Welcome to Scribd, the world's digital library. Read, publish, and share books and documents. See more
Download
Standard view
Full view
of .
Look up keyword
Like this
0Activity
0 of .
Results for:
No results containing your search query
P. 1
New Product Launch

New Product Launch

Ratings: (0)|Views: 10 |Likes:
Published by ClassOf1.com
A product launch should be evaluated using a business case that is built around the future expected cash flows. However, from a portfolio perspective there are some factors that must be considered in forecasting the future expected cash flows.
A product launch should be evaluated using a business case that is built around the future expected cash flows. However, from a portfolio perspective there are some factors that must be considered in forecasting the future expected cash flows.

More info:

Categories:Types, School Work
Published by: ClassOf1.com on Jul 03, 2013
Copyright:Attribution Non-commercial

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
download as PDF, TXT or read online from Scribd
See more
See less

07/03/2013

pdf

text

original

 
 
BusinessManagement 
LEARN TO EXCEL
Homework Help
24/7 Support
Step-by-Step Solutions
Experienced TutorsDetailed Explanationwww.classof1.com/homework-help/managementToll Free: 1-877-252-7763
 
 
Sub: BusinessManagement Topic:
 
Portfolio
*
New Product Launch
A product launch should be evaluated using a business case that is built around the future expectedcash flows. However, from a portfolio perspective there are some factors that must be considered inforecasting the future expected cash flows.
Cannibalization
As new products arrive, the revenue and costs involved should not be looked at in isolation.There can be ripple effects across the business where a new product cannibalizes sales fromexisting products.
For example
, the launch of a new car in a range can take sales away fromexisting models. The loss of revenue from the other products needs to be included in thecalculation of the benefits derived from the new one.
Creeping fixed costs
With an established portfolio of products it might be reasonable to expect that new productswill be accommodated within the existing head-office infrastructure and that economies of scale will result in extra gross profit without any extra indirect fixed costs. For smallincrements in scale this may be true, but for substantial changes head-office functions willalso need to grow, which will mean higher indirect costs. Although some economies of scaleare likely to occur, an allowance for costs creeping up should be made in calculating theviability of the new product.
Contribution ratios
In building a product range it can be a mistake to bring in cheaper or lower grades of productto widen the appeal to a greater number of customers. The danger is that the cheaperproduct may have lower margins, resulting in a lower profit from customers who would have
 
 
Sub: BusinessManagement Topic:
 
Portfolio
*
happily purchased the premium version but switched to the cheaper one when it becameavailable. Attempting to keep the contribution value constant across a range reduces theimpact but may make price positioning difficult in comparison to competitors and substitutes.
Scarce resources
In a production environment there can be instances of a component or ingredient being inshort supply and causing production to be constrained. Where these components are usedacross a range of products it is helpful to know how the production should be prioritized touse any scarce resources effectively. These constraints are typically short term so the fixedcosts and allocations are unlikely to change significantly for the duration of the shortage. As aconsequence it is not the profit that needs to be maximized but the contribution.
Prices and volumes
In selling products or services to customers price usually dominates the negotiation. Offeringdiscounts makes customers feel they have struck a good deal though it will erode the
supplier’s margins and profit. To make the discounts attractive to both parties they can be
based on volumes, such that an increase in the size of the order justifies the discount per unit.However, the relationship between price, volume and profit is not straightforward, asvariable costs will change with movement in volumes but not with movement in prices.

You're Reading a Free Preview

Download
scribd
/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->