Difficulty ensues when you try to forecast demand and revenues for new variants of existing products. However, demand planning for radically innovative products in emerging new categories is a completely different, and far more challenging, affair. Without past results and trends to base your predictions on, and a high level of uncertainty about the validity of the demand that the marketing team suggested during the final round of R&D funding. These factors may make developing a demand planning process to be excruciatingly difficult.
The keys to success when it comes to demand planning are collaboration, utilizing all the quantitative and qualitative data available, and implementing a forecasting model that can quickly and easily be updated to generate detailed forecasts for all users across the business.
Here are 10 steps for new product forecasting. All of them are tried and tested practices that other businesses have found to be the best approach to new product forecasting.
Step 1: Form a core group to work on the demand planning process
The first step to successful new product forecasting is to create a team of people from a variety of relevant departments, including marketing, sales, operations, and relevant technical departments. They’ll oversee and be responsible for developing and managing the re-forecasting process through the launch period until this demand planning method becomes more predictable.
Step 2: Analyze and agree upon a set of assumptions
Using market research, market testing, and buyer surveys, your core group should then set about collectively reviewing all the accessible data (both qualitative and quantitative). Using the data, the core group must identify and agree upon a set of assumptions, which can then be the launching pad for forming an initial forecasting model and beginning the demand planning process. The core group should aim to analyze and agree upon assumptions including:
- Number of consumers in the target market
- The proportion of consumers in the target market who are expected to buy the product
- The anticipated timing of their purchase
- Patterns of repeat purchasing and replacement purchasing
The main point here is to allow the core group to use their collective expertise and judgment when analyzing and agreeing upon a set of assumptions.
Step 3: Create granular models
To ensure you are producing the most-accurate demand planning possible, your core group needs to create a forecasting model that is granular enough to show when and how varying segments of the target market may purchase your product and for what price. This is especially important for radically innovative products in emerging new categories, as some consumers may wait up all night to be the first ones to test out the product, whereas others may wait until subsequent versions are released with fixed bugs and a lower price.
Step 4: Generate responsive time periods
The sales that occur in the first few days and weeks of a new product’s life are decidedly significant. These initial days and weeks need to be meticulously monitored to help the core group’s demand planning process continually evolve. Although your sales team may only be interested in monthly data, you’ll still need to commit to producing comprehensive daily forecasts for at least the first quarter.
Step 5: Produce a range of demand planning forecasts
By this point, your core group should have a detailed set of assumptions, and an initial, granular forecasting model that can generate responsive time periods. The next step is to use these initial stages to produce a broader range of demand planning forecasts. As long as you have a demand planning modeling solution that can be quickly recalculated in real-time, this step should be easy. Your range of demand planning forecasts will vary based on your specific product, but be sure to run through a number of iterations, and change a variety of assumptions and probabilities to generate a range of forecasts.
Step 6: Prepare models that preclude delays
A fully integrated forecasting model that needs to be created is one that will preclude delays and shorten the renewal cycle. Any firm’s demand planning needs to have a forecasting model that does several things. First, it must compare existing stock levels across locations. Then, it must automatically generate a detailed replenishment report for each location. This will prevent stock outs from occurring in the most uncertain period immediately after launch, as well as in the future.
Step 7: Utilize a variety of demand forecasting methods
Modeling based on purchasing intentions is an essential primary step, but there are other methods that can be utilized for essential demand forecasting. While different methodologies work for different sectors, all firms can find value in combining different demand forecasting techniques, as it helps amass the most accurate results.
Step 8: Continuously give your demand forecast a reality-check
As more quantitative and qualitative data becomes available, continuously check the demand forecast of your sales against your actual sales and the sales of competitors. This exercise ensures that the demand forecast your core group is working is always grounded in reality. If you are introducing a revolutionary product in an emerging market, this step should also include an assessment of how your firm’s market share may evolve as other competitors enter the space.
Step 9: Re-forecast again and again and again
I suggest re-forecasting daily, especially in the early days of launching. These forecasts should include the results of diligently monitoring sales, and qualitative feedback (such as product reviews, media mentions, and customer feedback). As throughout the previous 8 steps, the members of the core group should analyze and agree on how assumptions in the model may need to change as a result.
Step 10: Have a contingency plan
After all is said and done, it is still essential to have a realistic contingency plan. An increasingly large percentage of new businesses and fresh products fail, so you need to know when it is time to cut your losses. Your core group needs to analyze and agree on what level constitutes “failure” for your product, well before your launch date.
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