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New product develpmentTRANSCRIPT
United BeveragesProduct Development Genius or One-Hit Wonder?
Introduction
United Beverages’ first product, GangBusters Interactive Beverages reached the stage of wide brand recognition
Paul Diaz reviewed the sales data provided by CFO and over past 12 months the growth had stalled
Could it be that United Beverages was just a one-time hit wonder?
Several ideas to survive in the market were discussed in previous meetings like carbonated energy drink for kids aged 9 to 12
He was not completely sold off to this idea He had an idea - Flavour mixing as a revolutionary new
interactive beverage
HistoryFull range of houseware products: cups, mugs, plates, sports bottles,
bagpacks and lunch kits
• Owner of five of top-10 selling spots in canned juice aisle.
• No.1 and 3 top selling spots on non-carbonated drink
• No. 8 position out of total 100 juice drink brands
The Development Team
• Founder • Firm believer of
openness and flexibility
• Marketing guru• Introduction to
branding of existing products strategy
• Production-marketing liaison
• Early days at PepsiCo
• Production and packaging expert
• Deep contacts with suppliers
• 15-year career with Coca-Cola
• Reported to
• Head of Operations
• With the company since early days and responsible for success of GangBusters
• Industrial designer• Responsible for
providing ergonomic designs for the bottles United used for its products
Paul Diaz Katja von Robinson Mary Smith
Luis Hernandez Bill McBride Bob Jones
Re-Revolutionizing the Beverage Industry
Reaching plateau in terms of sales
Competitors: Coke and Pepsi
Problems
Innovation Marketing
Strengths
Dual-drinks
New Products: Next United Beverages Generation
GangBusters Expansion Program
• Least cost • Least time• Vulnerable to
substitution
Kid Energy Drink Project
• Comparatively lower costs
• Comparatively lesser time to develop
• Can be capitalised by the experience from GangBusters
• Encouraging preliminary market numbers
• Plenty of competition• Easy to produce• Incremental product
Dual-Drink Project• High Cost• Longest time for
development• Unknown territory• Radical product• No real data available• Work required from
scratch• First movers
advantage• Market no well
defined-but potential is high
• Raw material cost high due to low demand
• Patent
Expanding the Portfolio or Not?
• Tremendous Payoff possible
• Highly risky• United still dependent
on existing product for funding new ventures
• However, always committed 8%-10% revenue towards R&D
New Drinks
• Safest option• Subject to decline and
eventual removal from the market
• Short term profits
Expansion
Strategy
Where we are ? Where we are going ?
How do we get are ?
•Mature Market•Sales : Stagnant•Net Profit : Stable/Declining•Expenses Stable•Ganfbusters Contribution to sales : 100%•Target Base : Kids
•Diversifying portfolio•Two Alternatives
• Enter Dual Jiuce Business
• Enter Kids Energy Drink Business
•Internal Development•Investment vs Success Probability vs Returns•Internal R&D
Competitors
Minute Maid Gatorade Snapple Tang Fruitopia Powerade KOOL –AID
Burst Five Alive ,etc
Perceptual Mapping
Perceptual Mapping
Perceptual Mapping
Results from Market Survey
Assumptions Continued Growth of Gangbusters in target customer segment Cross-selling oppertunity due to product familiarity
Preliminary Conclsions for Dual Drinks Potential Market is 4-5 times current GanagBusters Market in the
long run Slower Acceptance Rate 25% positive feedback over 50 % not sure
Preliminary Conclusions for Kids- Energy Drink Potential Market Smaller than GangBusters market Fast Acceptance Rate 80% Positive Feedback
Product FitSales
Marketing
Customer FeedbackQuality Control
Manufacturing
0
50Dual Juice
•Dual Juice Dirnk is a high risk high return investment•Kids Drink will provide lower return but investment in the same in the form of commitment of resources is less
Question 1:
What are some of the pros and cons for each development project?
What should United Beverages take into account when deciding which products to develop?
Projects > GangBusters Dual Drinks Kid-Energy drinks
Growth Potential
Continued growth
4 – 5 times more than GangBusters
Smaller than current GangBuster market
Market definition
High Low High
Awareness High Low.Approx. 50% were not sure of the idea
High.Approx. 80% gave a +ve feedback
Acceptance Fast Slow FastMarketing requirement
Low High Low
Information availability
High Low High
Research requirement
Low High Low compared to Dual Drinks
Pros Cons
Projects > GangBusters Dual Drinks Kid-Energy drinks
Development cost involved
Low High. Everything will be done from scratch
Low
Problems faced by suppliers
Low High Low
Surety of performance
100% surety 50% surety 80% surety
Patent opportunity
Not available Available Not available
Resource availability constraint
Less High Less
Pros Cons
Other challenges GangBuster’s weightage in product portfolio:
It accounts for almost all of the company’s revenues. Heavy dependence on existing product sales to fund development
Competitive pressure:Innovative products by Coke : coffee flavoured coke
Issues with “Kid Energy drink”:High competitionNot a guaranteed success
Still a growing company:It does not have enormous financial pockets like its competitors
Question 2:Assume that the total development cost can be spread evenly over the development time.
