New Products: Determination of Need and Value
Entrepreneurs should pay close attention to consumer needs. It could be done informally monitoring potential or ideas or formally having consumers express their opinion. Nevertheless, there comes a time when it needs to be decided whether to introduce a product or not.
How do you determine the need for a new product? What points would you consider before you make the decision? Below are the few points you might want to consider:
Need
• Continuing
• Declining
• Emerging
• Future
Timing
• Duration of need
• Frequency
• Demand cycle
• Position in life cycle
Competency in satisfying needs
• Doing without
• Current method
• Modifying the current method
Perceived Benefits
• Utility to customer
• Appeal characteristics
• Customer tastes and preferences
• Buying motives
• Consumption habits
Price vs. performance
• Price-quantity relationship
• Demand elasticity
• Stability of price
• Stability of market
Market size and potential
• Market growth
• Market trends
• Customer income
• Financing opportunities
Once the new product has been developed, it is also important to gauge the value of the new product. A close watch needs to be kept on the product introduction. Changes might be required. If the product is not up to customer satisfaction, then the line might have to be removed altogether.
A few pointers for value considerations.
Cash outflow
• R&D costs
• Marketing costs
• Capital equipment costs
• Others
Cash inflow
• Sales of new product
• Effect on additional sales of existing product
• Salvageable value
Net Cash Flow
• Maximum exposure
• Time to maximum exposure
• Duration to exposure
• Total investment
• Maximum net cash in a single year
Profit
• Profit from a new product
• Profit affecting additional sales of existing products
• Fraction of total company profits
Relative return
• Return on shareholders equity
• Return on investment
• Cost of capital
• Present value
• Discounted cash flow
• Return on assets employed
• Return on sales
Compared to other investments
• Compared to other product opportunities
• Compared to other investment opportunities
It should be the entrepreneur’s goal to find the confluence where the need and value of the product meet. A usable product for the consumer and a profitable venture for the entrepreneur also mean profits that can pay for future enhancements and more.