Forecasting New Product Performance Like A Meteorologist
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Forecasting Product PerformanceLike A Meteorologist
ProductCamp Boston 2012
#pcampBoston
A.Chakravarty 6/9/2012
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Problems are just as frustrating…
Jim Kosek – Funny Weather VideoThree Key Forecasts related to Product Mgt:• Domino Effect – Power outages, Traffic backup, Black Ice• Redundancy Effect - Snow Drifts, Windy• Anticipated Failure – Heavy Snowfall
http://www.youtube.com/watch?v=Awwg0SO4Nck
PPT Notes provide addt’l information.
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Workshop Overview• Forecasting – why is it important
• Forecasting Impacts Decisions
• Limitations
• Metrics & Data
• Methods & Techniques
• Leveraging forecasts workshop
– Key Product Metrics
– Internal partnering for product success
– Method and Technique
Review – 20 min.
Case – 25 min.
DISCLAIMER: This session will not discuss how you should forecast, but you should walk away having a better understanding of what to think about and the complexity of good forecasting for new products.
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New Product Forecasting• Error Rates are HIGH!
• So Why Forecast?
1. New Product Development and Forecasting Problems. R. Simon, Journal of Business Forecasting 2009-2010.
Error rate in Guessing a Coin Toss (50%)
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Forecasting – Why?New Product Development (NPD)
On average ~20% of company sales are New Products1
Newer products typically command higher profit margins1
In the US, 50% of revenues and 40% of profits are from New Products1
~26% of revenue from Engineering companies are from products < 3 years old1
~70% of today’s manufactured goods will be obsolete in 6 years1
In Fashion and High Tech that’s closer to 2 years1
35%-45% of New Products fail immediately2
According to Herb Baum, Former CEO of Campbell Soup Company, in consumer business, “80% of all new products fail, only 4% reach the 20 MM level and 0.5% break the 100MM mark.”3
1. New Product Forecasting 2006. M. Singh. MIT2. Doing it Right: Winning with New Products. R. G. Cooper. Product Management Institute 2006.3. Journal of Business Forecasting C. L. Jain, Editor. Winter 2009-2010.
Reduce Market Costs of Failed Products
Drive Sales & Profit
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Forecasting Impacts Decisions
Product Launch
Sales Support
See Notes
Cover/Clothing
Time/Resources
Emergency Planning
Event Planning
Weather Forecastslet us decide:
Product Forecasts let us decide:
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Forecasting NPD Limitations
Short term Accuracy
Significant data collection
Many data points
Change Impact
New patterns emerge
Long term Impacts
Weather ForecastsAre limited:
Product ForecastsAre limited:
High failure rate
Almost no accuracy
Data collection is sparse, erratic, and not necessarily sales drivers
Incomplete/Unknown data points
Product Change Impact
Environment Change Impact, game theory, competitive pressures
Long term Impacts are strategic only
Forecasting is difficult!
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Metrics for Product ManagersQ
uanti
tati
ve
Metr
ics • Empirical
Data• e.g. Sales• Unique
Visitors• Subjective
Data• Market
Research• Surveys
Qualit
ati
ve
Metr
ics • Subjective Data
• Delphi• Sales Force
Composite• Focus Groups
• Pattern Data• Pattern
Recognition• Look-Alikes• Scenario Analysis
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Metrics for Business
Product Metrics
Decrease Expenses
Increase Revenues
Business Metrics
Product metrics must impact a business metricProduct metrics need to be translated into a P&L statement
Example: Unique Visitors X Est. Avg Revenue per Visitor = Revenue
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Persistence Today = Tommorrow
Trends – Nowcasting Extrapolation of current variables
Climatology Historical Extrapolation
Analog Patterns Looks like June 6th, 1874 so…, Scenarios, Looks-Like
Numerical Weather Predictions Computationally heavy, multi-variable predictive algorithms – many
variations
Basic Meteorological ForecastingKey Weather Forecasting Techniques:
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Methods & TechniquesThree broad sets capture dozens of methods
1. Managing the Mysterious: How to Forecast New Products. Logistics Summit & Expo, Mexico 2010. Kenneth Kahn
2. New Product Forecasting 2006. M. Singh. MIT
57%44%
39%
14%
30%
19%15%
MktResearch
ExecutiveJury
Sales ForceComposite
ScenarioAnalysis
Looks-LikeAnalysis
Trend LineAnalysis
MovingAverage
Subjective QuantitativeMktResearch
Top methods used are shown by percentage
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Some things to keep in mind to forecast
• Timeframe
• Assumptions
• Units of Measure – atomic
• Project Timeline and Milestones – including failure to meet impacts
• Ongoing, Cost Structure Estimations (for P&L Pro-Forma development)
• Risks & Mitigation
• Estimation technique for revenue or cost savings
• Revenue Derivation algorithm
• Validation & Assumptions Check
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Workshop Preparation…
• TASK 1: Break out into groups of 2-5 people each and introduce yourselves.
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THE FORECAST CASEWORKSHOPWeatherCommerce.com is a clicks-only online business that sells Thermometers, Barometers, Hygrometers, and Weather stations. The site has recently launched a new ecommerce sales engine to sell a new line of product – the Baltimore Weather Gauge. We need to forecast product performance post launch for 12 months.
• TASK 2: Each team take 5 minutes and create a list of 3-5 Key Product Metrics to measure new launch success for the Baltimore Weather Gauge
EXAMPLES:
• Monthly Sales (Units Sold) for 12 Months
• Monthly Sales ($) for 12 months
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THE FORECAST WORKSHOP
• TASK 3: Each team takes 5 minutes to list 3-5 Key Resources and Key Deliverables that they would reach out to develop their forecast.
EXAMPLES:
• Marketing - Customer Market Survey, Realistic Price Points, Existing Customer Interest
• Ecommerce Sales Operations – Site Traffic and Conversion Rates for similar products.
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THE FORECAST WORKSHOP
• TASK 4: Each team takes 5 minutes to list one method they would rely on to forecast – and a quick justification of why they would choose it.
• Note: There are no right or wrong answers. Many companies use up to 3 methods at the same time for validation and cross-check.
EXAMPLE:
• Online Market Surveys –With many existing customers through an ecommerce platform, we can quickly gauge product sentiment.
YOUR ORGANIZATION
• TASK 5: What techniques would you use for your company’s products?
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THANK YOU!
Ananda S. Chakravarty
@achakravartyhttp://www.linkedin.com/in/anandachakravarty