MBA 689 New Product Dev Ch. 11

In the context of forecasting sales using an A-T-A-R model, which of the following methods can be used if the data availability is inaccurate?

A what if analysis In the context of forecasting sales using an A-T-A-R model, a what-if analysis can be used if the data availability is inaccurate.

Firms that build strategic criteria into their project selection tools are using a _____ strategic approach.

Bottom-up Firms that build strategic criteria into their project selection tools are using a bottom-up strategic approach. The top-performing firms, in fact, often use a combination of top-down and bottom-up approaches and consider strategic as well as financial criteria when selecting projects, while the worst performers tend to rely only on financial criteria.

The _____ tool includes several ways to assess strategic fit and market attractiveness, and also considers financial performance.

Concept evaluation The concept evaluation tool includes several ways to assess strategic fit and market attractiveness, and also considers financial performance.

Discuss any four ways in which dependence on poor forecasts can be reduced.

Dependence on poor forecasts can be reduced using the following techniques: Forecast what you know: A blank in a spreadsheet can be filled in with a range of estimates to see where the failure point is. If that is very unlikely, then go ahead. Approve situations, not numbers: Analyze to find what the success factors are, and then look to see if the situation offers them. If so, go ahead, knowing that success should come about even though we do not know just how much. Commit to a strategy of low-cost development and marketing: A company can develop a stream of new items that differ very little from those now on the market, insert them into the market without great fanfare, watch which ones end users rebuy, and drop those that do not find favor. Go ahead with sound forecasts but prepare to handle the risks: This strategy especially appeals to managers who feel business is suffering from "paralysis by analysis."

In the new product development process, the product use test is conducted during the _____ phase of the process.

Development In the new product development process, the product use test is conducted during the development phase of the process. This is referred to as phase IV.

_____ refers to the process by which an innovation is spread within a market, over time and over categories of adopters.

Diffusion of innovation Diffusion of innovation refers to the process by which an innovation is spread within a market, over time and over categories of adopters. The adopter categories are often called innovators, early adopters, early and late majority, and laggards.

Those users who will be among the first to try a product are called:

Early adopters Early adopters are those users who will be among the first to try out a product. They come second only to innovators in terms of trying out a new product.

True or false? Adoption of innovation refers to the process by which an innovation is spread within a market, over time and over categories of adopters.

FALSE Diffusion of innovation refers to the process by which an innovation is spread within a market, over time and over categories of adopters. The rate of diffusion of a product can be difficult to assess, especially at an early stage in a new product process, since it is unknown how influential the earlier adopter categories will ultimately be.

True or false? Laggards refer to those users who will be among the first to try the product.

FALSE Early adopters refer to those users who will be among the first to try the product. In theory, individuals in the earlier adopter categories influence the purchase behaviors of later ones through word of mouth and other influence processes.

True or false? In a bottom-up strategic approach, the firm lays out its strategy first, and then allocates funds across different kinds of projects.

FALSE In a bottom-up approach to strategy development, strategic criteria are built into a firm's project selection tools. In a top-down strategic approach, a firm lays out its strategy first, and then allocates funds across different kinds of projects.

True or false? In the product development process, sales forecasting is typically the responsibility of the process manager on the new product team.

FALSE In the new product development process, sales forecasting is typically the responsibility of the marketing person on the new product team. Once sales have been projected over the next several planning periods, assessment of costs, projection of profits, and calculation of key financial benchmarks such as net present value or internal rate of return can be done.

True or false? In a new product development process, the financial analysis generally begins with the calculation of the net present value, NPV.

FALSE In the new product development process, the financial analysis generally begins with sales forecasts. Once sales have been projected over the next several planning periods, assessment of costs, projection of profits, and calculation of key financial benchmarks such as net present value or internal rate of return can be done.

True or false? Many of the mathematical sales forecasting models were initially developed for use on durable goods.

FALSE Many of the mathematical sales forecasting models were initially developed for non-durable goods. However, efforts continue to make them work better on durable goods.

True or false? Product innovators, including consumer packaged goods innovators, still most often use a simple version of the A-T-A-R model.

FALSE Product innovators outside of consumer packaged goods still most often use the simple version of the A-T-A-R model. The A-T-A-R model is the basis of a number of simulated market tests.

True or false? Factor analysis can be used to estimate the net present value of a new product when it is still in the concept stage.

