Academic journal article The Journal of Business Forecasting

Sales Forecasting of Products with Very Short Life Cycles

Academic journal article The Journal of Business Forecasting

Sales Forecasting of Products with Very Short Life Cycles

Article excerpt

EXECUTIVE SUMMARY | Rapid technological developments and changes in the market dynamics have not only dramatically shortened the life span of products but also changed the shape of their life cycles. Pre-orders play an important role in determining the success and failure of a new product. In this article, the author describes the changes that have occurred in the life of new products, as well as what steps should be taken for forecasting their demand, particularly of products with a very short life cycle.

New products are the engine of growth. Every six to eighteen months, faster, better, and cheaper hi-tech appliances, gadgets, and computational devices are introduced in the market Although the consumer always benefits from the latest and greatest products, forecasting for high technology and other industries with very short product life cycles is a challenge even for the most experienced brand managers, market researchers, and sales forecasters.ln recent years, market dynamics have significantly changed, and so has the shape of the product life cycle. Due to the advancements in the social media technologies such as Facebook, Twitter, and YouTube, marketers now spend more of their budget in the pre-launch phase, which compresses much of the adoption phase of the product life cycle into the first month of product launch. This radically changes the shape of the product life cycle from a classic S-shaped curve to a more free-form curve, which peaks much earlier in the product life cycle than before. Therefore, in this environment, it is important for forecasters to develop product roadmaps, gather competitive intelligence, and deploy collaborative planning systems to accurately forecast the demand of new products, particularly of those that have a very short product life cycle.

This article explores some of the recent changes that have taken place in marketing products with very short life cycles, as well as steps to be followed for successfully forecasting the demand of a new product with very short life cycle.

BASICS OF PRODUCT LIFE CYCLE MODEL

To understand the change that has occurred in the product life cycle model, it is important to know where we have been and where wearegoing.Therefore, we first define the classic product life cycle model, which separates consumers into five different segments:

1. Innovators

2. Early Adopters

3. Early Majority

4. Late Majority

5. Laggards

These five market segments are translated into four stages of the product life cycle: Introduction, growth, maturity, and decline. (See Figure 1) Innovators are the consumers who seek new experience with technology. Through their experience and "word of mouth," early adopters drive the initial sales growth. Once the technology is accepted as mainstream, growth begins to accelerate. When the late majority adopts, the product enters into its mature phase with slower growth. Finally, the laggard group, the only people on the block without the new technology, adopts, and then the product life cycle is completed.

During the post-World War Il period (1945-1960), sales of new consumer durables followed an S-Shaped pattern over time. However, as new consumer electronic products remained analog devices rather than digital ones, the pace of technological change was relatively slow by today's standards. Frank Bass, a distinguished marketing professor, who taught at Purdue University and University of Texas, was the first to build a product life cycle model for the consumer appliance industry. His model is known as the Bass Diffusion Model. With that, he predicts initial household sales of consumer durable goods category by year.

Although his model was elegant and innovative from a mathematical perspective, it was not quite so good for forecasting. For example, in late 1966, the Bass model predicted that U.S. color television sales would peak at 6.7 million units in 1968. …

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