Design Evaluation

Design Evaluation
Demand Forecasting
Demand Forecasting

The art of prophecy is very difficult

The art of prophecy is very difficult

especially with respect to the future.

especially with respect to the future.

Mark Twain Mark Twain

40% of New Products Fail
40% of New Products Fail

No Basic Need for Product

No Basic Need for Product

Overall Product Does Not Meet Need

Overall Product Does Not Meet Need

Idea Not Properly Communicated

Idea Not Properly Communicated
Mortality of New Product Ideas
Mortality of New Product Ideas
The Decay Curve
The Decay Curve
N
u
m
b
e
r

O
f

I
d
e
a
s
Time
What it takes
What it takes

A system or process to weed out projects

A system or process to weed out projects

An understanding of how innovations are

An understanding of how innovations are
embraced
embraced
Product Adoption Patterns
Product Adoption Patterns
+2 + +3 -2
-3
-1
L
a
t
e

M
a
j
o
r
i
t
y

3
4

%
Laggards
16%
E
a
r
l
y

M
a
j
o
r
i
t
y

3
4
%
Early Adopters
13.5%
Innovators
2.5%
Time Until Adoption
Early Adopters
Early Adopters

Hi Education, Income, Status, Literacy

Hi Education, Income, Status, Literacy

Empathy, Less Dogmatic, Ability to Abstract,

Empathy, Less Dogmatic, Ability to Abstract,
Rational, Intelligent, Able to Cope with Risk,
Rational, Intelligent, Able to Cope with Risk,
Aspiration, Positive Attitude to Science,
Aspiration, Positive Attitude to Science,

Social Participation, Media Exposure,

Social Participation, Media Exposure,
Information
Information

No Relationship to Age
No Relationship to Age
Innovation vs. Imitation
Innovation vs. Imitation

Innovators are not influenced by who

Innovators are not influenced by who
already has bought
already has bought

Imitators become more likely to purchase

Imitators become more likely to purchase
with more previous buyers
with more previous buyers
Probability of Purchase by New
Probability of Purchase by New
Adaptor in Period
Adaptor in Period
t
t
M
K
q p
t
+
Probability of Purchase
without influence by adopter
Probability of Purchase
through Influence by
Adopter
Influence) External of nt (Coefficie
Adopters by influence w/out Conversion Individual
Influence) Internal of nt (Coefficie
Nonadopter each on Adopter each of Effect
period before adopters of number Cumulative
Size Market
=
=
=
=
p
q
t K
M
t
The Bass Model
The Bass Model
( ) ( ) ( )
t
t
t
t
t t
K M
M
K
q p K M
M
K
q K M p Q

+ = + =
Innovation Effect or External Influence
Imitation Effect or Internal Influence
Influence) External of nt (Coefficie
Adopters by influence w/out Conversion Individual
Influence) Internal of nt (Coefficie
Nonadopter each on Adopter each of Effect
period before adopters of number Cumulative
Size Market
period during adopters of Number
=
=
=
=
=
p
q
t K
M
t Q
t
t
Cumulative Sales for Different
Cumulative Sales for Different
p,q
p,q
Parameters
Parameters
0%
20%
40%
60%
80%
100%
1 6 11 16 21 26 31
Time
p = 0.5, q = 0.0001
p = 0.1, q = 0.1
p = 0.01, q = 0.25
p = 0.001, q = 0.5
M
a
r
k
e
t

P
e
n
e
t
r
a
t
i
o
n
Cumulative Sales for Different
Cumulative Sales for Different
p,q
p,q
Parameters
Parameters
0%
10%
20%
30%
40%
50%
1 6 11 16 21 26 31
Time
p = 0.5, q = 0.0001
p = 0.1, q = 0.1
p = 0.01, q = 0.25
p = 0.001, q = 0.5
M
a
r
k
e
t

P
e
n
e
t
r
a
t
i
o
n
Diffusion Curve For Refrigerators
Diffusion Curve For Refrigerators
1926
1926
-
-
1979
1979
Time
0%
20%
40%
60%
80%
100%
1926 1931 1936 1941 1946 1951 1956 1961 1966 1971 1976
p = 0.025, q = 0.126
M
a
r
k
e
t

P
e
n
e
t
r
a
t
i
o
n
Diffusion Curve For Calculators
Diffusion Curve For Calculators
1973
1973
-
-
1979
1979
Time
0%
20%
40%
60%
80%
100%
1973 1974 1975 1976 1977 1978 1979
p = 0.143, q = 0.52
M
a
r
k
e
t

