Demand factor - Research and development
To estimate impact of R&D on market, it is necessary to calculate quality of products before and after R&D implementation. Quality of products is measured in units from 60, as described in topic product quality estimate. When you get MINOR, it is immediately implemented in production in current period (+6 units). Effect on demand from implementing MINOR and getting MAJOR is equal (+6 units). Effect on demand from implementing MAJOR is +20 units.
Effect on demand from R&D operates throughout all 5 periods. Factor elasticity is different for each market and product, because depends on external factors - market load and opponents R&D.
Lets look how R&D developments work with market on scenario 12C3. Scenario 12C3 is rich in R&D developments, which are "hidden" in company's history. 1 product is not implemented 2 MAJOR, 2 product - 3 MAJOR, 3 product - 1 MAJOR. In 1 period we implement hidden MAJOR developments and compare the difference in demand with teams where development has not been implemented.
Elasticity of demand on product 1 quality
For 1 product in 1 period implement 2 MAJOR developments and receive 1 MINOR. Increased quality can be calculated by formula: 96 (1 product quality before implementation) + 2 * 20 (MAJOR) + 6 (MINOR) - 8 (obsolescence) = 134 (1 product quality after implementation)
Horizontal - absolute value of product quality. Vertical - relative change in demand compared with previous period. Product elasticity 1 for EU and Nafta is approximately equal. Elasticity for product 1 for the Internet is 2 times lower.
Elasticity of demand on product 2 quality
For 2 product implement 3 MAJOR developments and receive 1 MINOR, product quality increasing is calculated by formula: 95 (2 product quality before implementation) + 3 * 20 (MAJOR) + 6 (MINOR) - 8 (obsolescence) = 153 (2 product quality after implementation)
Elasticity for 2 products for EU and Nafta is approximately equal. Elasticity to product 2 for the Internet is lower.
Elasticity of demand on product 3 quality
For 3 product, 1 MAJOR was implemented and 1 MINOR was received, the quality of the product increased according to the formula: 160 (quality of 3 products before implementation) + 1 * 20 (MAJOR) + 6 (MINOR) - 10 (obsolescence) = 176 (quality of 3 product after implementation).
Elasticity for 3 products for EU and Nafta is approximately equal. Elasticity for 3 product for the Internet is lower.
The difference in elasticities of demand for markets and products is primarily explained by the different total shares that companies occupy in the market. The highest elasticity of demand is achieved for 1 product for EU and Nafta, where the occupied market share is within 20-30%, while for 3 products for EU and Nafta, occupied market share is 50-60% and elasticity of demand is minimal.
Average product quality
Elasticity of the factor varies greatly depending on average quality of the product in the group and actions of competitors. In other words, the difference between group where you are the only one who implemented MAJOR and group where all 8 teams are implementing MAJOR will be very different. In case 2, the increase in demand from the implementation of developments will be minimal or absent altogether.
- Residual effect on demand from the quality of the product is 100%, but the product is gradually becoming obsolete
- Dependence of demand on product quality is expressed by a linear function
- Effect on demand from product quality is different for markets and products
- Dependence of demand on product quality is influenced by competitors in the group
Automatic demand forecast based on product quality is built into the Calculation model, which can be purchased in our store.