CHAPTER 11:

SALES FORECASTING AND

FINANCIAL ANALYSIS
New Products Process
LEARNING OBJECTIVES:
• How to make judgments on the
financial merits of new products?
• What is the depth issue of sales
forecasting?
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SALES FORECASTING
FOR NEW PRODUCT
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SALES FORECASTING
FOR NEW PRODUCT
• this is typically the responsibility of the
marketing person on the new product
team
• sales is projected over the next
several planning periods, assess costs,
make profit projections, and calculate
key financial benchmarks such as net
present value or internal rate of return.
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SALES FORECASTING
FOR NEW PRODUCT
• participants on the team have a
greater input in providing the
costs and other data that will
make up the financial analysis.
✓ manufacturing engineers, R&D
people, financial and
accounting specialists, etc
Chapter 10 6

SALES FORECASTING
FOR NEW PRODUCT
• One of the hardest challenges in
financial analysis is developing a
reasonable sales forecast,
especially for a very new product
based on rapidly advancing
technology.
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• Considerations when developing

the sales forecast :
1. A product’s potential may be
extremely high, but sales may
not materialize due to
insufficient marketing effort.
➢ The A-T-A-R model will help us
adjust sales forecasts based on
awareness and availability
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2. Sales will grow through time if

we successfully get customers to
try the product and convert many
of these customers into:
✓ repeat purchasers, if they
pass along favorable word of
mouth to their friends,
✓ if greater demand encourages
more dealers to stock the
product, and so on.
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3. We should recognize that our

product’s sales will depend on our
competitors’ strategies and
programs as well as our own.
FORECASTING SALES
USING
TRADITIONAL
METHODS
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• Many standard techniques, such as those shown in Figure 11.2, can be taken to
forecast a new product’s sales at this early phase in the new products process.
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• In addition to the considerations of time and cost, one should also consider product and
market newness when selecting the most appropriate forecasting model.
FORECASTING SALES
USING
PURCHASE
INTENTIONS
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• Think back to concept testing (Chapter 9).

• We gathered purchase intentions from respondents. When
presented with a concept, they were asked (typically using a 5-
point scale) to state their likelihood of purchasing that product if
it were made available.
• As mentioned at that time, it is common to look at the top-two-
boxes totals (the number of customers who stated they would
either definitely or probably buy the product). This measure can
be refined and calibrated through experience.
FORECASTING SALES
USING
THE A-T-A-R MODEL
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• This simple model can be used to construct a sales or profit

forecast, and market researchers long ago pushed the early,
simple models into far more powerful forecasting devices.
• A-T-A-R that is commonly used in forecasting market share
• long-run market share can be expressed as:
CHAPTER 12:
PRODUCT
PROTOCOL
New Products Process
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• Protocol Preparation - something currently

has no standard form, no accepted name, and
no established practice. But most firms are
doing part of the task, a few all of it, waiting
for the activity to gel.
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• Product Protocol – output of protocol

preparation, product requirements, product
definition, and deliverables

✓what is the final package of output from the

development system
✓what benefits or performance will the
product deliver to the customer
✓what changes will the marketing program
bring in the marketplace
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✓A protocol - a signed agreement between

negotiating parties

▪ the negotiating parties are the

functions—marketing, technical,
operations, and others

▪ The whole group is responsible for

writing a protocol
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PURPOSES OF THE
PROTOCOL
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PURPOSES OF THE PROTOCOL

1. To specify what each department will deliver to the final
product that the customer buys.

2. It communicates essentials to all of the players, helps

lead them into integrated actions, helps direct
outcomes that are consistent with the full screen and
financials, and gives all players their targets to shoot
for.

Purposes Of The Protocol

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3. Process, or cycle time - many firms place high priority

on accelerated time to market, and better product
definition can help cut development time.

4. If done right, the protocol gives requirements in words

that can usually be measured and permits a development
process to be managed.

✓ It tells what is to be done, when and why, the how (if

that is required by some power beyond our control),
the who, and perhaps most important, the whether.