P
e
n
e
t
r
a
t
i
o
n
Diffusion Curve For Power Leaf
Diffusion Curve For Power Leaf
Blowers, 1986
Blowers, 1986
-
-
1996
1996
M
a
r
k
e
t

P
e
n
e
t
r
a
t
i
o
n
Time
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1986 1991 1996 2001 2006 2011
p = 0.013, q = 0.315
Diffusion Curve For Cell Phones
Diffusion Curve For Cell Phones
1986
1986
-
-
1996
1996
0%
20%
40%
60%
80%
100%
1986 1991 1996 2001 2006 2011
p = 0.008, q = 0.421
M
a
r
k
e
t

P
e
n
e
t
r
a
t
i
o
n
Time
Example: Satellite Radio
Example: Satellite Radio

Roughly 160 million potential listeners

Roughly 160 million potential listeners

Phone Survey (6,000)

Phone Survey (6,000)

96 million not willing to pay fee

96 million not willing to pay fee

Interested, given costs [million]

Interested, given costs [million]
Subscription Price [$]
Radio [$] 12 10 8 5 2
400 23.7 27.4 27.5 27.6 27.7
300 24.8 28.5 28.7 28.9 29.1
250 26.6 30.7 31.2 31.8 32.6
200 31.5 36.5 37.8 40.5 42.8
150 35.6 41.6 44.1 49.1 53.0
100 45.7 54.0 58.7 68.3 77.8
Source: E. Ofek, HBS 9-505-062, 2005
Analog Products
Analog Products
Product p q
Portable CD Player 0.0065 0.66
Auto Radio 0.0161 0.41
Cellular Phone 0.008 0.42
Source: E. Ofek, HBS 9-505-062, 2005

Factors For Assessing Analogies

Factors For Assessing Analogies

Product Characteristics
Product Characteristics

Market Structure
Market Structure

Buyer Behavior
Buyer Behavior

Marketing Mix
Marketing Mix
Deriving M, p, & q from Data
Deriving M, p, & q from Data
( ) ( ) ( )
( )
c
ac b
b M
mc q
M
a
p
cK bK a
K K p q pM
K M
M
K
q p K M
M
K
q K M p Q
t t
t M
q
t
t
t
t
t
t t
2
4
2
2
2

=
=
=
+ =
+ =

+ = + =
Compute a, b, and c with Ordinary
Least Square Regression, given
actual sales data

Commercial Software
Commercial Software

www.mktgeng.com
www.mktgeng.com

www.basseconomics.com
www.basseconomics.com
Limits of the Bass Model
Limits of the Bass Model

Static market potential

Static market potential

Static geographic boundaries

Static geographic boundaries

Independence of other innovations

Independence of other innovations

Simple
Simple

not adopt to adopt

not adopt to adopt

framework
framework

Limitless supply
Limitless supply

No repeat or replacement sales

No repeat or replacement sales

Individual decision process neglected

Individual decision process neglected

Deterministic
Deterministic

Roger
Roger

s Five Factors
s Five Factors

Relative Advantage
Relative Advantage

Product performance relative to incumbent

Product performance relative to incumbent

Compatibility
Compatibility

Consistency with existing values/experiences

Consistency with existing values/experiences

Complexity
Complexity

Ease of Use
Ease of Use

Triability
Triability

Possibility to experiment with product

Possibility to experiment with product

Observability
Observability

Visibility of usage and impact

Visibility of usage and impact
Example:
Example:
Segway
Segway

Relative Advantage
Relative Advantage

Compatibility
Compatibility

Complexity
Complexity

Triability
Triability

Observability
Observability
Example: Viagra
Example: Viagra

Relative Advantage
Relative Advantage

Compatibility
Compatibility

Complexity
Complexity

Triability
Triability

Observability
Observability
A
A
-
-
T
T
-
-
A
A
-
-
R
R

A
A
wareness
wareness

Who is aware of the product?

Who is aware of the product?

T
T
rial
rial

Who wants to try the product?

Who wants to try the product?

A
A
vailability
vailability

Who has access to the product?

Who has access to the product?

R
R
epeat
epeat

Who wants to try product again?

