New Product Evaluation Game

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


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

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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