The Effect of Marketing on the Optimal Funding of a New Product Development

Marketing is attributed to be the dominant factor for the failure of the successful commercialization of a new product development. However, its funding aspects and the relation with engineering-related efforts such as the technical development and manufacturing is less studied. This report presents a model for the optimal expenditure of the marketing effort that is associated with a new product development and also for the optimal funding of the engineering-related efforts. By formulating a probabilistic Net-Present-Value (NPV) model and using the calculus of variations, I derived a set of three, second-order, non-linear differential equations that I solved numerically in order to get the optimal triple joint-expenditure. It is found that, in most cases, the technical development expenditure should peak and terminate prior to all other expenditures. In addition, there is interplay between the peak position of the marketing expenditure and the peak position of the manufacturing expenditure. Finally, a power-law relationship is found between the required return and the market potential and also a linear correlation between the termination time and the peak expenditure of any of the discussed efforts