Forecasting for Fast New Product Introduction

Article excerpt

Increasingly, companies are seeking speed in new product development..forecasters can contribute in this direction by speeding up the forecasting process...assisting other personnel in carrying out their tasks can also help.

Corporations in the 1990's have entered into a new era as regard to new product introduction. Speed is vital in product development and introduction. In the past, the major concerns have been sales, profits, share of market, return on investment, net present value, and the like. The majority of companies, however, have placed getting products to market rapidly low on their list of priorities. This stance has changed considerably in recent years, however.

Axiomatically, many markets today are intensely competitive. Firms have to move rapidly to beat rivals in the market. Further, the product life cycle has accelerated and shortened, making necessary for having a continuous and rapid succession of new products.

Managers are finding that being first to market can earn them a niche that rivals cannot easily penetrate. Further, because of substantial costs which take place in the introduction period of the product life cycle, shortening this period can substantially reduce the introduction cost. A further advantage of fast new product development is that technology and consumer wants are now so volatile that slow new product introduction may make new offerings obsolete by the time they reach the target market. In short, speed is vital.

HOW CAN FORECASTING HELP?

Figure 1 sets forth the steps that are involved in new product development. Not all companies will follow the same sequence of steps, of course. Further, some will avoid using some of the steps. Others may carry out a step, move on to others, and then come back and repeat the first step. In other words, the process is not always orderly, and can, in fact, be quite chaotic. Nevertheless, the configuration set forth in the Figure is fairly typical for most enterprises that subject their new product ideas to the full gamut of developmental activities.

Note that new product developers use forecasting in the financial analysis step. Therefore, this step consists of estimating the economic magnitude of marketing opportunity for a new product concept. Different firms use different analytical techniques in this process, including break-even, net present value, return on invested capital, and Bayesian decision theory analysis. (Bayesian decision theory uses probability estimates by managers to predict new product outcomes.) Regardless of which technique it employs, management must have sales forecasts. Company personnel will combine these with cost and investment data, in order to estimate the profitability of the new product concept.

There are two major ways in which forecasters can contribute to rapid new product development. One is by speeding up the forecasting process, thereby speeding up the financial analysis step. The other is by cooperating with other company personnel so that they can rapidly complete steps that they normally take after financial analysis.

SPEEDING UP THE FORECASTING PROCESS

If those who prepare the forecast can do their work speedily, this will assist in contributing to fast new product introduction. There are several means whereby the forecasting personnel can make a contribution to this goal. One straightforward process is to choose forecasting methods that can be implemented rapidly. The preferred methods will vary from one company to another, of course. Some firms already have in place skilled personnel, computer models, and procedures that enable them to carry out the forecast process speedily. Assuming that these methods have a track record of accuracy and reliability, they should be given top priority.

One particular method that almost invariably consumes considerable time is test marketing. This step may have to be eliminated if the company is striving for fast new product development. …