# New Product Evaluation Game

## 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

• 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 Total Information Cost (if any) Develop/Launch Cost (if any) Product Successful? Yes/No Product Profit/Return (if any) Net Points for this Product Decision Total Accumulated Points for all Decisions =
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