New Products Management- CHAPTER 8 THE CONCEPT EVALUATION SYSTEM docx

PART THREE
PART THREE
CONCEPT/PROJECT EVALUATION
CONCEPT/PROJECT EVALUATION
McGraw-Hill/Irwin
Copyright ©2006 The McGraw-Hill Companies, Inc. All right reserved.
Concept/Project Evaluation
Concept/Project Evaluation
Figure III.1
CHAPTER 8
CHAPTER 8
THE CONCEPT EVALUATION SYSTEM
THE CONCEPT EVALUATION SYSTEM

McGraw-Hill/Irwin
Copyright ©2006 The McGraw-Hill Companies, Inc. All right reserved.
The Evaluation System
The Evaluation System
Figure 8.1
Cumulative Expenditures Curve
Cumulative Expenditures Curve
% of
expenditures
Time Launch
Many high-tech
products

Many consumer
products
Figure 8.2
Risk/Payoff Matrix at Each Evaluation
Risk/Payoff Matrix at Each Evaluation

Cells AA and BB are “correct” decisions.

Cells BA and AB are errors, but they have
different cost and probability dimensions.
Decision


A
Stop the Project Now
B
Continue to Next Evaluation
A. Product would fail if
marketed
AA BA
B. Product would succeed if
marketed
AB BB
Figure 8.3
Planning the Evaluation System: Four

Planning the Evaluation System: Four
Concepts
Concepts

Rolling Evaluation (tentative nature of new products process)

Potholes

People

Surrogates
Rolling Evaluation (or, "Everything is

Rolling Evaluation (or, "Everything is
Tentative")
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
Potholes
Potholes

Know what the really damaging problems are for your firm and
focus on them when evaluating concepts.

Example: Campbell Soup focuses on:
1. Manufacturing Cost
2. Taste
People
People

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).
Surrogates
Surrogates

Surrogate questions give clues to the real answer.
Real Question Surrogate Question
Will they prefer it? Did they keep the prototype
product we gave them
after the concept test?
Will cost be competitive? Does it match our

manufacturing skills?
Will competition leap in? What did they do last time?
Will it sell? Did it do well in field testing?
An A-T-A-R Model of Innovation
An A-T-A-R Model of Innovation
Diffusion
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
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
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
Points to Note About A-T-A-R Model
1. Each factor is subject to estimation.
Estimates improve with each step in the
development phase.
2. Inadequate profit forecast can be
improved by changing factors.
If profit forecast is inadequate, look at each

factor and see which can be improved, and at
what cost.
Getting the Estimates for A-T-A-R
Getting the Estimates for A-T-A-R
Model
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
Market Units
XX X X X
Awareness
X X X X
Trial
XX X X
Availability
X XX

Repeat
XX X
Consumption
X X X XX
Price/Unit
X X X X XX
Cost/Unit
X XX