Purposes Of The Protocol

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PROTOCOL’S SPECIFIC
CONTENTS
1. Target Market
2. Positioning
3. Product Attributes
✓ Benefits
✓ Functions
✓ Features
✓ Detailed Specifications
4. Competitive Comparisons and Augmentation
Dimensions
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PROTOCOL’S SPECIFIC
CONTENTS
5. Other Components of the Product Protocol

✓ Timing
✓ Financials
✓ Production
✓ Regulatory Requirements
✓ Corporate Strategy Requirements
✓ Potholes
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PROTOCOL AND
THE VOICE OF THE CUSTOMER
Hearing the Voice of the Customer (VOC)

VOC - a “complete set of customer wants and

needs, expressed in the customer’s own language,
organized the way the customer thinks about,
uses, and interacts with the product . . . , and
prioritized by the customer in terms of both
importance and performance—in other words,
current satisfaction with existing alternatives.”
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PROTOCOL AND
THE VOICE OF THE CUSTOMER
Hearing the Voice of the Customer (VOC)

▪ several ways to access the voice of the

customer: through direct interviewing, for
example, or by conducting focus groups.

▪ Interviewing customers individually can provide

very rich and detailed information, but might be
time-consuming and costly.
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PROTOCOL AND
THE VOICE OF THE CUSTOMER
Market researcher and consultant Gerry Katz
summarizes the misconceptions about VOC that
can lead to its misuse and should be avoided:

1. Many companies treat VOC as qualitative

research only, whereas the real value of it comes
from organizing and clustering the stated needs
and prioritizing them into their relative
importance. This is a quantitative process and is
often overlooked.
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2. Firms often focus on getting the VOC only from

major customers, while much important
information can be obtained from noncustomers,
average customers, and customers who favor the
competitor’s product.
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3. Managers may believe that customers don’t

know what they want. In fact, they are quite good
at stating their needs. Not being professional
engineers or R&D personnel, they are usually not
able to tell what new technology needs to be
developed to address those needs.
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4. Finally, to repeat, it is tempting just to ask

customers what they want and need, but that
usually provides few new insights. It is better to ask
what they like and dislike about current
products and what outcomes they would like to
see in the future.
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PROTOCOL AND QUALITY

FUNCTION DEPLOYMENT (QFD)
QFD and the House of Quality
▪ Quality function deployment (QFD)
✓ was invented in the Japanese automobile
industry years ago as a tool of project control
in an industry with incredibly complicated
projects.
✓ It can lead to reduced design time and costs,
and more efficient communication between
project team members from functional areas.
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PROTOCOL AND QUALITY

FUNCTION DEPLOYMENT (QFD)
QFD and the House of Quality
▪ House of Quality (HOQ)
✓ first step of QFD has received the most
attention and has been useful to the largest
number of firms
✓ The value of the HOQ to firms is in the way it
summarizes multiple product aspects
simultaneously and in relationship to one
another
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✓ The HOQ requires inputs from marketing and

technical personnel and encourages
communication and cooperation across these
functional areas
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PROTOCOL AND QUALITY

FUNCTION DEPLOYMENT (QFD)
Outcomes of QFD
▪ QFD encourages cross-functional dialogue
and interaction throughout the technical
development process—which is precisely
the kind of agreement called for by the product
protocol.
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PROTOCOL AND QUALITY

FUNCTION DEPLOYMENT (QFD)
Outcomes of QFD
▪ The efficiency of QFD can also be improved by
doing one or more of the following:

1. Concentrate on only some of the engineering

characteristics: either the apparently most critical
ones or some others where improvements might
be easy to accomplish.
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2. Organize the engineering characteristics into

groups and designate responsibility for these to
specific functional areas (i.e., manufacturing,
product design, even marketing)

3. Do a cost-benefit analysis on each engineering

characteristic to identify which ones provide the
greatest benefit relative to associated cost of
improvement on that characteristic.
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SUMMARY
Chapter 12 has dealt with a powerful
concept—protocol. As an agreement among
the functions about the required output or
deliverables from a specific new product
program, it sets the standards for it. The
purpose is to communicate the required
outputs as product benefits and other
dimensions, integrate the team onto the
same frequency, make clear the timing
importance, and make it easier to manage
the process against specific targets.
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SUMMARY
At this time we are ready to blow the whistle
and charge into the development activity. As
seen in the new products process of Chapter
1, action will now take place in marketing and
technical in parallel, so we are going to need
excellent communication among marketing,
R&D, production, design, and other functional
areas to get us through the next phase.
THANK YOU