Market Penetration and Diffusion Forecasting
Innovative Products
The ability to estimate consumer acceptance of new products is critical. Market penetration forecasting provides vital input into decisions affecting sales, capital outlays, credit, plant expansion, budgeting, inventory control, production scheduling, marketing strategies and financial planning.
Sales volumes that are significantly below expectations jeopardize cash flow, profitability & other performance-related criteria. On the other hand, sales volumes that significantly exceed expectations strain manufacturing & service functions.
Forecasting the sales of innovative types of products presents unique challenges — beyond those of estimating the business potential of new products in existing categories. Innovative products often:
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Are relatively unfamiliar to potential buyers
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Don't fit conveniently into established product categories
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Are technologically advanced
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May not be introduced for several years
The Bass Model of Diffusion has been widely used to successfully predict the growth rate of numerous new technologies. SMART has unparalleled experience in collaborating with Bass to forecast demand for innovative consumer technologies — including direct broadcast satellite TV and digital satellite radio — in the U.S. and abroad.
The Bass model assumes that there are three stages in the life cycle of a product:
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Initial slow growth as the product is first adopted by innovators
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Rapid growth as the product is accepted by the majority of consumers
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Eventual saturation
Innovators have great importance in the early stages of new product adoption. Innovators decide to adopt an innovation independently of others, and will spread the idea to ultimate users or adopters.
SMART Case Study: DirecTV: Forecasting Diffusion of a New Technology Prior to Product Launch Abstract SMART conducted research for planning the launch of a satellite television product, leading to a prelaunch forecast of subscriptions of satellite television over a five-year horizon. The forecast was based on the Bass model. We derived parameters of the model in part from stated-intentions data from potential consumers and in part by guessing by analogy. The 1992 forecast of the adoption and diffusion of satellite television proved to be quite good in comparison with actual subscriptions over the five-year period from 1994 through 1999. |
Innovating firms therefore need to understand the characteristics (e.g., attitudes, behavior, lifestyles, media usage, demographics) of likely innovators & early adopters, and direct communications specifically to them.
The characteristics of the innovation also affect its rate of adoption. Some products catch on almost overnight, whereas others take a long time to gain acceptance. Five traits are especially important in influencing the rate of adoption of an innovation:
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Relative Advantage — the degree to which it appears superior to existing products
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Compatibility — the degree to which it matches the values and experiences of the individuals in the community
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Complexity — the degree to which it is relatively difficult to understand or use
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Divisibility — the degree to which it may be tried on a limited basis
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Communicability — the degree to which the results of its use are observable or describable to others
Other aspects of new technologies that influence the rate of adoption include: initial costs, ongoing costs, risk & uncertainty, scientific credibility, and social approval.
SMART researches these new product characteristics so you can give maximum attention to the key factors impacting the rate of adoption.
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