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This document discusses various models and techniques for forecasting demand and evaluating new product adoption rates, including the Bass diffusion model. The Bass model models new product adoption as influenced by innovators and imitators over time. Other topics covered include Rogers' five factors that influence adoption rates, the A-T-A-R framework for evaluating awareness, trial, availability, and repeat rates, and different types of market tests including concept tests, product use tests, and market tests. Overall, the document provides an overview of quantitative and qualitative approaches for predicting demand and the success of new products in the market.

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88 views32 pages

cls17 DMD Forcst PDF

This document discusses various models and techniques for forecasting demand and evaluating new product adoption rates, including the Bass diffusion model. The Bass model models new product adoption as influenced by innovators and imitators over time. Other topics covered include Rogers' five factors that influence adoption rates, the A-T-A-R framework for evaluating awareness, trial, availability, and repeat rates, and different types of market tests including concept tests, product use tests, and market tests. Overall, the document provides an overview of quantitative and qualitative approaches for predicting demand and the success of new products in the market.

Uploaded by

vadi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Design Evaluation

Demand Forecasting

The art of prophecy is very difficult


especially with respect to the future.
Mark Twain

40% of New Products Fail


No

Basic Need for Product

Overall
Idea

Product Does Not Meet Need

Not Properly Communicated

Number Of Ideas

Mortality of New Product Ideas


The Decay Curve

Time

What it takes

A system or process to weed out projects

An understanding of how innovations are


embraced

Innovators
2.5%
-3

-2

-1

Late Majority 34 %

Early Adopters
13.5%

Early Majority 34%

Product Adoption Patterns

Laggards
16%

+2

Time Until Adoption

+3

Early Adopters
Hi

Education, Income, Status, Literacy


Empathy, Less Dogmatic, Ability to Abstract,
Rational, Intelligent, Able to Cope with Risk,
Aspiration, Positive Attitude to Science,
Social Participation, Media Exposure,
Information
No Relationship to Age

Innovation vs. Imitation


Innovators

are not influenced by who


already has bought

Imitators

become more likely to purchase


with more previous buyers

Probability of Purchase by New


Adaptor in Period t
Probability of Purchase
without influence by adopter

Kt
p + q
M

Probability of Purchase
through Influence by
Adopter

M = Market Size
K t = Cumulative number of adopters before period t
q = Effect of each Adopter on each Nonadopter
(Coefficient of Internal Influence)
p = Individual Conversion w/out influence by Adopters
(Coefficient of External Influence)

The Bass Model


Imitation Effect or Internal Influence

Kt
Kt

Qt = p (M K t ) + q (M K t ) = p + q
M
M

Innovation Effect or External Influence

Qt = Number of adopters during period t


M = Market Size
K t = Cumulative number of adopters before period t
q = Effect of each Adopter on each Nonadopter
(Coefficient of Internal Influence)
p = Individual Conversion w/out influence by Adopters
(Coefficient of External Influence)

(M K t )

Cumulative Sales for Different


p,q Parameters
Market Penetration

100%
80%
60%

p = 0.5,

q = 0.0001

p = 0.1,

q = 0.1

p = 0.01,

q = 0.25

40%
20%

p = 0.001, q = 0.5

0%
1

11

16

Time

21

26

31

Cumulative Sales for Different


p,q Parameters
Market Penetration

50%

40%

30%

20%

p = 0.5,

q = 0.0001

p = 0.1,

q = 0.1

p = 0.01,

q = 0.25

p = 0.001, q = 0.5

10%

0%
1

11

16

Time

21

26

31

Diffusion Curve For Refrigerators


1926-1979
Market Penetration

100%

80%

p = 0.025, q = 0.126
60%

40%

20%

0%
1926

1931

1936

1941

1946

1951

Time

1956

1961

1966

1971

1976

Diffusion Curve For Calculators


1973-1979
Market Penetration

100%

80%

60%

40%

p = 0.143, q = 0.52
20%

0%
1973

1974

1975

1976

Time

1977

1978

1979

Diffusion Curve For Power Leaf


Blowers, 1986-1996
100%

Market Penetration

90%

p = 0.013, q = 0.315

80%
70%
60%
50%
40%
30%
20%
10%
0%
1986

1991

1996

2001

Time

2006

2011

Diffusion Curve For Cell Phones


1986-1996
100%

Market Penetration

p = 0.008, q = 0.421
80%

60%

40%

20%

0%
1986

1991

1996

2001

Time

2006

2011

Example: Satellite Radio


Roughly

160 million potential listeners


Phone Survey (6,000)
96 million not willing to pay fee
Interested, given costs [million]
Subscription Price [$]
Radio [$]

