Forecast Pro New Product

Approaches to Forecasting New Products
Presented by Eric Stellwagen Vice President & Cofounder Business Forecast Systems, Inc. estellwagen@forecastpro.com
Business Forecast Systems, Inc. 68 Leonard Street Belmont, MA 02478 USA (617) 484-5050 www.forecastpro.com
Eric Stellwagen
Vice President, CEO & Cofounder of Business Forecast Systems, Inc. Coauthor of Forecast Pro product line. Over 25 years in forecasting. Currently serving on the board of directors of the International Institute of Forecasters and on the practitioner advisory board of Foresight: The International Journal of Applied Forecasting.
2011, Business Forecast Systems, Inc.
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What Well Cover

Introductions Replacement & Line Extensions New to Company New to World Summary Q&A
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Types of New Products

There are different types of new products including: Replacement Products Product Line Extensions New to Company New to World The type of new product you are trying to forecast will often dictate what approaches should be considered.
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Replacement Products and Product Line Extensions
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Replacement Products and Product-Line Extensions

When forecasting replacement products or product line extensions you will often want to leverage the data that exists for the predecessor products. Approaches can include: Judgment and Market Research Item Supersession (i.e., mapping histories) Top-down Forecasting
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Item Supersession
You create a forecast history for the new product using the demand histories of predecessor products and the new product. For a replacement product this may be as simple as merging the old products history with the new products history. More complex mapping may be necessary depending on the circumstances.
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Item Supersession Old Product New Product
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Item Supersession
Forecast History
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Top-down Forecasting
Cough Syrup
SKU 1
SKU 2
Etc.
Group-level data is higher volume, will often exhibit more structure and will have a longer demand history than the product line extensions and replacement products. To generate a top-down forecast, you first forecast at the group level using the aggregated history. Then, you forecast at the lower levels. Finally, you apply proportionality factors to lower-level forecasts so that the forecasts sum to the toplevel forecast. Forecasting a product hierarchy was the subject of a previous webinar.
2011, Business Forecast Systems, Inc. www.forecastpro.com
New to Company
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New to Company
When forecasting new-to-company products you obviously dont have internal dataexternal data may or may not be available. Approaches can include: Judgment and Market Research Forecasting by Analogy (looks-like) Assumption-Based Models Market Share Forecasting
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Forecasting by Analogy
Assumes the initial demand pattern will be similar to an analogous products initial demand pattern or to a launch profile that youve created. Can be used with or without historic demand.
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The Launch Profile
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Forecasting by Analogy
Assumes the initial demand pattern will be similar to an analogous products initial demand pattern or to a launch profile that youve created. Can be used with or without historic demand. When used without historic demand, an estimate of the initial sales over a specific period of time (the launch total over the launch horizon) is required. If historic demand exists, the launch total can be estimated using the analogy series cumulative relative percentage.
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Assumption-Based Modeling
Often used for products with long development cycles. The forecast is the result of a set of assumptions. The assumptions are subject to periodic review and revision. The forecasts are never modified directlyonly the assumptions.
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Forecasting Market Share

When entering a new market, organizations will often focus on the market share they expect to capture rather than the unit sales. Market research groups and data providers such as AC Nielsen, IRI and IMS can often provide considerable insight into the size of the current market and its composition. Translating a market share forecast into a unit forecast is usually fairly straightforward.
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New to World
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New to World
New-to-world forecasting is the most challenging of all. Approaches can include: Judgment and Market Research Forecasting by Analogy Assumption-Based Models Diffusion Models (e.g., Bass)
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Diffusion Modeling
Inflection Point
Diffusion models forecast cumulative sales as an elongated S shape.

The Bass Model

Used to forecast first time adoptions of new-to-world products. Captures adoption rates of innovators (early adopters) and imitators. Can be used with or without historic demand data. Requires three parameters, coefficient of innovation (p), coefficient of imitation (q) and number of potential adopters (m). There is a considerable body of literature on the model including coefficients for different types of technologies.
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Summary
The type of new product will often dictate the approach. Judgment and market research play an important role. When forecasting replacement products and/or line extensions you can leverage the data for the predecessor products. When forecasting new-to-company and/or new-to-world products you can leverage experience with similar products or take an assumption-based approach.
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Reference Book
K. Kahn [2006] New Product Forecasting: An Applied Approach, Armonk NY: M.E. Sharpe The above text is an overview of common new product forecasting methods. It is written to be very accessible to the practitioner.
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Forecasting Seminars and Workshops

BFS offers forecasting seminars and product training workshops. Public, on-site, and remote-based (via WebEx) classes are available. Learn more at www.forecastpro.com
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Forecast Pro
Examples from todays Webinar used Forecast Pro. To learn more about Forecast Pro: Request a live WebEx demo for your team (submit your request as a question right now) Visit www.forecastpro.com Call us at 617-484-5050
Questions?
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Thank you for attending!
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Approaches to Forecasting New Products

2011, Business Forecast Systems, Inc.

What Well Cover

2011, Business Forecast Systems, Inc.

Types of New Products

2011, Business Forecast Systems, Inc.

Replacement Products and Product Line Extensions

2011, Business Forecast Systems, Inc.

Replacement Products and Product-Line Extensions

2011, Business Forecast Systems, Inc.

2011, Business Forecast Systems, Inc.

Item Supersession Old Product New Product

2011, Business Forecast Systems, Inc.

2011, Business Forecast Systems, Inc.

2011, Business Forecast Systems, Inc.

2011, Business Forecast Systems, Inc.

2011, Business Forecast Systems, Inc.

The Launch Profile

2011, Business Forecast Systems, Inc.

2011, Business Forecast Systems, Inc.

2011, Business Forecast Systems, Inc.

Forecasting Market Share

2011, Business Forecast Systems, Inc.

2011, Business Forecast Systems, Inc.

2011, Business Forecast Systems, Inc.

Diffusion models forecast cumulative sales as an elongated S shape.

The Bass Model

2011, Business Forecast Systems, Inc.

2011, Business Forecast Systems, Inc.

2011, Business Forecast Systems, Inc.

Forecasting Seminars and Workshops

2011, Business Forecast Systems, Inc.

2011, Business Forecast Systems, Inc.

Thank you for attending!

2011, Business Forecast Systems, Inc.

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