Economics

Various Approaches of Forecasting Demand for New Products

Forecasting the demand for a new product is entirely different from forecasting demand for an established product. In the case of new products no historical data are available and therefore, the statistical methods cannot be applied. Only an intensive study of the Economic and competitive characteristics of the product in question will provide some guidelines for demand projections in the case of new products. Joel Dean has suggested some approaches for estimating the demand for-a new product. They are described below

1. Evolutionary Approach : In this method the new product is regarded as an outgrowth and evolution of an existing old product. For example it may be assumed that color television is the evolution of black and white television. Black and white TV is an established product and from its demand we can get some idea about the demand for color TV sets.

2. Substitute Approach : In this method the new product is analyzed as a substitute for some existing product. For example synthetic fabrics may be regarded as a substitute for cotton fabrics. In this case controlled laboratory tests can be advertised to impress on the customers the fact that the product is a close and may be an improved version of the substitutes. The demand for the product can be looked out on the basis of a market share, by estimating the total market for all substitutes.

3. Growth Curve Approach: In this method the rate of growth and the ultimate level of demand for the new product is estimated on the basis of the pattern of growth of established product. For example by analyzing growth curves of all established household appliances, a growth curve can be developed for new appliance.

4. Opinion Polling Approach : In this method demand for a new product is estimated by direct inquiry of the ultimate purchasers, either by the use of samples or on a full scale.

5. Sales Experience Approach : In this method the new product is offered for sale in a sample market, say a super-market in a large city. The estimate so obtained then can be ‘below up’ to arrive at the total demand for
the product for all channels.

6. Vicarious Approach : In this method consumers reactions to a new product is surveyed indirectly through the eyes of specialized dealers who are supposedly informed about consumers’ needs and alternative opportunities.
These methods are not mutually exclusive. A combination of several of them is often desirable when they can supplement and check each other. The evolutionary approach is useful only when the new product is so close to being merely an improvement of an existing product that its demand can be a projection of the potential development of the underlying product. The substitute approach is applicable when the new product is a substitute for old product. Most of the new product are substitutes of the old product.

The growth curve approach has narrow applicability and is useful primarily at the later stages of demand projection. Opinion polling or survey of buyers’ intentions has been widely used to explore the demand for new products. Sales experience with a new product on a sample basis, when the experiment is properly controlled, puts estimates of demand on a more solid foundation. Trouble arises, however, in determining what allowance to make for the immaturity of the sample market and its peculiar characteristics.

The vicarious approach is very easy and distressing hard to quantity. Generally, it is usable only as a cheap horse-back sally.

Most used Demand forecasting softwares in United States of America, United Kingdom, Canada and Australia are: QuickBase, Megaventory, SAP Supply Chain Management, Logistically TMS, Infor.

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