System Dynamic Approach to Assessing New Product Introduction: The Case of Functional Foods in the United States

Health care costs particularly those associated with chronic health conditions such as cancer have been significantly increasing for both individuals and governments in the past decades, prompting the demand for preventative medical initiatives, such as functional food, and spawning a new industry in the food sector functional food industry. This article conducts a feasibility study for a firm entering the functional food industry with a specific product, Avert®, CLA-enhanced cheese. It also assesses alternative market conditions under which the firm will be successful. A system dynamics framework is used for the analyses. The results show that a firm can be profitable in the functional food industry provided that it satisfies certain pricing and target market conditions. The results indicate that the extent to which the market differentiates Avert® from commodity cheese, and hence the premium it pays, is a critical success factor for the firm introducing the product.