Content area
Full Text
New product forecasting (NPF) is a recurrent challenge for consumer goods manufacturers and retailers. There are many kinds of NPF situations these organizations can encounter: (1) New to the world products (entirely new types of products), (2) new markets for existing products (such as expanding a regional brand nationwide or globally), and (3) refinements of existing products (such as "new and improved" versions, or package changes).
APPROACHES TO NEW PRODUCT FORECASTING
There are many NPF approaches available to try. Some of the common ones include:
Executive Opinion. Executive management provides a top line revenue number, and the forecasting staff comes up with a product mix to meet the top line target. An extreme version of this is "Evangelical" forecasting, where a charismatic CEO or other leader dictates the forecast and the organization executes to that number. While this approach is efficient (no need for expensive software or an elaborate forecasting process), the executive decree often represents a stretch target or "wish" and not what should be an "unbiased best guess" of what is really going to happen in the future.
Sales Force Rollup. The sales force is surveyed to create a bottoms-up forecast by customer and item. This approach is based on an assumption that the sales force is "closest to the customer," and therefore has special knowledge of future customer demand. Unfortunately, the sales force may have no special insight into future customer behavior, or have any particular forecasting skills. This process is very time consuming, taking away effort that might better be spent building relationships with customers and actually selling. Also, the sales force may purposely bias their forecasts high (to build more inventory) or low (to minimize sales quotas).
Delphi Method. A structured formal process for gathering forecasts and building a consensus. Participants are surveyed, the results are shared (anonymously), and participants are allowed to make adjustments based on the forecasts of their peers. The process may be repeated several times until consensus is reached. While the Delphi Method has theoretical merit, it is not suitable for large-scale forecasting situations (where hundreds or thousands of forecasts are needed), and is rarely used.
Prediction Market. Anonymous wagering is used to gather group opinion. An asset (such as a new product's first year...