New product or service launch
Whether and how to launch, balancing demand, economics, and route to market, including sales taken from your own products (cannibalization).
Key takeaways
- Start with demand and economics, not product features. Measure the new sales the launch adds after cannibalization, and treat route to market as a main question rather than an afterthought.
- Launch cases often include a sizing step (how big is demand) and a pricing sub-question, so expect to switch skills during the case.
- The strong answer validates the riskiest assumptions before spending. The weak one assumes success and jumps to the rollout.
What this case type is and when it shows up
A launch case asks whether and how to bring a new product or service to market. The classic mistake is loving the product and forgetting to check that customers want it at a price that works, and that it adds sales rather than moving them from your own products.
The underlying theory, in plain language
A launch decision rests on three legs: is there real demand, do the economics work at the price customers will pay, and can we reach customers through a sensible channel. Weakness in any leg can sink it.
Break-even volume is the one-time or fixed cost divided by contribution per unit (price minus variable cost). Use contribution, not "profit per unit," because fixed costs are what you are trying to cover.
Cannibalization is when a new product takes sales from your existing products. If 40 percent of a new flavor's buyers would otherwise have bought another of your flavors, only 60 percent of its sales are new to the company. For line extensions (a new flavor, size, or version) this is often the deciding number.
What the prompts sound like, from simple to hard
- Simple: should an Indian snack brand launch a new flavor.
- Medium: a Gulf bank launches an app-only account for young customers.
- Hard: a European appliance maker launches a smart product that needs a new online sales channel.
Finding and narrowing the real problem
Key idea
Start with demand and economics, not product features. Measure the new sales the launch adds after cannibalization, and treat route to market as a main question rather than an afterthought.
Frameworks for this type, each as a thinking tool with its limit
- Demand, economics, channel: Three legs that a launch stands or falls on. Limit: It does not rank them; work out which leg is the real risk here.
- Four Ps for the rollout: Product, price, place, and promotion to plan the launch. Limit: Useful for the how, not the whether; do not lead with it.
Methods for solving this type
- Test demand and willingness to pay
- Calculate break-even on contribution
- Adjust for cannibalization of existing products
- Compare break-even with realistic volume and the company's payback rule
- Test in one region before a full launch
The math patterns it relies on
- Break-even units = fixed launch cost / contribution per unit
- Incremental contribution = contribution x (1 minus cannibalization rate)
- Payback on the launch cost
Worked cases
Worked case
Break-even on a new flavor, with cannibalization
The prompt
An Indian snack brand sells about 500 million packs a year across its flavors. Launching a new masala flavor costs INR 50 million one time (INR 5 crore, since 1 crore is 10 million), for recipe work, packaging, and launch advertising. Each pack contributes INR 4 (price minus variable cost). Past launches reached about 3 percent of brand volume in their first year. The chart below shows where research says the new flavor's sales would come from. Should it launch?
Interviewer-led: the interviewer shows the survey chart and asks for break-even, then the effect of cannibalization, then a recommendation.
Clarifying questions, with the interviewer's answers
- Is the launch cost one-time or yearly?Answer: One-time.
- Do existing flavors earn about the same contribution per pack?Answer: Yes, about INR 4.
- What payback does the company want on launches?Answer: Within two years.
A hypothesis to say out loud: A new flavor from a strong brand usually sells, so demand is not my main worry. My hypothesis is that cannibalization, the sales taken from our own flavors, decides whether this launch pays.
The structure
- Does the launch add enough new contribution?
- Break-even ignoring cannibalization
- Expected year-one volume
- Key: Break-even after cannibalization
- Payback versus the two-year rule
The exhibit
Pie chart: Where the new flavor's sales would come from (survey of 1,000 snack buyers). Shoppers who would otherwise buy one of our flavors: 40 percent; Shoppers who would otherwise buy a rival brand: 35 percent; Shoppers new to the category: 25 percent.
Working it through
1. Break-even, ignoring cannibalization
INR 50 million divided by INR 4 per pack.
Naive break-even (packs):50,000,000 ÷ 4 = 12,500,0002. Expected year-one volume
3 percent of the brand's 500 million packs.
