The company that you manage has invested $5 million in developing a new product, but the development is not quite finished. At a recent meeting, your salespeople report that the introduction of competing products has reduced the expected sales of your new product to $3 million. If it would cost $1 million to finish development and make the product, should you go ahead and do so? What is the most that you should pay to complete development?

Question

Miya Choi

Business

11 September, 02:48

The company that you manage has invested $5 million in developing a new product, but the development is not quite finished. At a recent meeting, your salespeople report that the introduction of competing products has reduced the expected sales of your new product to $3 million. If it would cost $1 million to finish development and make the product, should you go ahead and do so? What is the most that you should pay to complete development?

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Daffy · Answer 1

Answer: It depends on the variety of products that you sell. Besides, if you want to gain market share against your competitors maybe you should make this effort. But it depends on the cost of opportunity that you analize according to your cash and profits.

Explanation: Each situation should be analyzed taking into consideration the company and its market. Nowadays most of the companies are open systems that interact with different stakeholders such as competitors, suppliers, etc. If you want to gain market share you should either displace your competitors or attract the new demand.