IngentaConnect Financial Evaluation of the Product Line

Authors: Rabino S.; Wright A.

Source: Journal of Product Innovation Management, Volume 2, Number 1, March 1985 , pp. 56-65(10)

Abstract:

When decisions are being made about adding or dropping a product, most managers will make a financial evaluation of the product and they may try to get some sense of the riskiness of the decision. They will also probably consider the effect of the add/drop decision on other products in the line. Seldom, however, do they consider the risk of a product mix decision in the context of the risk level of the overall product line. Professors Rabino and Wright argue that product managers should take a leaf from the analytical book of financial analysts and calculate a "product Beta" that shows the impact of the risk of the individual product on the risk of the whole portfolio of products. They also suggest some other ways of sharpening the financial picture in what are often strictly marketing evaluations. This is Professor Rabino's second article in JPIM. As in the previous one he coauthored with Howard Moskowitz, this one adds some interesting analytical methodology to managerial decision making.