Year-one packs:500,000,000 × 0.03 = 15,000,0003. Read the chart
Sales taken from rival brands and from shoppers new to the category are new to the company.
Share of sales new to the company (%):35 + 25 = 604. New contribution per pack
Only 60 percent of each new pack is a new sale; the other 40 percent replaces a pack we would have sold anyway.
Incremental contribution per pack (INR):4 × (1 - 0.4) = 2.45. Break-even after cannibalization
INR 50 million divided by INR 2.4.
True break-even (packs):50,000,000 ÷ 2.4 = 20,833,3336. Year-one new contribution
15 million packs at INR 2.4 of new contribution each.
Year-one new contribution (INR):15,000,000 × 2.4 = 36,000,0007. Payback
Launch cost divided by yearly new contribution.
Payback (years):50,000,000 ÷ 36,000,000 = 1.39
What the exhibit shows
Only 60 percent of the new flavor's sales are new to the company; the other 40 percent move from our own flavors.
The recommendation
Launch, but test in one region first. First, ignoring cannibalization, break-even is 12.5 million packs and year one looks comfortable at 15 million. Second, 40 percent of those sales come from our own flavors, so each new pack adds only INR 2.4 of new contribution and break-even rises to about 20.8 million packs. Third, at 15 million packs a year the launch still pays back in about 1.4 years, inside the two-year rule, but only if sales hold in year two. A regional test would measure the real volume and the real cannibalization before a national launch.
Risks: Cannibalization may be higher than 40 percent if the new flavor is close to an existing one; Sales of new flavors often fall after the first year.
Next steps: Run a three-month test in one state and track both new-flavor sales and existing-flavor sales; Decide on national launch only if payback stays under two years.
A strong candidate
Used contribution, adjusted break-even for cannibalization, and checked payback against the company's rule before proposing a test.
A weak candidate
Computed 12.5 million packs, compared it with 15 million, and said yes, missing that 40 percent of the sales were the brand's own.
Worked case
An e-bike subscription in Madrid
The prompt
A Spanish maker of electric bikes wants to launch a monthly subscription in Madrid: the customer gets a bike, servicing, and insurance for one monthly fee. Should it launch, and at what price?
Candidate-led: you set the structure (demand, economics, channel), ask for the numbers, and recommend a price; the interviewer answers what you ask.
Clarifying questions, with the interviewer's answers
- What is the client's rule for new ventures?Answer: The one-time launch cost must pay back within three years.
- Would subscribers otherwise have bought one of our bikes?Answer: Research says very few would; they want a bike without the upfront cost. Ignore cannibalization.
- Do we launch in one city first?Answer: Yes, Madrid.
A hypothesis to say out loud: A subscription spreads the bike's cost over time, so my hypothesis is that demand exists, and that the risk is the economics: after the bike's cost and servicing, each subscriber may earn very little.
The structure
- Demand, economics, and route to market
- Key: Economics: contribution per subscriber per month
- Break-even subscribers for the yearly running cost
- Demand: target group and take-up at each price
- Payback of the launch cost versus the three-year rule
Working it through
1. Contribution per subscriber
Candidate: "What would we charge, and what does each subscriber cost us?" Interviewer: "The team suggests EUR 49 a month. Servicing and insurance cost EUR 14 a month, and each bike costs EUR 900 and lasts about three years." Candidate: "So the bike costs EUR 25 a month over 36 months."
Contribution per subscriber (EUR a month):49 - 14 - 900 ÷ 36 = 102. Break-even subscribers
Interviewer: "The app and two service hubs cost EUR 600,000 a year to run, on top of a one-time launch cost of EUR 1.2 million."
Subscribers to cover running costs:600,000 ÷ (10 × 12) = 5,0003. Demand at EUR 49
Candidate: "Who is the target?" Interviewer: "About 800,000 commuters live within 10 km of their work. A survey says 2 percent would subscribe at EUR 49." Candidate: "Surveys overstate, so I will assume half of that by year two."