FALSE Real-options analysis may be used to estimate the net present value of a new product when it is still in the concept stage. It accounts for the fact that there still are unknowns at this early stage, and that the firm may need to abandon the project at some time in the future as more information is obtained, and uncertainty is reduced.

True or false? With reference to new product development, the top performing firms tend to rely only on financial criteria.

FALSE The top-performing firms often use a combination of top-down and bottom-up approaches and consider strategic as well as financial criteria when selecting projects, while the worst performers tend to rely only on financial criteria.

Summarize the problems associated with forecasting.

Forecasting is difficult for various reasons. One reason is, target users do not always know what the new product will actually be, what it will do for them, what it will cost, and what its drawbacks will be, nor will they have had a chance to use it. And if they do know, they may want to keep some information from us or offer outright falsehoods. Complicating this problem is that market research on these potential users is often poorly done. At the same time, competitors do not sit still. In fact, they try very hard to ruin our data, just as we do to theirs. Resellers, regulators, and market advisers are in a constant flux. Information about marketing support may be lacking. No sales manager can make promises a year ahead about sales time and support. Internal attitudes can be biased, and politics are always present. Many new products managers will not be ready to show just how good the new item is for some time, so they try to delay official forecasting. In their excitement to get to market, new products managers sometimes get themselves into trouble by rushing their products out, without stopping to field-test the new item. Finally, most common forecasting methods are extrapolations and work well on established products. New products do not have a history. Even forecasting methods that seem free of history use relationships established in the past.

Explain the top-down and bottom-up approaches to strategy development.

In a top-down strategic approach, the firm or SBU lays out its strategy first, and then allocates funds across different kinds of projects. This approach can clearly be used in project selection. Management can take a bottom-up approach to strategy development by building strategic criteria into their project selection tools. The top-performing firms often use a combination of top-down and bottom-up approaches and consider strategic as well as financial criteria when selecting projects.

With reference to the Bass diffusion model, which of the following best represents the growth in the total number of purchases that is typically based on adoption by innovators?

Initial diffusion rate The initial diffusion rate represents the growth in total number of purchases typically based on adoption by innovators. The Bass diffusion curve is based on the diffusion curve of new products through a population.

Which of the following is a way of putting risk back into product innovation while managing it well?

Isolating or neutralizing the in-house critics Isolating or neutralizing the in-house critics is a way of putting risk back into product innovation while managing it well. This is a strong reason for setting up project matrixes and spinouts.

When faced with weak financial estimates, NewPro Inc. sometimes implements its new product ideas on a small scale to see where the solution might lie. Based on this information, we can say that NewPro Inc. is employing _____.

Market testing rollouts Based on this information, we can say that NewPro Inc. is employing market testing rollouts. If a financial analysis looks weak, but the idea seems sound, this can be tried on to see where the solution might lie.

Sales forecasting is typically the responsibility of a _____ on the new product team.

Marketing person Sales forecasting is typically the responsibility of a marketing person on a new product team. Other participants on the team (such as manufacturing engineers, R&D people, financial and accounting specialists, etc.) have a greater input in providing the costs and other data that will make up the financial analysis.

It is difficult to forecast success for _____.

New to the world products It is difficult to forecast success for new-to-the-world products. For new-to-the-world or new-to-the-firm products, the best forecasting methods would be scenario or "what-if" analysis. No data exist on past sales or even on whether the new technology would be accepted, so more subjective techniques are required here. The forecasting task is obviously a lot more difficult in this case, and some might think it to be almost impossible.

Strategic criteria for new product development are best analyzed through the use of _____.

PIC evaluation Strategic criteria for new product development are best analyzed through the use of PIC evaluation. Firms are increasingly using a combination of financial analysis and PIC considerations when making the tough decisions on which new product projects to commit to.

According to the Hoechst-U.S. scoring model, which of the following is a full-screen feasibility factor?

Probability of technical success According to the Hoechst-U.S. scoring model, probability of technical success is a full-screen feasibility factor. This is an important factor that needs to be considered apart from financial criteria and factors related to the firm's PIC.

Leah Hubert senses that her "favorite" product concept might be dismissed due to "inappropriate and unreasonable" financial analysis tools that cannot accurately reflect its potential. Leah has attempted to use her influence to push the concept past such obstacles. In this scenario, Leah is functioning as a _____.

Product champion In this scenario, Leah is functioning as a product champion. Some firms encourage the champion system. They expect champions to force their way past a restrictive financial system. This makes for a strange but very workable practice of evaluating teams and their leaders, rather than the ideas they come up with.

