Problem

A leading company in the personal computer peripherals market was considering expanding its business into some additional product categories.  The division general manager had identified a particular category that might offer a growing revenue opportunity.  However, the company would need to spend nearly $2 million to enter this market.  How would the ROI on a product line in the new category compare to line extension opportunities within the company’s existing product categories?  Should the company invest in developing and marketing products in this new product category?

Solution – Sizing, Segmentation, ROI Analysis

KJ & Co. estimated the size of the total available market, defined and sized market sub-segments (by user application, price, feature richness), and analyzed competitive market positions.  As a result of this analysis, we identified particular sub-segments that best fit with the company’s strengths in technology, development, manufacturing and brand image.  We then estimated the potential return on investment (ROI) for product offerings in those segments, based on gross margin analysis and estimated development and marketing costs.  KJ & Co. also identified opportunities to acquire existing companies/product lines in this market.  Ultimately, based on the small size of the market opportunity, low projected growth rates, and ROI estimates, we recommended that the company not invest in this market.  The company’s resources would be better spent on extensions of its existing product lines.

Result

The company did not pursue the market opportunity, conserving nearly $2 million for investment in extending its existing product lines, where the ROI was greater and the risk lower.

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