Posted: March 2nd, 2014

Marketing – New Product Development H.W

1.    A group of customers is asked to rate five different brands of coffee on two characteristics; strength and body. Each brand is rated on a scale of 1to 7 for each characteristic. Each consumer is also askedto rate an ideal coffee. The average brand ratings are as follows:

 

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Brand	Strength	Body
A	3	4
B	6	2
C	6	3
D	2	3
E	1	1
Ideal	5	5

 

a.   Represent these perceptions in Euclidean 2-dimensional space (X and Y axes), and compute the rank order of the brands according to their probablemarket share (assuming these product characteristics are the only factors that determine the brands’ market shares). (20 points)

b.   Suppose that an empirical analysis finds the following model to be true:

 

 

 

Where Mi= market share of brand i

K = Constant

di   = distance for brand i fromideal

 

i.   Find K (Hint: Mtotal= MA+ MB+ MC+ MD+ ME=1)

ii.  Calculate the shares of brands A through E (MA,MB,MC,MD,ME)

fromthe model. (i + ii) =10 points

 

c.   Suppose a new brand F is found to be rated as follows: Strength = 3, Body = 3

What would the estimate of its market share be?

Basedonthemodelinpartb,howwouldbrandFdrawthatsharefromotherbrands? (Hint: Compare the shares of other brands before and after brand F comesinto the market)

(10 points)

 

 

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2.Please answer the following questions using the principles of the Bass model:

We know the market potential M= 10000; the coefficient of innovation P= 0.025; the coefficient of imitation Q= 0.1. In the table below, please fill in the appropriate numbers in all the ten cells containing a question mark. Show your calculations separately. (20 points)

 

Period, t	Innovators	Imitators	Sales in period t, S(t)	Cumulative Sales till period t-1 , Yt-1	Remaining Potential, M-Yt-1
0	0	0	0	0	10000
1	?	?	?	?	?
2	?	?	?	?	?

 

 

 

 

 

 

 

3. ADC Inc. plans to launch a new product in the market. From past experience, the managers of ADC know that the probability of a new product becoming a super success is 8%. The managers also know that the likelihood of a new product achieving moderate success is 48%. According to the managers’ estimates, the total profits that ADC would make, if the product is a super success, would be USD 28 million. If the product turns out to be a moderate success, the profits would be USD 6 million. If the product fails, ADC would incur a loss of USD 7 million. Should ADC launch the product? Show the detailed calculations that helped you arrive at the decision to launch or not to launch the new product. (10 points)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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4. KZT Inc. is a company that follows a proactive new product development strategy. The typical costs and likelihood of success at each stage of the proactive process have been documented in the given table. Use the table to answer the following questions: (20 points)

 

1. Compute the overall probability of success at the start of a new project. ( 6 points)
2. Compute the appropriate numbers represented by the highlighted question marks in the table. (8 points)
3. What is the expected total cost incurred by KZT to launch one successful product in the market? (6 points)

(For all parts of this question, show your detailed calculations)

 

	Cost accrued at each stage (per product that passes through the stage)	Likelihood of success	# of products required at the start of each stage to achieve a single successful launch	Expected cost at each stage to finally achieve a single successful launch
Opportunity identification	$800	30%	?	?
Design	$3000	50%	?	?
Testing	$1500	80%	?	?
Introduction	$8000	60%	?	?

 

 

 

5. Please answer the following questions using the principles of the Bass model:

We know the market potential M= 10000; the coefficient of innovation P= 0.025; the coefficient of imitation Q= 0.1. (10 points)

1)    What is the time to reach peak sales? (5 points)

2)    What is the sales in the year sales peak? (5points)

 

 

 

 

Suggested Formulae^*:

 

 

(*not necessarily exhaustive)

 

 

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