Lecture 9: Focus on Sales Forecasting and Financial Analysis
Challenges:
Target users often lack knowledge or may not disclose information.
Poor execution of market research can lead to inaccurate data.
Market dynamics create uncertainties, complicating forecasts.
Internal attitudes can bias the financial analysis.
Inadequate accounting may lead to misjudgment.
Rushing products to market can result in flawed forecasting.
Dependence on historical data can be misleading in volatile markets.
Rapid technological changes introduce unpredictability.
Successful Predictions (1967):
Artificial organs available by 1982.
Human organ transplants expected by 1987.
Credit cards largely replacing currency by 1986.
Automation predicted in industries and management decisions by 1987.
Lunar landing anticipated by 1970.
Urbanization projected with three of four Americans living in cities by 1986.
Recreation and entertainment expenditures expected to double by 1986.
Failed Predictions (1967):
Permanent base on the moon was thought possible by 1987.
Manned landings on other planets expected by 1980.
Urban living largely in high-rises anticipated by 1986.
Cars banned from city centers by 1986.
Laboratory creation of primitive life expected by 1989.
Full-color 3D TV availability globally anticipated.
Statistic: About two-thirds of forecasts were ultimately accurate.
Forecasting Based on Market:
Current Product Technology:
Focus on cost reductions and process improvements.
Use sales analysis for forecasting.
New Product Technology:
Focus on line extensions.
Use product line and life cycle analysis for forecasting.
New Market Opportunities:
Identify new product uses or markets.
Utilize customer and market analysis.
Forecasting types include scenario analysis for innovative products.
Source: K. B. Kahn’s contributions in the PDMA Handbook.
Improvement Strategies:
Enhance the process for existing products.
Apply life cycle concepts to financial analysis.
Reduce reliance on unreliable forecasts.
Focus on what is known rather than assumptions.
Evaluate the situation rather than just numeric outcomes (e.g., Campbell Soup example).
Commit to low-cost development and marketing strategies.
Prepare for associated risks in product launches.
Avoid a one-size-fits-all approach in financial analyses.
Improve financial forecasting methods continually.
Methodology:
Use top-two-box scores from concept testing, adjust accordingly.
Scores Breakdown:
Definitely buy: 5%
Probably buy: 36%
Calibrated Actual Buy Rates:
80% of 'definitelies' become purchases.
33% of 'probablies' become purchases.
Forecasted Market Share Calculation:
Market share = (0.8)(5%) + (0.33)(36%) = 16%.
Model Assumptions:
Assume awareness = 90% and availability = 67%.
Trial rate = 16%: proportion of aware and available consumers who try the product.
Key Ratios:
RS (switching proportion) = 70%.
Rr (repeat purchase proportion) = 60%.
Calculation for Long-Run Repeat Purchase:
Rt = RS / (1 + RS - Rr) = 63.6%.
Market Share Calculation:
Market Share = Trial x Rt x Awareness x Availability = 16% x 63.6% x 90% x 67% = 6.14%.
Results Display:
Bar chart indicates success rates and proportions based on the A-T-A-R model.
Values presented in context of market share outcomes and forecasts.
Sales Forecasting Over Time (in $000s):
Values presented for years indicating projected sales from year 0 to year 10, showcasing growth dynamics.
Stages of Financial Analysis:
5 Stages:
Concept generation
Concept/project selection
Full screening
Market testing
Evaluation of market life and consumer response.
Completeness of Financial Analysis illustrated in life cycle graph (0% to 100%).
Critical Factors for Evaluation:
Strategic Fit: Alignment with corporate vision.
Customer Fit: Efficacy in meeting consumer needs.
Consumer Fit: Addressing unmet needs effectively.
Market Attractiveness: Uniqueness in the competitive landscape.
Technical Feasibility: Practical and protectable concepts.
Financial Returns: Assessment on breaking even in an appropriate time frame.
Source: Erika B. Seamon on Innovative Culture in New Product Development.