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.
Scenario 12C3 - Product 1 (EU and Nafta)
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.
1 product elasticity for EU and Nafta is approximately equal to the coefficient 0,0208. It means that product quality increasing by 1 unit will get 2,08% demand.
Scenario 12C3 - Product 1 (Internet)
1 product elasticity in Internet is less than 2 times, coefficient of 0,0100.
Scenario 12C3 - Product 2 (EU and Nafta)
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)
2 product elasticity in EU and Nafta is approximately equal to the coefficient 0,0206, almost the same as for 1 product.
Scenario 12C3 - Product 2 (Internet)
2 product elasticity in Internet, coefficient 0,0071.
Scenario 12C3 - Product 3 (EU and Nafta)
For 3 product implement 1 MAJOR and receive 1 MINOR, product quality has increased from 157 to 176. Elasticity for 3 product for EU and Nafta is equal to 0,0054.
Scenario 12C3 - Product 3 (Internet)
3 product elasticity in Internet is 0,0022.
Difference between elasticities of markets and products is primarily due to the different market load for each market cell. The biggest elasticity of R&D factor is reached for 1 product in EU and Nafta, where market load is about 20-30%, while for 3 product in EU and Nafta market is occupied by 50-60% and elasticity is minimal.
Research and development
Market load (sum for all teams)
Average product quality
Factor elasticity depends on average product quality and competitors in the group. In other words, the difference between group where you are the only one who has implemented MAJOR development and group where all 8 teams has implemented R&D will be diametrically opposite. In 2 case, increasing in demand will be minimal or even absent.
- Residual effect - 100%, but product lose quality because of obsolescence.
- Dependence directly proportional, but has strong influence of the competitors.
- Effect is different for markets and products.
- Depends on average quality of the product in group.