Subscribers in year two:800,000 × 0.02 × 0.5 = 8,0004. Yearly profit at EUR 49
Contribution from 8,000 subscribers minus the running cost.
Yearly profit at EUR 49 (EUR):8,000 × 10 × 12 - 600,000 = 360,0005. Payback at EUR 49
The launch cost divided by yearly profit: just over three years, which misses the rule. This uses the year-two subscriber count for every year, a simplification; a slower first year would make payback longer still.
Payback at EUR 49 (years):1,200,000 ÷ 360,000 = 3.336. Test a higher price
Candidate: "Did the survey test other prices?" Interviewer: "At EUR 55, 1.5 percent would subscribe." Candidate: "Fewer subscribers, but contribution rises from EUR 10 to EUR 16 a month."
Yearly profit at EUR 55 (EUR):800,000 × 0.015 × 0.5 × (55 - 14 - 25) × 12 - 600,000 = 552,0007. Payback at EUR 55
The same launch cost, paid back in about 2.2 years.
Payback at EUR 55 (years):1,200,000 ÷ 552,000 = 2.17
The recommendation
Launch the subscription in Madrid, but at about EUR 55 a month, not EUR 49. First, at EUR 49 each subscriber contributes only EUR 10 a month after the bike and servicing, so the launch pays back in about 3.3 years, outside the three-year rule. Second, at EUR 55 contribution rises to EUR 16, and even with a quarter fewer subscribers the yearly profit is about EUR 552,000, a payback of about 2.2 years. Third, the break-even point of about 5,000 subscribers at EUR 49, or about 3,125 at EUR 55, is well below expected demand, so the downside is limited. Sell mainly online, with the service hubs as the place to try a bike.
Risks: Payback assumes year-two subscriber numbers from the start; if the first year builds slowly, payback at EUR 55 moves toward or past the three-year limit, so the pilot must track how fast subscribers join; Subscribers may cancel early, before the bike's cost is recovered; Stolen or damaged bikes could raise the monthly cost above EUR 14; The survey may overstate take-up even after halving it.
Next steps: Run a three-month pilot with 300 subscribers at EUR 55 and track cancellations; Agree insurance terms that cap the cost of theft.
A strong candidate
Built contribution per subscriber including the bike's cost, found break-even subscribers, halved the survey answer, and tested a second price that passes the payback rule.
A weak candidate
Multiplied 800,000 commuters by 2 percent and EUR 49, called it a EUR 9 million market, and never subtracted the cost of the bikes.
Prompt: "Should we launch this product?"
Weaker answer
Describes how good the product is and how to market it, without checking demand, economics, or sales taken from existing products.
Stronger answer
Checks demand, computes break-even on contribution, adjusts it for cannibalization, compares with realistic volume and the payback rule, and tests before a full launch.
Why the stronger answer wins: The strong answer validates the riskiest assumptions before spending. The weak one assumes success and jumps to the rollout.
Common mistakes, traps, and curveballs
- Assuming demand because the team loves the product
- Ignoring sales taken from existing products
- Using profit per unit instead of contribution in break-even
- Ignoring how the product will reach customers
- Skipping a test on a risky launch
Launch cases often include a sizing step (how big is demand) and a pricing sub-question, so expect to switch skills during the case. Formats differ by office and change over time, so check the current process for your target office.
Practice
A launch costs USD 2 million one time. Each unit contributes USD 5. How many units to break even?
Same launch, but 50 percent of its sales come from your existing products, which have the same contribution. What is the break-even now?
A new snack sells for INR 20 on the shelf in India. The retailer keeps 20 percent of the shelf price and the distributor 8 percent. The maker's variable cost is INR 9 a pack. What does the maker earn per pack, in INR?
A new version of an existing product shows break-even at 1 million units, and you expect 1.2 million. What should you check first?
Break-even volume for a launch should be calculated with which number per unit?
Early users love a new product and the team wants a national launch. What should you test first?
Break-even uses contribution, and for any new version of an existing product, only the sales that are new to the company count.
Sources for this lesson (1)
- Recognized public explanations of case-interview concepts and frameworks
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