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). [...]... questions give clues to the real answer Real Question Will they prefer it? after Will cost be competitive? Will competition leap in? Will it sell? Surrogate Question Did they keep the prototype product we gave them the concept test? Does it match our manufacturing skills? What did they do last time? Did it do well in field testing? An A-T-A-R Model of Innovation Diffusion Figure 8. 5 Profits = Units Sold... 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... 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 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... 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 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 Model Figure 8. 7... see which can be improved, and at what cost Getting the Estimates for A-T-A-R Model Figure 8. 7 Item Market Units Awareness Trial Availability Repeat Consumption Price/Unit Cost/Unit Market Research XX Concept Test X X XX Product Use Test X X X X X XX X X Component Testing X X X X xx: Best source for that item x: Some knowledge gained X X Market Test X X X XX X XX XX XX . 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. 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. System: Four Planning the Evaluation System: Four Concepts Concepts  Rolling Evaluation (tentative nature of new products process)  Potholes  People  Surrogates Rolling Evaluation (or, "Everything