12

10

400

23.7

27.4

27.5

27.6

27.7

300

24.8

28.5

28.7

28.9

29.1

250

26.6

30.7

31.2

31.8

32.6

200

31.5

36.5

37.8

40.5

42.8

150

35.6

41.6

44.1

49.1

53.0

100

45.7

54.0

58.7

68.3

77.8

Source: E. Ofek, HBS 9-505-062, 2005

Analog Products
Product

Portable CD Player

0.0065

0.66

Auto Radio

0.0161

0.41

Cellular Phone

0.008

0.42

Source: E. Ofek, HBS 9-505-062, 2005

Factors For Assessing Analogies

Product Characteristics
Market Structure
Buyer Behavior
Marketing Mix

Deriving M, p, & q from Data


Kt
K

(M K t ) = p + q t (M K t )
M
M

= pM + (q p ) K t Mq K t2

Q t = p (M K t ) + q

= a + bK t cK t2
p =a

M
q = mc

M = b

Compute a, b, and c with Ordinary


Least Square Regression, given
actual sales data

b 2 4 ac
2c

Commercial Software
www.mktgeng.com
www.basseconomics.com

Limits of the Bass Model

Static market potential


Static geographic boundaries
Independence of other innovations
Simple not adopt to adopt framework
Limitless supply
No repeat or replacement sales
Individual decision process neglected
Deterministic

Rogers Five Factors

Relative Advantage
Product performance relative to incumbent

Compatibility
Consistency with existing values/experiences

Complexity
Ease of Use

Triability

Possibility to experiment with product


Observability

Visibility of usage and impact

Example: Segway

Relative Advantage
Compatibility
Complexity
Triability
Observability

Example: Viagra

Relative Advantage
Compatibility
Complexity
Triability
Observability

A-T-A-R

Awareness
Who is aware of the product?

Trial
Who wants to try the product?

Availability
Who has access to the product?

Repeat
Who wants to try product again?

The A-T-A-R Model

Units Sold =
*
*
*
*
*

Market Potential
Percentage aware
Percent who try
Percent who have access
Percent who will repeat
Number of repeats per year

Sources for A-T-A-R Data


Sources for Data
A-T-A-R
Data

Basic
Market
Research

Concept
Test

Product
Use Test

Market size

Best

Helpful

Helpful

Helpful

Helpful

Awareness*
Trial

Helpful

Availability

Helpful

Repeat

Helpful

Best

Component
Testing

Market
Test
Helpful

Best

Helpful
Helpful
Best

Helpful

* Often estimated by ad agency

Best

Helpful

Source: M. Crawford & A. Di Benedetto, New Products Management , 2003

Concept Test

(non tangible product)

A-T-A-R
Data

Concept
Test

Market size

Helpful

Awareness*

Helpful

Trial

Best

Availability
Repeat

Weed out poor ideas


Gauge Intention to purchase

(Definitely (not), Probably (not), Perhaps)


Respondents typically overstate their willingness to purchase
Rule of thumb, multiply the percentage responding

Definitely would purchase by 0.4


Probably would purchase by 0.2
Add up: The result is the % for trial

Learning
Conjoint Analysis

Helpful

Product Use Test


(tangible product)

A-T-A-R
Data

Product
Use Test

Market size

Helpful

Awareness*

Helpful

Trial
Availability
Repeat

Use under normal operating conditions


Learning

Beta testing

Pre-use reaction (shape, color, smell)


Ease of use, bugs, complexity
Diagnosis
Short term use tests with selected customers
Does it wor?

Gamma testing
Long term tests (up to 10 years for med.)

Best

Market Test

A-T-A-R
Data

Market
Test

Market size

Helpful

Awareness*

Helpful

Trial

Helpful

Availability

Best

Repeat

Helpful

Test product and marketing plan


Test Marketing
Limited Geographies (waning importance)

Pseudo Sale, Controlled Sale, Full Sale


Speculative Sale
Full pitch with all conditions

Simulated Test Market


Stimuli, play money, pseudo store
300 600 Respondents, 2-3 months, $50k to $500k

Additional Reading

E. Rogers: Diffusion of Innovations,

G. A. Moore: Crossing the Chasm

5th Edition, 2003

3rd Edition 2002

M. Crawford & A. Di Benedetto,


New Products Management ,
7th Edition, 2003

G. Lilien, P. Kotler, & K.S. Moorthy


Marketing Models

1992, (fairly technical, limited availability)

Tomorrow
Industry

Leaders in Technology and


Management Lecture

James

Dyson

Next Thursday
Simon Pitts from Ford Motor Company
Professional Behavior

Please be on Time!!!

No TAs on site

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