Marketing Decision Making (MKDM)

New Product Demand Forecasting

Session 4

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New Products
» An average of 30,000 new products launch each year – Nielsen

» “75% of consumer-packaged goods fail to earn even $7.5 million during their
first year
 Less than 3% of new consumer packaged goods exceed first-year sales of
$50 million—considered the benchmark of a highly successful launch”

» “On average, launching a new SKU costs between Rs 8 crore and Rs 10 crore.
It could go up to Rs 15 crore in some cases. This includes the cost of research
trials, promotions and marketing budgets,” Sanjay Singal, General Manager,
Marketing, Dabur.

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New Product Demand Forecasting Methods
» Best Guess

» Secondary Data

» Qualitative (focus groups)

» Live Test Markets (In Montreaux Case – it costs $3 million)

» Simulated Test Marketing

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Popular Approaches for Demand Forecasting
» BASES

» ASSESSOR

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» ACNielsen BASES, an operating unit of the ACNielsen Corporation is one of
the world’s foremost marketing research firms and is a worldwide leader in
 Simulated Test Marketing

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BASES is the predominant Simulated Test Market supplier with
80% market share in the U.S. and 65% market share globally.

ACNielsen All Others ACNielsen BASES All Others

BASES in US Combined Internationally Combined
20% 35%

BASES BASES
80% 65%
Accuracy of the BASES Model is Well Established

1700

971
532
100
85
Source: The Nielsen Company 26

1,714

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Combines Consumer Responses with Planned Marketing

What
Volume consumers Volume Estimate
Forecast actually do

Promotion/in-store activity
Adjust for what
Impact of
Marketing
marketers do to Distribution
Support influence
consumers Awareness

Measure Remove
Consumer
Interested Universe
consumer bias
Perception factors
Adjust for Overstatement

Total What
Addressable consumers say
Market they will do Consumer Claims

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Scale Used to Obtain Consumer Data
 Purchase intent: how likely is a respondent to purchase the item in question?

 “Top box” analysis – turns question into nominal yes/no

– X% of “Definitely purchase” plus Y% of “Probably purchase” = purchase, others = no purchase
BASES Framework

» Scores are compared, using Nielsen’s extensive database.

» Nielsen’s database includes:

• 12,000 concepts and 3,900 products
• Scores differing by category.
• Example: 10% of consumers stating “definitely would buy” is good for a kitchen
cleaner but poor for a cookie.
Sample Ad
Case Discussion
Objectives Key Decisions

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NPD Funnel

NPD Group, R&D team, Ad • Internal team meetings

Agency • 45 ideas that merited further testing

• Four of the success drivers – Distinct Proposition, Attention Catching,

BASES Idea Screening Need/Desire and Advantage
• Narrowing 45 ideas to 12 ideas

• Concept images, messaging, varieties and prices developed. Online

BASES Snapshot Concept Test evaluations by consumers 5 dark chocolate with 3 fruit concepts.
• Further line optimization narrowed it to 2 dark chocolates (70% and 90%)

Prototype development • 3 fruit concepts with 2 levels of cocoa and 2 size levels

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NPD Funnel

• Headline descriptions and samples.

Focus Groups • 70% cocoa preferred, 3 fruit flavors, Perception of healthy

• 4 seventy percent cocoa dark chocolate with alternative positioning (health

Second BASES Snapshot vs. taste) and packaging (3.5 vs 5 oz).
Concept Test • Online data from 200 consumers per concept
• 5 oz. stand up pouch with healthy positioning is the winner.

• Sample shipped to consumer interested in the chocolate category (70%

cocoa with new stand-up pouch with healthy messaging)
BASES II Testing • Product experience (buying intentions, frequency, quantity, price/value
assessments)
• X% would definitely buy, Y% would probably buy

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BASES Methodology
» Calculate the trial rate

» Based on awareness and distribution rates, calculate the total trial households

» Include repeat purchases to estimate total purchases (trial + repeat)

» Calculate sales revenue, taking distributor margin and prices into account

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Steps
Trial Rate = Marketing-Adjusted Trial Rate Trial Households =
“Definites” * 80% + = Trial Rate * % Awareness * % Households * Marketing-
“Probabales” * 30% (ACV) Distribution * Penetration Adjusted Trial Rate

Repeat Volume =
Total Purchases = Retail Sales Value =
Trial Households * % of
Trial Purchases + Repeat Retail Selling Price * Retail Sales
Households Repurchasing *
Purchases Volume
Repeat Purchase Occasions

Manufacturer Sales Value =

Retail Sales Value * 0.65
(NPD team assumed that
Montreaux would sell its
product for 65% of the MSRP)

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Data – Exhibit 5
Trial Purchase Rate Repeat Rate by Product
» Definitely would buy – 23%  Mediocre Product – 28%
 80% of “definites” buy  Average Product – 33%
» Probably would buy – 40%  Excellent Product – 38%
 30% of “probables” buy
» U.S. Households (MM) – 120 million
» Percentage of chocolate users – 92 % Repeat Purchase Occasions
(Units) – 4
Marketing Plan adjustments
» Awareness Price
 Low support – 14%, Medium support – 17%, High
Support – 20% » Retail Price - $4.49
» ACV Distribution » Montreaux sells at 65% MSRP
 Low – 60%, Medium 65%, High – 79%

If the firm were to launch an excellent quality product with medium awareness support but high level of distribution,
will it cross the management target of $30 M?

