A CASE STUDY IN NPD MAYTECH LTD.

Background

Determine the strategies in the area of New Product Development and Product Introduction
The company operates in a highly competitive industry, and customer loyalty is very low.
Customers, has large option for products based on functional features rather than Brand Loyalty and Image.

The industry has typically seen about a 70% failure rate in new product launches

Products
Product P Product Q
Selling price per unit $ 40.00 $ 50.00
Variable production costs per unit $ (20.00) $ (28.00)
Variable non-production costs per unit $ (2.60) $ (2.00)

The non-related variable costs (complexity costs) are as follows and will apply to all products of the company :
- Transportation : $0,8 per gram/kilometer
- Debtors cost : 1,5% of revenue
- Order processing costs : $1,20 per invoice equivalent
- Sales Commissions : 4% of revenue

Competition

The following activity information will apply to various probabilities of competitive reactions:

Introduces
Does nothing comparable
product
Product P : Sales Units 25 15
Product Q : Sales Units 30 10
Prod P : Additional Transportation (gram/km) 5 2
Prod Q : Additional Transportation (gram/km) 3 3
Prod P : Additional Invoicing (invoicing equivalents) 300 200
Prod Q : Additional Invoicing (invoicing equivalents) 200 150
Probability of Competitor Reaction 0,2 0,5
 Required No.1
Loyalty and Image.
Product P Does nothing

Product P : Sales 25.000 x 40 = 1.000.000

Variable Cost Production 25.000 x 20 = 500.000
Variable Cost Non-Production 25.000 x 2,6 = 65.000
Product Contribution Margin 435.000

Product Q Does nothing

cts of the company : Product Q : Sales 30.000 x 50 = 1.500.000

Variable Cost Production 30.000 x 28 = 840.000
Variable Cost Non-Production 30.000 x 2 = 60.000
Product Contribution Margin 600.000

Required No.2
Introduces
superior
product SEGMENT BUDGET REPORT
10 Production Contribution Margin
6 Variable Cost Non-Production
1 PRODUCT CONTRIBUTION MARGIN
2 Segment Related Variable Costs
100 1. Transportation
100 2. Debtors
0,3 3. Invoicing/Order processing cost
4. Sales Commissions
SEGMENT CONTRIBUTION MARGIN

FIXED COSTS
Short-Run, Controllable Fixed Costs
1. District office
2. Advertising
3. Promotion ( Competition )
4. Salesperson’s Salary and Travel
5. Other Segment Fixed Costs
SEGMENT CONTROLLABLE MARGIN
Long-Run, Non Controllable Fixed Costs
1. Depreciation etc.
NET SEGMENT MARGIN
Less : Fixed Corporate Investment Charge
RESIDUAL SEGMENT MARGIN

Required No.3

Strategies States of Nature

Do Nothing
Product P Comparable Product
Superior Product
Do Nothing
Product Q Comparable Product
Superior Product
Do Nothing 0

Product Q gives the better expected value

435,000
Required No.4 229,218
375640
Regret Matrix
Do Nothing
Product P 139,220
Product Q 0

Product Q gives the least regret in total compared to product P, therefore if the company w
Introduces comparable product Introduces superior product

15.000 x 40 = 600.000 10.000 x 40 = 400.000

15.000 x 20 = 300.000 10.000 x 20 = 200
15.000 x 2,6 = 39.000 10.000 x 2,6 = 26.000
261.000 174.000

Introduces comparable product Introduces superior product

10.000 x 50 = 500.000 6.000 x 50 = 300.000

10.000 x 28 = 280.000 6.000 x 28 = 168.000
10.000 x 2 = 20.000 12.000
200.000 120.000

PRODUCT P
500,000
(65,000)
435,000

(4,000)
(15,000)
(360)
(40,000)
375,640

(18,000)
(40,000)
(15,000)
(60,000)
0
 242,640
-
(12,000)
230,640
(14,400)
216,240

Consequences Expected Value

375,640 x 0.2
170,660 x 0.5 205,782
151,080 x 0.3
514,860 x 0.2
170,320 x 0.5 218,786
102,180 x 0.3
0 0

20% 87000
205782 345,002
236,420 88808808800

Comparable Product Superior Product

0 0
340 48,900

herefore if the company wants to minimize regret, it should launch product Q

375,640 226,160 151,080

514,860 170,320 102,180
(139,220)
55,840 48,900

loss paling kecil

 752,880
787,360
(139,220)
104,740