Construct a graph of “Development Time” as a function of “Monthy Investment” for Kid-Energy drink and dual-drink projects
United Beverage :- Potential Development Projects
Project Expected Total
Development Cost
Minimum Developmen
t Time
Maximum Developmen
t Time
Kid Energy Drink $800,000 4Months 10 Months
Dual-Drink $1,800,000 6 Months 12 Months
Project
Min. Develop Cost for min time (monthly)
Max. Develop Cost for max time (monthly)
Kid Energy Drink $200,000 $80000
Dual-Drink $300,000 $150000
United Beverage :- Potential Development Projects Total Operating Income (in thousands) = (535 + 534 +
534 + 533 + 533 + 533 + 535 + 534 + 534 + 534 + 535 + 534) = $6408
United Beverages spends 8-10% on R & D and new product development.
If company spend 12.5% of operating income on R&D they can go for Kids Energy drink and they can also continue gangbuster expansion program
Best Case Scenario :
Worst Case Scenario :
Overview
Expected Total Development
CostWorst Case Result Best Case Result
Kids- Energy Drink $800,000
Moderately Successful
Monthly sales ($500,000)
Very SuccessfulMonthly sales ($1,000,000)
Dual – Drink $1,8000,000
Market Failure Monthly Sales –
Negligible
Market Success Monthly Sales
($4,000,000) pm
Gangbusters Expansion Program
Marginal ImpactSales decline @ 6%
High Competition
Positive ImpactCompetition – LowSales - Constant
RecommendationUnited Beverages
Possible Scenarios
Previous Year Income Statement
2002 ('000)
Particulars (Month End) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Net Revenue 4114 4104 4110 4101 4102 4102 4114 4015 4108 4110 4114 4109
Cost of Revenue 2756 2750 2754 2748 2748 2748 2756 2750 2752 2754 2756 2753
Gross Margin 1358 1354 1356 1353 1354 1354 1358 1265 1356 1356 1358 1356
Operating Expenses
S, G & A 494 492 493 492 492 492 494 493 493 493 494 493
NPD 329 328 329 328 328 328 329 328 329 329 329 329
Total Operating Expenses 823 820 822 820 820 820 823 821 822 822 823 822
Operating Income 535 534 534 533 534 534 535 444 534 534 535 534
Previous Year Income Statement
0 2 4 6 8 10 12 140
100
200
300
400
500
600
Operating Income ($ ‘000) Vs. No. of Months
Assumptions• Net Revenue is equal to the average of the previous
year’s Net Revenue unless mentioned otherwise.• The Cost of Revenue and the S, G & A remain almost
constant and equal to the previous year’s averages.• After the development period is over there is still an
increase in the NPD expenses due to the extension in the product line.
• This expense is a bit more for the first 6 months and then reduces.
• The Net Revenue increment has been taken with reference to the previous year’s Net Revenue.
• The growth in Net Revenue has been shown as a gradual one which reaches its peak in about 6-12 months depending upon the novelty of the product.
Scenario 1: GangBusters Expansion Program
0 5 10 15 20 25 30
-3000
-2500
-2000
-1500
-1000
-500
0
500
1000
Worst Case Scenario: • Development Cost of
$100,000 p.m.• 6 % decline in Sales
1 2 3 4 5 6 7 8 9 101112131415161718192021222324224.5
225225.5
226226.5
227227.5
228228.5
229229.5
230
Best Case Scenario:• Development Cost of
$100,000 p.m.• Constant Sales
Operating Income ($ ‘000) Vs. No. of Months
Scenario 1: Kid Energy Drink Project
Worst Case Scenario: • Development Cost of
$800,000 p.m. for 10 months• Monthly Sales of $500,000
Best Case Scenario:• Development Cost of
$800,000 p.m. for 4 months• Monthly sales of $1,000,000
0 5 10 15 20 25 30
-400
-200
0
200
400
600
800
1000
0 5 10 15 20 25 30
-400
-200
0
200
400
600
800
1000
1200
1400
Operating Income ($ ‘000) Vs. No. of Months
Scenario 1: Dual Drink Project
Worst Case Scenario: • Development Cost of
$1,800,000 p.m. for 12 months
• Negligible Sales
Best Case Scenario:• Development Cost of
$1,800,000 p.m. for 6 months• Monthly sales of $4,000,000
0 5 10 15 20 25 30
-1400
-1200
-1000
-800
-600
-400
-200
0
200
400
0 5 10 15 20 25 30
-2000
-1000
0
1000
2000
3000
4000
5000
Operating Income ($ ‘000) Vs. No. of Months
Recommendation
Dual
Drink
Project
GangBusters
Expansion
Kid Energy Drink
Novelty of Market
Novelty of Product
Novelty of Market & Product
Moderately Risky but Limited
Profits and Threat of
Competition
Safe but Limited
Profits and Mature Market
Highly Risky but High Profit
Prospects and Long Term
Sustainability
Recommendation On the basis of the Income Statements and looking at the
risk associated with each project and their profit prospects we recommend that United Beverages must go forward with the KID ENERGY DRINK Project.
This is because: It is Less risky than the Dual Drink Project Decent Profit Prospects Market Data is available First Mover Advantage can be obtained Competition can be stalled by Entry Barriers Capitalizing on Brand Image
The Dual Drink Project must be taken up once the company is more mature and has more resources in hand.
Submitted By:Prachi Agarwal (103)Mehak Jain (117)Panili Jain (118)
Arushi Joshi (121)Ansh Nandwani (125)Shachi Sayata (132