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Student Estimates

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Forecasted Demand
» 1. Trial Rate = 23% * 80% + 40% * 30% = 30.4%
» 2. Marketing Adjusted Trial Rate = 30.4% * 17% * 79% * 92% = 3.76%
» 3. Trial Households = 3.76% * 120M = 4.5 M
» 4. Repeat Volume = 4.50 * 38% * 4 = 6.85 M
» 5. Total Purchases = 4.50 M + 6.85 M = 11.34 M
» 6. Retail Sales = 11.34M * $4.49 = $51M (approximately)
» 7. Apollo Sales = $51M * 65% = $33.1M

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 Summary of Various Scenarios

Mediocre Product Average Product Excellent Product

Sales ($ MM) Sales ($ MM) Sales ($ MM)

% of Households Repurchasing
28% 33% 38%
Low (Awareness and ACV) 14%/60%
$17.4 $19.1 $20.7
Medium (Awareness and ACV) 17%/65%
$22.9 $25.1 $27.3
High (Awareness and ACV) 20%/79%
$32.8 $35.9 $39.0

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Discussion
» Launch Decision

» Why Do you Need Nielsen for this Approach?

» What are the Drawbacks of BASES?

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Practice Problem
Trial Purchase Rate Repeat Rate by Product
» Definitely would buy – 30%  Mediocre Product – 25%
 80% of “definites” buy  Average Product – 30%
» Probably would buy – 40%  Excellent Product – 35%
 40% of “probables” buy
» U.S. Households (MM) – 125 million
» Percentage of chocolate users – 80 % Repeat Purchase Occasions
(Units) – 4
Marketing Plan adjustments
» Awareness Price
 Low support – 15%, Medium support – 20%, High
Support – 25% » Retail Price - $4
» Distribution » Manufacturer sells at 60% of the MSRP
 Low – 60%, Medium 70%, High – 80%

If the firm were to launch a mediocre quality product with low awareness support but high level of distribution, will it
cross the management target of $30 M?

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Break!

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ASSESSOR Model: Objectives
• Predict new product’s market share, and sales volume over time before test marketing or
national launch

• Estimate the sources of the new product’s share, which includes “cannibalization” of the
firm’s existing products, and the “draw” from competitor brands

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Overview of ASSESSOR Modeling Procedure

Consumer Research Input Management Input

(Laboratory Measures) (Positioning Strategy)
(Post-Usage Measures) (Marketing Plan)

Preference
Model

Draw &
Brand Share
Cannibalization Diagnostics
Prediction
Estimates

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Data Collection
Design Procedure Measurement
O1 Respondent screening and recruitment (Personal Criteria for target group identification (e.g.,
interview) product class usage)
O2 Premeasurement for established brands Composition of evoked set, attributes and
ratings, previously purchased brands and
preferences

X1 Exposure to advertising for established and new brand

[O3] Measurement of reactions to advertising material Recall Likeability, etc. of ad material

X2 Simulated shopping trip and exposure to display of new

and established brands
O4 Purchase opportunity Brand(s) purchased
X3 Home use or consumption of new brand
O5 Post usage measurement Usage rate, satisfaction ratings, preferences

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Preference Model

» Use O2 and O5 data for all respondents– Preference before the new brand
introduced, and preferences after the consumption of new brand
» Probability that respondent i purchases brand j

Vij
Lij 
V
kCi
ik

Vij  participan t i' s stated preference for product j measured on a suitable scale
Lij  an estimate of the probabilit y that participan t i will purchase product j
Ci  the considerat ion set of customer i
Details of the Preference Model
» Mind share for brand j is
 Adding the purchase probabilities for brand j across individuals and
dividing it by the total number of respondents in the study

1 
Mj 
N
i Lij  *100

 The share obtained is an optimistic forecast because not everyone in the

market is aware of the product
Summary
» NPD Funnel and Forecasting demand

» BASES and ASSESOR are two of the most popular methods

» Assessor model does not rely on historical benchmarks in providing its

forecasts. Instead, it uses the individual's competitive set and product trade-
offs in order to create a custom model, regardless of category.
 As the market for STM within CPG became saturated, the major players began applying their
services to other industries such as services (e.g., financial, insurance), durables (e.g.,
automobiles), pharmaceuticals and health care, and even areas such as alcoholic beverages,
IT, publishing, telecommunications, and leisure

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