166 CHAPTER9POSITIONINGPRODUCTSTHROUGH THELIFECYCLE
pany objectives. If they do, the product concept can move to the product-development
stage. Note that this cannot be a static process: As new information emerges, the busi-
ness analysis must be revised and expanded accordingly.Estimating Total Sales
First, management needs to estimate whether sales will be high enough to yield a sat-
isfactory profit. Total estimated sales are the sum of estimated first-time sales, replace-
ment sales, and repeat sales. For one-time purchased products, such as a retirement
home, sales rise at the beginning, then peak, and later approach zero as the number
of potential buyers is exhausted; if new buyers keep entering the market, the curve will
not drop to zero. Infrequently purchased products—such as automobiles and indus-
trial equipment—exhibit replacement cycles that are dictated by physical wearing out
or by obsolescence due to changing styles, features, and performance; sales forecast-
ing calls for estimating first-time sales and replacement sales separately.
For frequently purchased products, such as consumer and industrial non-
durables like soap, the number of first-time buyers initially increases and then
decreases as fewer buyers are left (assuming a fixed population). Repeat purchases
occur soon, providing that the product satisfies some buyers. The sales curve eventu-
ally falls to a plateau representing a level of steady repeat-purchase volume; by this
time, the product is no longer a new product.Estimating Costs and Profits
After preparing the sales forecast, management should analyze expected costs and
profits based on estimates prepared by the R&D, manufacturing, marketing, and
finance departments. Companies can also use other financial measures to evaluate
new-product proposals. The simplest is break-even analysis,in which management esti-
mates how many units of the product the company will have to sell to break even with
the given price and cost structure.
The most complex method of estimating profit is risk analysis.Here, three esti-
mates (optimistic, pessimistic, and most likely) are obtained for each uncertain vari-
able affecting profitability under an assumed marketing environment and marketing
strategy for the planning period. The computer simulates possible outcomes and com-
putes a rate-of-return probability distribution showing the range of possible rates of
returns and their probabilities.^10MANAGING NEW PRODUCTS: DEVELOPMENT TO
COMMERCIALIZATION
If the product concept passes the business analysis test, it moves on to be developed
into a physical product. Up to now, it has existed only as a word description, drawing,
or prototype. This step involves a large jump in investment that dwarfs the costs
incurred in the earlier stages. If the company determines that the product idea cannot
be translated into a technically and commercially feasible product, the accumulated
project cost will be lost—except for any useful information gained in the process.Product Development
The job of translating target customer requirements into a working prototype is
helped by a set of methods known as quality function deployment(QFD). This methodol-
ogy takes the list of desired customer attributes(CAs) generated by market research and
turns them into a list of engineering attributes(EAs) that the engineers can use. For