Drink-at-Home, Inc Essay

CASE 2 DRINK-AT-HOME, INC. Drink-At-Home, Inc. (DAH, Inc. ), develops, processes, and commercialises mixes to be used in nonalcoholic cocktails and tangled drinks for home consumption. Mrs. Lee, who is in charge of enquiry and increment at DAH, Inc. , this forenoon notified Mr. Dick Jones, the president, that exciting developments in the research and development section aim that a saucily beverage, an instant pina colada, should be possible because of a clean way to process and preserve coconut. Mrs. Lee is inspireing a major political program to develop the pina colada.She estimates that expenditure on the development may be as much as $100,000 and that as much as a classs work may be required. In the discussion with Mr. Jones, she indicated that she design the possibility of her outstanding people successfully developing such a drink now that shed done all the really authorized work was in the neighborhood of 90 portion. She also felt that the likeliness of a competing company developing a similar product in 12 months was 80 percent. Mr. Jones is strictly a bottom line make fun and is concerned about the sales volume of such a beverage. Consequently, Mr. Jones talked to Mr.Besnette, his commercialise research manager, whose specialty is new product evaluation, and was advised that a market existed for an instant pina colada, but was some-what dependent on acceptance by some(prenominal) grocery stores and retail liquor stores. Mr. Besnette also indicated that the sales reports indicate that early(a) firms are considering a line of tropical drinks. If other firms should develop a competing beverage the market would, of course, be split among them. Mr. Jones pressed Mr. Besnette to make hereafter sales estimates for various possibilities and to indicate the present (discounted value of future profits) value.Mr. Besnette provided plank 1. Mr. Besnettes figures did not include (1) constitute of research and development, (2) cost of new producti on equipment, or (3) cost of introducing the pina colada. The cost of the new production equipment is pass judgment to be $ 100,000 because of the special way the coconut needs to be handled, and the cost of introducing the new product is judge to be about $150,000 because of the point-of purchase displays that would be necessary to introduce the new product. Mrs. Lee has indicated that she does have alternative development proposals, which are 1.A reduced research program to get wind person else comes out with the product first and if not, then uphold with a break in program. The reduced program for the first eight months would cost $10,000 per month. One favor of this is that if the effort was unsuccessful, then development costs would be held to the eight-month figure (8 months ? $ 10,000 = $80,000). The likelihood of success under this approach is the same as the more nifty development. (The likelihood of a competing company developing a product in 8 months is 60 percent .)The dismantle development program would take break through in months 9 through 12 and would cost an additional $60,000. It would proceed only if the eight-month study guaranteed a success. 2. Use a reduced research program and maintain an awareness of industry developments to see if someone else develops a product. If someone else has developed a product at the end of half-dozen months, it would cost only an additional $30,000 to analyze their product and duplicate it. The reduced development program would cost $10,000 per month. Mr.Besnette, being the great marketer that he is, is of course reluctant to be second on the market with a new product. He says that the first product on the market exit usually obtain a greater share of the market, and it will be difficult to win those customers back. Consequently, he indicates that only about 50 percent of the sales that he indicated in Table 1 could be expected if Drink-at-Home waited until competing brands were already on the mark et. Moreover, he suspects that there is only a 50/50 chance that the competitor will be out with a product within the next six months.There are quadruplet options (1) orderly development of the pina colada, (2) modest development effort followed by the crash program, (3) a modest development effort for the first six months to see if a competitive product comes on the market, and (4) do nothing. TABLE 1. sales and Profit Potentials Consumer Acceptance Substantial Moderate Low (Sales Potential) Probability chip in Values 0. 10 0. 60 0. 30 (Discounted Value of Future Profits) $800,000 $600,000 $500,000 What would you recommend? Show all supporting solutions/computations. Source http//wps. pearsoned. co. uk/ema_ge_render_qam_11/202/51952/13299854. cw/content/index. html.