New Products Profitability Analysis
Advances in finance, accounting, and economics book series · 2024
This chapter elaborates on how to estimate the average profitability of new products for businesses. The chapter considers the financial risk and applies the DMAIC stochastic method. The scenario is that a company wants to launch a new product to the market. When a company develops a new product, the profitability of the product is highly uncertain. A stochastic model is used to evaluate the variables involved in marketing the new product, such as market size, use of the product, competition, etc. Simulation is utilized to calculate the net present value (NPV) of profits for five years to assess the associated risks. The analysis of the simulation results helps the company's management to decide whether to introduce the new product or not.