Who wants to try product again?
The A
The A
-
-
T
T
-
-
A
A
-
-
R Model
R Model

Units Sold = Market Potential

Units Sold = Market Potential
* Percentage aware
* Percentage aware
* Percent who try
* Percent who try
* Percent who have access
* Percent who have access
* Percent who will repeat
* Percent who will repeat
* Number of repeats per year
* Number of repeats per year
Sources for A
Sources for A
-
-
T
T
-
-
A
A
-
-
R Data
R Data
Sources for Data
A-T-A-R
Data
Basic
Market
Research
Concept
Test
Product
Use Test
Component
Testing
Market
Test
Market size Best Helpful Helpful Helpful
Awareness
*
Helpful Helpful Best Helpful
Trial Helpful Best Helpful
Availability Helpful Best
Repeat Helpful Helpful Best Helpful
* Often estimated by ad agency
Source: M. Crawford & A. Di Benedetto, New Products Management , 2003
Concept Test
Concept Test
(non tangible product)
(non tangible product)

Weed out poor ideas
Weed out poor ideas

Gauge Intention to purchase
Gauge Intention to purchase
(Definitely (not), Probably (not), Perhaps) (Definitely (not), Probably (not), Perhaps)
Respondents typically Respondents typically overstate overstate their willingness to purchase their willingness to purchase
Rule of thumb, multiply the percentage responding Rule of thumb, multiply the percentage responding
Definitely would purchase by Definitely would purchase by 0.4 0.4
Probably would purchase by Probably would purchase by 0.2 0.2
Add up: The result is the % for trial Add up: The result is the % for trial

Learning
Learning
Conjoint Analysis Conjoint Analysis
A-T-A-R
Data
Concept
Test
Market size Helpful
Awareness
*
Helpful
Trial Best
Availability
Repeat Helpful
Product Use Test
Product Use Test
(
(

tangible
tangible

product)
product)

Use under normal operating conditions

Use under normal operating conditions

Learning
Learning

Pre
Pre
-
-
use reaction (shape, color, smell
use reaction (shape, color, smell

)
)

Ease of use, bugs, complexity

Ease of use, bugs, complexity

Diagnosis
Diagnosis

Beta testing
Beta testing

Short term use tests with selected customers

Short term use tests with selected customers

Does it
Does it
wor
wor
?
?

Gamma testing
Gamma testing

Long term tests (up to 10 years for med.)

Long term tests (up to 10 years for med.)
A-T-A-R
Data
Product
Use Test
Market size Helpful
Awareness
*
Helpful
Trial
Availability
Repeat Best
Market Test
Market Test

Test product
Test product
and
and
marketing plan
marketing plan

Test Marketing
Test Marketing

Limited Geographies (waning importance)

Limited Geographies (waning importance)

Pseudo Sale, Controlled Sale, Full Sale

Pseudo Sale, Controlled Sale, Full Sale

Speculative Sale
Speculative Sale

Full pitch with all conditions

Full pitch with all conditions

Simulated Test Market

Simulated Test Market

Stimuli, play money, pseudo store

Stimuli, play money, pseudo store

300
300

600 Respondents, 2
600 Respondents, 2
-
-
3 months, $50k to $500k
3 months, $50k to $500k
A-T-A-R
Data
Market
Test
Market size Helpful
Awareness
*
Helpful
Trial Helpful
Availability Best
Repeat Helpful
Additional Reading
Additional Reading

E. Rogers:
E. Rogers:

Diffusion of Innovations
Diffusion of Innovations

,
,
5 5
th th
Edition, 2003 Edition, 2003

G. A. Moore:
G. A. Moore:

Crossing the Chasm

Crossing the Chasm

3 3
rd rd
Edition 2002 Edition 2002

M. Crawford & A. Di
M. Crawford & A. Di
Benedetto
Benedetto
,
,

New Products Management

New Products Management

,
,
7 7
th th
Edition, 2003 Edition, 2003

G.
G.
Lilien
Lilien
, P.
, P.
Kotler
Kotler
, & K.S.
, & K.S.
Moorthy
Moorthy

Marketing Models
Marketing Models

1992, (fairly technical, limited availability) 1992, (fairly technical, limited availability)
Tomorrow
Tomorrow

Industry Leaders in Technology and

Industry Leaders in Technology and
Management Lecture
Management Lecture

J ames Dyson
J ames Dyson
Next Thursday
Next Thursday

Simon Pitts from Ford Motor Company

Simon Pitts from Ford Motor Company

Professional Behavior
Professional Behavior

Please be on Time!!!
Please be on Time!!!

No TAs on site
No TAs on site