Abstract:

The authors argue that a combination of conjoint analysis and real option valuation can improve the forecasts of a new product's success. The paper explores the importance of finding a crucial link between marketing and finance in product development, and summarizes the methods used by marketers in new product development processes. Using conjoint measurement when deciding on the product design has great advantages over direct questions. The paper then reviews the methods used by financial analysts to evaluate different investments in new products, and reveals the advantages and limitations of a real options valuation. The paper presents a coherent methodology that links marketing and finance in the decision making process of a new product, and shows the advantages of combining real options and conjoint measurement. An example of how our concept is implementable in company practise is provided, and the advantages and limitations of the concept are compared to the methodologies used in the past or even currently used.