New product forecasting

The definition of a new product can vary. It may be an entirely new product which has been
launched, a variation of an existing product (“new and improved”), a change in the pricing
scheme of an existing product, or even an existing product entering a new market.

Judgmental forecasting is usually the only available method for new product forecasting, as
historical data are unavailable. The approaches we have already outlined (Delphi, forecasting by
analogy and scenario forecasting) are all applicable when forecasting the demand for a new
product.

Other methods which are more specific to the situation are also available. We briefly describe
three such methods which are commonly applied in practice. These methods are less structured
than those already discussed, and are likely to lead to more biased forecasts as a result.

Sales force composite

In this approach, forecasts for each outlet/branch/store of a company are generated by

salespeople, and are then aggregated. This usually involves sales managers forecasting the
demand for the outlet they manage. Salespeople are usually closest to the interaction between
customers and products, and often develop an intuition about customer purchasing intentions.
They bring this valuable experience and expertise to the forecast.

However, having salespeople generate forecasts violates the key principle of segregating
forecasters and users, which can create biases in many directions. It is common for the
performance of a salesperson to be evaluated against the sales forecasts or expectations set
beforehand. In this case, the salesperson acting as a forecaster may introduce some self-serving
bias by generating low forecasts. On the other hand, one can imagine an enthusiastic salesperson,
full of optimism, generating high forecasts.

Moreover a successful salesperson is not necessarily a successful nor well-informed forecaster.

A large proportion of salespeople will have no or limited formal training in forecasting. Finally,
salespeople will feel customer displeasure at first hand if, for example, the product runs out or is
not introduced in their store. Such interactions will cloud their judgement.

Executive opinion

In contrast to the sales force composite, this approach involves staff at the top of the managerial
structure generating aggregate forecasts. Such forecasts are usually generated in a group meeting,
where executives contribute information from their own area of the company. Having executives
from different functional areas of the company promotes great skill and knowledge diversity in
the group.

This process carries all of the advantages and disadvantages of a group meeting setting which we
discussed earlier. In this setting, it is important to justify and document the forecasting process.
That is, executives need to be held accountable in order to reduce the biases generated by the
group meeting setting. There may also be scope to apply variations to a Delphi approach in this
setting; for example, the estimate-talk-estimate process described earlier.

Customer intentions

Customer intentions can be used to forecast the demand for a new product or for a variation on
an existing product. Questionnaires are filled in by customers on their intentions to buy the
product. A structured questionnaire is used, asking customers to rate the likelihood of them
purchasing the product on a scale; for example, highly likely, likely, possible, unlikely, highly
unlikely.

Survey design challenges, such as collecting a representative sample, applying a time- and cost-
effective method, and dealing with non-responses, need to be addressed.9

Furthermore, in this survey setting we must keep in mind the relationship between purchase
intention and purchase behaviour. Customers do not always do what they say they will. Many
studies have found a positive correlation between purchase intentions and purchase behaviour;
however, the strength of these correlations varies substantially. The factors driving this variation
include the timings of data collection and product launch, the definition of “new” for the product,
and the type of industry. Behavioural theory tells us that intentions predict behaviour if the
intentions are measured just before the behaviour.10 The time between intention and behaviour
will vary depending on whether it is a completely new product or a variation on an existing
product. Also, the correlation between intention and behaviour is found to be stronger for
variations on existing and familiar products than for completely new products.

Whichever method of new product forecasting is used, it is important to thoroughly document

the forecasts made, and the reasoning behind them, in order to be able to evaluate them when
data become available.

Use affordable market research techniques

Large companies use sophisticated market research techniques, but there are affordable methods
you can use to help you project sales of your new product.

Rikely, who advises companies in Vancouver on improving their sales performance, offered the
following tips for putting together your sales forecast.

Ask your sales team

Sales representatives know your market intimately, including what your competitors are doing.
Your customer service team will also have insights into the potential of a new product. Discuss
your project with them and get their help in estimating how many units you can move in the
initial months as well as what the ramp up rate might be. As an added bonus, their participation
may make them feel more engaged in the successful launch of the product.
Seek other sources of intelligence

Talk to trusted customers, suppliers and sales partners such as dealers or distributors to get their
take on how the product will do in the first year. “You can say: We’re thinking of doing
something along these lines, what do you guys think?” Rikely says. “It’s amazing what people
will tell you if you ask.”

Consider primary research

Primary market research involves such techniques as conducting surveys, organizing focus
groups and observing customers. It can produce valuable insights into potential customer
demand for your new product, but it involves a commitment of time and money. To make your
investment worthwhile, it’s a good idea to hire a market research professional to guide you.

Start with a pilot project

It often makes sense to test your product on a small scale before rolling it out to all potential
customers. You could try it out with a small number of sales reps to gauge market reaction,
Rikely says. “Use the information to rejig the product and your marketing. And then do a full
launch.”

Monitor your results and adjust

Your initial sales forecast for a new product will involve a lot of guesswork, which is why you
should adjust your forecast as soon as you get actual sales results.

That means you have to be disciplined about monitoring sales on a monthly basis. The first few
months will give you crucial information about product pricing, production and overall customer
reaction, Rikely says.

“Every month you need to be looking to see if you’re on track with your forecast. If you’re not,
you want to figure it out sooner so you can take action, rather than at the end of the year when
it’s too late.”

Disciplined research pays dividends

Rikely says some disciplined research before the launch and during the first year can pay huge
dividends in producing a sales forecast that will support a new product’s success.

“Sometimes our gut instinct is spot-on, but sometimes it’s not,” she says. “Anytime you can put
some science and numbers, some discipline, into your decision-making, it’s a good thing.”