2. NEW PRODUCT FORECASTING Growth curve fitting

3. S-Curves of Growth  S-Curves are also called  Growth Models  Saturation Models  Substitution Models  Diffusion Models  No other concept presents a more persuasive reason for encouraging innovations in organizations than S- Curves. New Product Forecasting

4. Life Cycles  The life cycles we associate with products are often related to technology life cycles; these cycles have four phases  Slow growth in the embryonic stage  Rapid growth  Slowing growth in the mature phase  Decline during the final phase New Product Forecasting

5. S-Curve Models - Examples  The selection of an S-shaped trend model is a common step to model and forecast:  The diffusion of innovations  The penetration of a market (e.g., with HDTV)  Production situations  Product life cycle situations New Product Forecasting

6. Using Growth Curves To Approximate Nonlinearity We will use two curve fitting techniques: Gompertz Curve Logistics Curve New Product Forecasting

7. Growth Models  When manufacturers introduce an innovation such as HDTV to a population, initially only a small number of adopters buy it.  Gradually this process gathers momentum, the adoptions reach a peak and then decrease as Saturation is reached.  An idealized plot would look like: New Product Forecasting

8. The S-Curve New Product Forecasting

9. Diffusion Modeling  Diffusion Modeling can:  Provide medium and long-term forecasts  Estimate a saturation level  Estimate the time of peak diffusion  New Product Forecasting

10. New Product Forecasting Choosing The Correct Curve  Research has shown that models based on initial data are quite valid in later forecasts if the correct curve and upper limit have been identified.  In general:  If it is harder to achieve a constant improvement as we approach the maximum value, the Gompertz Curve is the better choice.  If there are factors that assist in maintaining improvements then the Logistics Curve is the better choice.

11. New Product Forecasting Growth Models – Saturation Point  The selection of L is as important as the selection of the model type.  It is important to use ALL the data (including the data from the start)  There should be theory that the growth rate varies with time and that the series is likely to reach a saturation point.

12. New Product Forecasting Gompertz Where: L = upper limit of Y e = Natural (or Naperian) number 2.718282 a and b = coefficients describing the curve Where: L = upper limit of Y e = Natural (or Naperian) number 2.718282 a and b = coefficients describing the curve The Gompertz curve ranges from zero to L as t varies from -∞ to + . The L is the “Maximum” value in the ForecastX dialog box.

13. New Product Forecasting Logistics Model Where: L= upper limit of Y e = Natural number 2.718282 a and b = Coefficients describing the curve Where: L= upper limit of Y e = Natural number 2.718282 a and b = Coefficients describing the curve

14. Bass Model  Before Bass (BB): Tarde: 1903 New Ideas  Epidemiology: Disease  Rogers (1962): Bell-Shaped Curve-Innovators and Imitators  “Discussion largely literary”  1999-is 30th Anniversary of Publication of Bass Model, Management Science (1969)

15. Bass Model: 100’s of Applications-An Empirical Generalization Widely Cited Numerous Extensions Published in Several Languages Bass Model

16. The Bass Model S(t)= pm+(q-p)Y(t)-(q/m)[y(T)]2 Where: m=ultimate market potential p=coefficient of innovation q=coefficient of imitation Y = number of previous buyers S = Sales

17. the p tends to be higher. People in collectivist cultures care more about what others think of them and seem to react accordingly. In countries with higher purchasing power, the p tends to be higher. the p tends to be higher. More disposable income makes it easier to adopt innovations; the p tends to be higher. higher values for q. Products that exhibit significant network effects or require heavy investment in complimentary infrastructure (like television and the cellular telephone) will have higher values for q. New Product Forecasting Suggestions for Choosing p and q

18. the p tends to be higher. People in collectivist cultures care more about what others think of them and seem to react accordingly. In countries with higher purchasing power, the p tends to be higher. the p tends to be higher. More disposable income makes it easier to adopt innovations; the p tends to be higher. higher values for q. Products that exhibit significant network effects or require heavy investment in complimentary infrastructure (like television and the cellular telephone) will have higher values for q. New Product Forecasting Suggestions for Choosing p and q

19. Bass Model Example New Product Forecasting

20. Another Bass Model: 35 mm Projectors New Product Forecasting

21. An Extension  Successive Generations of Technologies:  Norton & Bass (87,92)  Generalized Bass Model: Includes Decision Variables:  Prices, Advertising

22. Capture Law- DRAMS Norton and Bass: Management Science (1987) Sloan Management Review (1992) 4K-A = Actual 4K-F = Forecasted 4K-A = Actual 4K-F = Forecasted