Markstrat research quiz
methods for deciding actual cost
1) feasibility study specifying the lowest possible base cost (very accurate but takes time) 2) a on-line R&D query option (overstated but immediate).
formula to calculate "ideal attribute" (C)
C = CMin + (CMax - CMin) x (I-1)/(7-1)
feasibility study
Study costs $100,000 The project will not be completed After one year, R&D will tell you: (1) the budget needed to develop the project; (2) what the project Minimum Base Cost is More accurate than an online query Quite useful to investigate various options for the new Vodite market
how do you decide on the base cost?
ask R&D to develop project at lowest possible price -> the project will be more expensive to develop choose one yourself
cost reduction projects
should be weighed against experience curve effects
online query
R&D will immediately tell you the budget needed to develop the project R&D will also provide you with the project Minimum Base Cost You do not have to allocate the entire budget in 1 year: you may complete the project in 1, 2 or even 3 years Beware: budgets given by online queries are usually overestimated
experience effect
The manufacturing cost of the products tend to decrease as a result of productivity improvements gained through experience production doubles => unit transfer cost from production to mkting dept decreases 15%
how to translate consumer needs into physical characteristics?
copy the leader interpolate (semantic scales study graphs to analyze relationships)
why use R&D
develop/launch a brand in a new market or segment reposition/modify a brand reduce manufacturing unit cost
brand modification consequences
obsolete inventory -> sold to trading company or purchased from production dept and paid for -> a loss of transfer cost is taken on obsolete inventory
determine how much budget is needed to develop the project
run an online query run a feasibility study
the base cost of a new project might be lower than
the base cost for the first 100,000 units of the current product, but higher than the current transfer cost achieved by experience effect
