Demand Forecasting for the New Products

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.

1. Market Research

The forecaster can carry out market research in various forms. The marketing people may be asked to make different inquiries from the prospective ultimate buyers of the product. On the basis of such inquiries, they may try to discover whether and in what quantities customers are likely to buy the product, using various assumptions as to how, it would be marketed and at what price it would be sold.

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

It takes the form of a trial run of the product in a part of the intended market in conditions as closely similar to those that are expected to prevail if and when the product is ultimately marketed as are possible.

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

This approach is to bring together in a systematic way the informal judgments of executives, sales people, retailers and perhaps friendly customers as to the product’s probable performance.

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

If the product is supposed to be an improvement or has evolved out of an existing product, it can be assumed that the new product may have the same type of experience as that of an existing product. Color television sets, evolved from black and white sets, the jet engine from the propeller engine in aircraft, are the examples. In this manner, one can easily imagine what the demand for work processors will be in the office equipment industry if they became a nearly completely replacement for the electric typewriter.

5. Substitute Approach

If a new product seems to be a close substitute for a well established product, one can estimate what share of the market the new product may get by replacing some of the existing products. A new textbook may be a substitute for one of the many existing textbooks being used. After knowing the total sales, the producer of the new book may be in a position to estimate.

6. Sales Growth Approach

In the absence of the information about a new product, one may reasonably assume that the sales of the new product will simply displace those of an existing product and continue along the growth of distinct established by it. This is likely to be so when the new product is distinct, improvement on the existing one but not so radically different that buyers have learn to accept it. In the case of industrial investment, we assume that now there need to make any substantial investment in hardware or restraining. Alternatively, for consumer products, no changes in domestic habits or social attitudes and values are required.

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.

  Some Related Links:       

• Steps of Demand Forecasting

• Demand Forecasting

• Purpose of Forecasting Demand in a Business Firm

• Different methods of demand forecasting

• Non-statistical methods that is used to forecast the demand for satellite TV signal decoder

• Process of demand forecasting by the time series analysis

• Factors Determining Elasticity of Demand

• Uses of Price Elasticity of Demand in Managerial Decision-making