Ancon Inc., typically forecasts potential product sales based on the number of customers who say they would either definitely or probably buy the product, on a five-point scale. The firm's sales forecast is based upon _____.

Purchase intentions Purchase intentions generally make use of a five-point scale. This helps in realizing the customers' likelihood of purchasing a product if it was made available.

Discuss the Bass diffusion model.

Quantitative innovation diffusion models can be used in predicting future product category sales based on historical product sales levels. A diffusion model commonly used for durable goods is the Bass model, which estimates the sales of the product class at some future time. The model is based on the diffusion curve of new products through a population. The initial diffusion rate is based on adoption by innovators. Following these early purchases, the growth rate accelerates as word-of-mouth helps to promote the product and more of the market adopts the product. Eventually, however, there are not that many potential purchasers left that have not yet tried the product, and growth rate slows.

_____ analysis may be used to estimate the net present value of a new product when it is still in the concept stage.

Real options Real-options analysis may be used to estimate the net present value of a new product when it is still in the concept stage. It accounts for the fact that there still are unknowns at this early stage and that the firm may need to abandon the project at some time in the future as more information is obtained, and uncertainty is reduced.

According to the Hoechst-U.S. scoring model, which of the following factors is based on financial criterion?

Reward According to the Hoechst-U.S. scoring model, reward is a factor which is based on financial criteria. Other factors include probability of technical and commercial success, business strategy fit, and strategic leverage.

In a new product development process, which of the following is most likely to be determined first while analyzing the financial aspects of a product?

Sales forecast In a new product development process, sales forecast is most likely to be determined first while analyzing the financial aspects of a product. Sales forecast is typically the responsibility of the marketing person of a new product team.

Which of the following is true of sales forecasting for new products?

Sales forecasting is typically the responsibility of the marketing personnel on the new products team. The financial analysis begins with the sales forecast. This is typically the responsibility of the marketing person on the new product team. Once sales have been projected over the next several planning periods, one can assess costs, make profit projections, and calculate key financial benchmarks such as net present value or internal rate of return.

According to the Hoechst-U.S. scoring model, which of the following is a factor related to the firm's product innovation charter (PIC)?

Strategic leverage Strategic leverage is a factor related to the firm's PIC. Firms are increasingly using a combination of financial analysis and PIC considerations when making the tough decisions on which new product projects to commit to.

True or false? Even if a product's potential is extremely high, its sales may not materialize due to insufficient marketing effort

TRUE A product's potential may be extremely high, but sales may not materialize due to insufficient marketing effort. This is one of the several guidelines that have to be kept in mind when developing sales forecasts.

True or false? An early field use test with a prototype will not assure success, but it can say intended users like what they see.

TRUE An early field use test with a prototype won't assure success, but it can say intended users like what they see. An advertising agency or a sales manager cannot guarantee success either, but they can assess whether the new item will be brought to the attention of potential end-users and that it will be tried.

True or false? In addition to the considerations of time and cost, one should also consider product and market newness when selecting the most appropriate forecasting model.

TRUE In addition to the considerations of time and cost, one should also consider product and market newness when selecting the most appropriate forecasting model. The most straightforward kind of forecast to conduct is a sales analysis, used for current technologies being sold into current markets.

True or false? Most common forecasting methods are extrapolations and work well on established products.

TRUE Most common forecasting methods are extrapolations and work well on established products. New products don't have a history to be extrapolated

True or false? New product projects need to be considered on how well they fit the firm's strategy for innovation.

TRUE New product projects need to be considered on how well they fit the firm's strategy for innovation. Many firms report that too many new product projects get approved, and the human and financial resources end up getting spread too thin.

True or false? The A-T-A-R model is the basis of many simulated test markets.

TRUE The A-T-A-R model is the basis of many stimulated test markets. The model helps in adjusting sales forecasts based on awareness and availability.

Which of the following is a problem associated with sales forecasting?

Target users don't always know what the new product will actually be or what it will do for them. Target users don't always know what the new product will actually be, what it will do for them, what it will cost, and what its drawbacks will be, nor will they have had a chance to use it.

Which of the following is the most commonly used approach to sales forecasting outside of the consumer packaged goods industry?

The A-T-A-R model Product innovators outside of consumer packaged goods still most often use the simple version of the A-T-A-R model, if they use any forecasting model at all.

_____ is one of the pseudo sale market testing methods used later in the new product process, typically when the physical product is available for the consumer to take home and try.

