Justifying New or Enhanced Products

In financial services there is a tendency for new product development to be driven by cost and market share rather than marginal profit, therefore developing and pricing new or enhanced products should be considered carefully. Amongst the factors to be considered in justifying new developments are:

  • Customer need
  • Competitive positioning
  • The fit of the new product into the existing product range
  • Potential profitability
  • Speed to market
  • Cost/benefit (including risk implications).

Customer Need

As the importance of matching products and levels of service to customer needs and expectations becomes more imperative, the ability to react to customer needs or to predict future needs will add competitive advantage. Which segments of the existing or potential customer base will this product appeal to and how big is the market potential?

Competitive Positioning

Is the product development leading or lagging? If the new or enhanced product will lead the market, how long is the advantage expected to last and what return on investment can be achieved in this time? Will it attact new customers or appeal to existing customers? How easy will it be to explain the product features to potential customers? How much market share will be attained?

Fit with existing products

Does the new product fit with the existing product range or does it replace an existing product? How does the marginal product profitability of the new and existing products compare? Will it be possible to withdraw the existing product or will it be necessary to maintain (or continue to offer) both products?

Potential profitability

How much will the development of the new or enhanced product cost and what is the estimated payback period? Does the new product require significant IT investment and will this investment be capable of being used for other products in future? How much training will be required by sales staff before they will be able to sell the product? How much marketing expenditure will be required? What will be the marginal cost of the product and what risks are associated with the estimated income stream? How much will the new product affect the income generated by existing products?

Speed to market

How long will it take to bring the product to market? What are the operational risks associated with the product development? How does this compare with the competitors? What are the dependencies on other initiatives? How important is it that the suggested launch date is achieved? What would be the impact of missing the deadline?

Cost/benefit (including risk implications)

What are the costs and benefits of this development? How does the return on investment compare with other initiatives? What about the non-financial benefits? What is the probability of achieving the estimated return?.

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