Topics
new product process, new product evaluation, research, analysis
Review the activity below or download the PDF student worksheet
- Student Worksheet: New Product Evaluation Game
- Instructor Solutions (Members Only): New Product Evaluation Game = Solutions
Student Discussion Activity
Introduction
This activity is a ‘game’ played in groups. Although it is a fun game, it is designed to illustrate the challenges that a firm faces when it evaluates and researches a new product.
For instance, a firm could very quickly (and at little cost) evaluate a new product with very little information – but that will often result in poor, uniformed decisions. The opposite is to spend too much time (and incur significant costs) to gather lots of information – this leads to the firm being too cautious, slow to react, and quite inefficient.
In this game, each group has to decide whether or not to introduce a new product. To help them decide, they are able to buy information (at a cost). Therefore, the challenge is to determine how much information to obtain before making a launch (or not) decision.
Playing the Game
- This game uses a coin to represent the new product’s success.
- A coin will be tossed a total of five times.
- If the coin is comes down ‘heads’ three times or more then the product will be success in the market.
- However, if the coin comes down ‘tails’ three times or more, then the product will fail in the marketplace.
- You can choose buy/obtain information (that is, the coin toss result) before making a FINAL launch or not launch decision.
- You buy/obtain any amount of information – that is, from no information, up to the information on all five tosses.
- Once you STOP buying research information, you need to decide yes/no to launch the product and the balance of the five coin tosses are undertaken to see if the product would be successful.
Information Costs
|
To obtain information from: |
The TOTAL research cost is: |
|
One coin toss |
100,000 |
|
Two coin tosses |
200,000 |
| Three coin tosses |
400,000 |
| Four coin tosses |
600,000 |
|
Five coin tosses |
800,000 |
Product Development/Launch Costs
If you chose to launch the new product, the development and launch costs are a further 1,000,000 points (in addition to the research costs).
Product Profits/Returns
- Points for a successful product (at least 3/5 heads) = 2,000,000 points
- Points for a failed products (less than 3/5 heads) = 0 points
Examples of Group Decisions
Group A
- Buys first toss information (-100,000) – it’s a head
- Then decides to buy second toss (-100,000) – it’s a tail
- Then gets third toss information (-200,000) – head again
- Decide to develop/launch (-1,000,000)
- Coin is tossed two more times – tail, then head
- Therefore, product is successful (+2,000,000)
Net points for firm = +600,000
Group B
- Buys first toss information (-100,000) – it’s a tail
- Then decides to buy second toss (-100,000) – it’s a tail
- They decide to NOT develop/launch (0 points)
Net points for firm = -200,000
Scoring the Game
Here is a scoring sheet (which can be easily done on the board). Groups can play against other groups (either in a one-on-one situation, or in an overall class competition). It is suggested that around 5 products be evaluated to reduce some of the ‘luck’ aspect.
(Note: Luck will play some part – just as it does in real life business.)
| Product Evaluation | Round 1 | Round 2 | Round 3 | Round 4 | Round 5 |
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Total Information Cost (if any) |
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Develop/Launch Cost (if any) |
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Product Successful? Yes/No |
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Product Profit/Return (if any) |
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| Net Points for this Product Decision | |||||
| Total Accumulated Points for all Decisions = |