The A-T-A-R model The A-T-A-R model is one of the pseudo sale market testing methods used later in the new product process, typically when the physical product is available for the consumer to take home and try. Post-trial data are then collected from the consumer and used as input to the A-T-A-R model.

Which of the following serves as the basis of many simulated test markets?

The A-T-A-R model The A-T-A-R model serves as the basis of many simulated test markets. The A-T-A-R model is one of the pseudo sale market testing methods used later in the new product process, typically when the physical product is available for the consumer to take home and try.

Which of the following forecasting tools is commonly used for durable goods and is based on the diffusion curve of new products through a population?

The Bass model The Bass model is commonly used for durable goods and is based on the diffusion curve of new products through a population. The Bass model estimates the sales of the product class at some future time.

What are some of the considerations to keep in mind when developing sales-forecast?

There are several considerations one must keep in mind when developing a sales-forecast. First, a product's potential may be extremely high, but sales may not materialize due to insufficient marketing effort. Advertising may not adequately create awareness, or inadequate distribution may make the product unavailable to much of the market. The A-T-A-R model will help us adjust sales forecasts based on awareness and availability. Second, sales will grow through time if we successfully get customers to try the product and convert many of these customers into repeat purchasers, if they pass along favorable word of mouth to their friends, if greater demand encourages more dealers to stock the product, and so on. After this growth period, sales will eventually stabilize. Thus, we will be interested in developing projections of long-run sales or market shares. Third, we should recognize that our product's sales will depend on our competitors' strategies and programs as well as our own.

Which of the following is true of top-performing firms?

They use a combination of both top-down and bottom-up approaches for strategy development. Top-performing firms often use a combination of top-down and bottom-up approaches. They also consider strategic as well as financial criteria when selecting projects, while the worst performers tend to rely only on financial criteria.

Under the _____, the firm or SBU lays out a strategy, and then allocates funds across different kinds of projects.

Top down strategic approach Under the top-down strategic approach, the firm or SBU lays out a strategy and then allocates funds across different kinds of projects. This approach can clearly be used in project selection

As per the A-T-A-R model, long-run market share can be expressed as MS = T × R × AW × AV. What does "T" stand for in the equation?

Ultimate long run trial rate As per the A-T-A-R model, long-run market share can be expressed as MS = T × R × AW × AV. "T" in this equation stands for "ultimate long-run trial rate."

In order to calculate the net present value, that might be associated with a proposed product, it is necessary to:

create a sales forecast. In order to calculate the net present value, that might be associated with a proposed product, it is necessary to create a sales forecast.

Managers who feel business is suffering from "paralysis by analysis" are most likely to

go ahead with sound forecasts but prepare to handle the risks Managers who feel business is suffering from "paralysis by analysis" are most likely to go ahead with sound forecasts but prepare to handle the risks. There are lots of ways to put risk back into product innovation while managing it well. One approach is to isolate or neutralize the in-house critics.

Firms that develop a stream of new items that differ very little from those now on the market, insert them into the market without great fanfare, watch which ones end users rebuy, and drop those that do not find favor are using the policy of _____.

low-cost development and marketing Firms which develop a stream of new items that differ very little from those now on the market, insert them into the market without great fanfare, watch which ones end users rebuy, and drop those that do not find favor are using the policy of low-cost development and marketing.

A firm may approve many new product projects if:

low-quality work reduces the quality of information used for decision making. A firm may approve many new product projects if low-quality work reduces the quality of information used for decision making. Low-quality work at the fuzzy front end reduces the quality of information available to managers making Go/No Go decisions.

The management's primary task in sales forecasting is to:

make necessary estimates as solid as possible. The management's primary task in sales forecasting is to make necessary estimates as solid as possible and to manage around the areas of uncertainty in such a way that the firm doesn't get hurt too badly.

If a firm is already involved in plenty of quick-hit projects, strategic portfolio considerations would indicate that new funding would be better routed to a long-term, major technology development. The firm, as per the example, follows a(n) _____.

top-down strategic approach The firm, as per the example, follows a top-down strategic approach. The firm or SBU lays out its strategy first and then allocates funds across different kinds of projects.

According to the A-T-A-R model, long-run market share can be expressed as MS= T × R × AW × AV. In this equation, "R" is the:

ultimate long-run repeat purchase rate. According to the A-T-A-R model, long-run market share can be expressed as MS = T × R × AW × AV. In this equation, "R" is the ultimate long-run repeat purchase rate.