Methods of Demand Forecasting For New Products

Demand forecasting of new product is more difficult than forecasting for existing product. The reason is that the product is not available. Hence, no historical data are available. In these conditions the forecasting is to be done by taking into consideration the inclination and wishes of the customers to purchase.

For this a research is to be conducted. But there is one problem that it is difficult for a customer to say anything without seeing and using the product before. Thus it is very difficult to forecast the demand for new products.

 Prof. Joel Dean has suggested the following methods for forecasting demand of new products:

  1. Evolutionary approach: This method is based on the assumption that the new product is the improvement and evolution of the old product. The demand is forecasted on the basis of the demand of the old product. For example, the demand for black and white TV should be taken in to consideration while forecasting the demand for colour TV sets because the latter is an improvement of the former.
  2. Substitute approach: Here the new product is treated as a substitute of an existing product, e.g. jute bags for polythene bags. Thus the demand for a new product is analysed as a substitute for some existing goods or service.
  3. Growth curve approach: Under this method the growth rate of demand of a new product is estimated on the basis of the growth rate of demand of an existing product. Suppose Pears soap is in use and a new cosmetic is to be introduced in the market. In this case the average sale of Pears soap will give an idea as to how the new cosmetic will be accepted by the consumers.
  4. Opinion poll approach: Under this method the demand for a new product is estimated on the basis of information collected from the direct interviews (survey) with consumers.
  1. Sales Experience approach: Under this method, the new product is offered for sale in a sample market, i.e. by direct mail or through multiple shop or departmental shop. From this the total demand is estimated for the whole market.
  1. Vicarious approach: This method consists of surveying consumers’ reactions through the specialised dealers who are in touch with consumers. The dealers are able to know as to how the customers will accept the new product. On the basis of their reports demand can be estimated.

The above methods are not mutually exclusive. It is desirable to use a combination of two or more methods in order to get better results.

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By Hassham

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