If a firm is planning to market a new product and does not have past data on which to rely to project sales, it will have to find out and use other means in an effort to predict probable sales.
The special problem of demand forecasting for new products is that since each new product is to varying degrees, different from existing products, there are no directly relevant data available from past sales on which a forecast may be based. The more the new product is likely to be, the greater the problem. In addition, since a considerable amount of money has to be invested in developing and marketing a new product, we have to consider its sales over an extended period to be more precise over the whole of its expected commercial lifetime. It means that we need to estimate:
(i) the number of years for which the product will be sold and
(ii) the level of sales in each of those years.
There are, of course, a number of techniques available for the purpose. However, the choice of a particular technique depends on the circumstances faced by the forecaster.
There are, of course, a number of techniques available for the purpose. However, the choice of a particular technique depends on the circumstances faced by the forecaster.
1. Market Research
This approach is no doubt, direct and practical. It can be applied for forecasting the demand of industrial goods because the buyers’ criteria are more precisely formulated and more stable.
However, this method is highly impracticable in the case of new consumer goods. It is so because the consumer is, for various reasons, unlikely to be able to assess reliably his own buying behavior in the hypothetical situation presented to him.
2. Test Marketing or Sales Experience Approach
Frequently, a new product such as soap, toothpaste, food-stuff, etc. is put through test marketing, i.e. tested in a sample market in a bid to determine the probable demand for the product. It may be tasted at a particular price or at several different prices by seeing one or more test markets. From the test market results, a projection can be made regarding regional or national sales. The sales experience usually will give green or a red signal for the product.
This approach has been used with success for a wide range of products. However, the success of this method depends on the availability of a representative product for test marketing. This method is not applicable to the earlier stages of product development.
3. Opinion Sampling Approach
Through use of a mail questionnaire, or by making a door survey, one can get some indication of the acceptance of new product. In this case, sampling of the potential customers may be polled directly, or there may be a poll of sources that have a feel of the actual buyer, such as retailers, wholesalers, jobbers and manufacturer representatives. This pool is likely to give some idea of market acceptance and price range. |
4. Evolutionary Approach
5. Substitute Approach
6. Sales Growth Approach
No doubt, demand forecasting represents one of the most challenging aspects of business analysis. Continuous research has been going on in this area. The techniques of forecasting are being retired and have been improved enormously in recent years by the advent of computers. However, the use of sophisticated techniques is not enough. It is essential to exercise judgment and experience while carrying out any forecasting exercise. Techniques can only complement judgment and experience.
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