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This question has been answered, and points have been awarded.
Product Selection Criteria - New Product Launch
Posted by Anonymous on
4/1/2005 at 7:26 AM ET
I have to launch a new Internet / Telecoms service, but have about 20 new possible product ideas. I'd like to work out which one to launch first & would like to use a selection criteria to determine this.
I'd appreciate if anyone can advise me on what criteria I should be grading / looking for to make this decision.
4/1/2005 at 8:28 AM
The criteria we do use are the following ones:
- Net Present Value over a time frame of 5 years
- IRR% at least twice the the WACC
- Payback time no longer than two to three years
Then we make some strategic considerations. For example, a product that does not comply with the financial indicators above, will it be an enabler for future market access/growth? will it raise entry barriers to future competitors? etc.
Hope this helps
4/1/2005 at 9:48 AM
We too use a "funnel"-like process to reduce the number of ideas to a manageable one, and basically the reduction process is based on high level, qualitative indicators too. What is important with the funneling process, is that the discarded ideas are regularly checked again, because what you discard today are not necessarily bad for tomorrow! Provided that you ensure this recheck loop, I believe the set of qualitative indicators you go thru are good and reasonable.
4/1/2005 at 10:21 AM
I refer here to the bottom-up growth idea, as the top-down ones are usually rooted in well structured (and expensive, even if done internally) market researches and validated thru our formal yearly strategy planning session.
For the bottom-up ideas, after the ideas are collected the funneling process begins: an "expert" team analyzes the ideas from a product technology and manufacturability standpoint, and are checked against the Voice of Customers tools (i.e. web site, claims, reports from the salesforce and technical assistance staff, etc.). The ideas that pass thru the "expert judgment" in terms of product technology, manufacturability and compliance to Expressed Customer Needs will go thru a further technical analysis by the product development department. If the PD Dept. states that yes the idea is really feasible from a technical standpoint, then they are analyzed in terms of economics (costs to make the product, investments required, etc.). In parallel, a market analysis is done: how many sales in how many years at what price. Finally, the financials are calculated and priority rank is done based on those parameters. Here it is very important to use multiple criteria, as otherwise the highest NPVs will overcome the others...and this is risky as the NPV Volatility is not calculated (in other words, the bigger developments will trhow out the smaller ones, but because are bigger are also difficultier to be sold, hence the calculated NPV is inherently more volatile than for smaller developments).
The parameters we consider in the funneling process are:
Compliance to Expressed Customer Needs/Claims (Y/N)
Fit with Strategic Imperatives (Y/N)
Feasibility of development concept (H/M/L)
Time to develop the engineered concept (H/M/L)
Needs for Qualified Internal Resources (H/M/L/N)
Needs for P&E Investments (H/M/L/N)
Expected Contribution Margin (H/M/L)
NPV Volatility Estimate (H/L)
Hope this helps :-)
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