New Product Development

1
New Product Development

• Forecasting and Business Analysis

2
Overview

• Sales forecast
• Business analysis

3
Sales Forecasting

• Stable/static market
• Dynamic markets/innovations

4
Role of forecasts

• Demonstration of feasibility/ROI
• BEQ FC / (P-VC)
• Is Q gt than BEQ?
• ROI Q (P-VC) FC / I
• Does ROI beat alternatives?
• Planning
• Production
• Marketing
• Future products

5
Challenges to forecasting

• Consumer response
• Attitude-behavior, PI-Beh. inconsistencies
• External validity problems
• Environmental uncertainties
• Demand drivers
• Segments
• Marketing support

6
Stable/static markets

• Market ratio model
• Q Pot x T x Aw x Av x R x U
• Potpotential buyers
• TTrial rate (proportion who will try)
• AwAwareness proportion
• AvAvailability proportion
• RRepeat rate
• UUnits purchased on average

7
Dynamic/growth markets

• Characteristics of innovations that affect
  diffusion
• Diffusion of innovation growth modelsinnovators
  and imitators

8
Dynamic/growth markets

• Diffusion of innovations
• Willingness to adopt innovations
• Relevant factors
• Relative advantage
• Communicability
• Trialability
• Complexity
• Compatibility
• Perceived risk

9
Adoption Probability over Time
10
Dynamic/growth markets

• Bass Model (durables no repeat purchases)
• Trial fn ( initial probability of adoption and
  effect of diffusion)
• P(t)p(o) qY(t-1)/m
• P(t)probability of trial
• p(o)initial probability of adoption
• Y(t-1)total number of people who have bought by
  the end of period t-1
• mtotal number of potential buyers
• qestimated diffusion factor

11
Bass Model

• Sales fn (purchase probability and number of
  people who have not purchased)
• S(t)m-Y(t-1)P(t)
• Thus,
• S(t)p(o)m q-p(o)Y(t-1) (q/m)Y(t-1)2
• Or,
• S(t)p(o) (m-Y(t-1) q Y(t-1)-Y(t-1) 2/m

Innovators plus imitators
12
Bass Model Example
13
Bass Model Estimates
14
Bass Model Estimates

• Factors that affect the values of p and q
• Diffusion factors, especially relative advantage
  for p
• Complexity, communicability, and trialability for
  q
• A study by Sultan, Farley, and Lehmann in 1990
  suggests an average value of 0.03 for p and an
  average value of 0.38 for q.