process.
Recycle and rework concepts
Rank order good concepts
To encourage cross-functional communication
A Scoring Model
What social activities to do in weekeng
Factor Score (1-5) Weight Weighted Score
Technical Accomplishment:
Technical task difficulty
Research skills required
Rate of technological change
Design superiority assurance
Manufacturing equipment...
Commercial Accomplishment:
Market volatility
Probable market share
Sales force requirements
Competition to be faced
Degree of unmet need...
Degree of unmet need...
Factor Score (1-5) Weight Weighted Score
Technical Accomplishment:
Technical task difficulty
Research skills required
Rate of technological change
Design superiority assurance
Manufacturing equipment...
Commercial Accomplishment:
Market volatility
Probable market share
Sales force requirements
Competition to be faced
Degree of unmet need...
Analytic Hierarchy Process (AHP)
The analytic hierarchy process (AHP) is a structured technique for organizing and analyzing complex decisions, based on mathematics and psycho