2.2. Strategy Formulation

New product strategy formulation answers the following questions for a product idea's developers:

  • Who are the target customers for the new product?

  • Which three or four critical benefits of the product create enough value for the target customers to choose to buy the new product rather than competitive offerings?

  • How can we produce these benefits cost-effectively and correctly price the product?

A product development group makes day-to-day strategy decisions in two arenas:

  1. Choices that create value for the product's customers.

  2. Choices that capture for the BU an acceptable share of the value created.

The competitive advantage of the BU may rest on a foundation of tangible and intangible assets such as patents, proprietary technology, brand equity, skills, and a product development process that's right for the unit. The development group needs to employ these assets to create superior value for target customers and to capture enough of this value over the long term to produce a superior economic profit.

2.2.1. Value-Based Management (VBM) and Sustainable Long-Term Profitable Growth

The VBM view of new products melds management accounting and marketing management. During the past 20 years, firms across the world have increasingly adopted VBM practices.[] In this economist-centered view, the new product captures economic profit when the return on capital employed by the BU over the life cycle of the product exceeds the cost of capital.[] To create the largest ...

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