The Christmas holidays are definitely the best time we have to be able to compare and evaluate our new business ideas to develop for the new year.
In 2010 during the Executive Master in Marketing & sales management in ESADE business school in Madrid I developed with the help of Jaime a teacher of the business school a business plan of an idea that comes to me when we reflect about some aspects of a business that interests us particularly.
During the drawing up of the document appears to be a key issue for various reasons a chapter with a detailed sales forecasting and therefore also with a forecast of the future acceptance of the product and its functional features with regard to their usefulness from the point of view of the consumer.
This chapter is important because it allows us to validate the opportunity to implement the business plan by the founders and of course it will be of extreme interest for the necessary venture capital raising because these forecasts shall be shared and validated by different investors such as business angels and venture capitalists.
In the business plan development are adopted as also in each phase of a new product development the appropriate systems of assessment and prediction in order to decide whether to continue with the next phase of development according to encouraging results otherwise modify and reassess the features and capabilities of the product or abandon its development.
About sales forecasting there is an extensive academic literature suggesting the adoption of qualitative rating systems especially in the early stages of product development.
Even more if there are no previous Sale data and the innovative product causes even the definition of a new product category we should be taken jointly different qualitative rating systems that allow a refinement of results while remaining, however, the possibility of large margins of error. Below we have an example of the most useful in this case:
- Market investigations about purchasing intentions
- Opinions of industry experts
- Evaluation of comparable situations from which it is possible to extrapolate the discernment applicable to our case.
The market investigation about purchasing intentions is very interesting because representative groups of consumers belonging to different market segments list in order of priority similar products but with different characteristics so that we can extrapolate with the conjoint analysis the importance of each particular feature for the utility function of the consumer.
Evolution of the conjoint analysis is the POSSE system (Product Optimization and Selected Segment Evaluation) which is constituted by a group of models that always through market investigations allow to reach the definition of the optimal competitive profile of the new product, the identification of target segments, the estimation of the possibilities of success of the new product as well as the prediction of market share reachable.
The systems described so far allow to overcome the stage of Concept test and validate the business idea, which is essential to be able to eventually present the plan to potential investors.
Finally, in the stage of Market Pre-test the product covered by study is submitted to the judgment of consumers in a realistic reproduction of the market environment.
A possible Market Pre-test is the LTM (Laboratory Test Market) that through market investigations enables a proper “laboratory simulation” to assess the potential level of awareness about the existence of the new product, its rate of first purchase and repurchase beyond the average frequency of purchase.
Such simulation is a preliminary investigation of the Market Test which is a small-scale commercial launch or directly to the real launch of the product in the market.
In several cases the Market Test will not be performed since there could be significant advantages due to the early entrance in the market or it is probable the possibility that the innovator may be advanced or imitated by competitors before the formation of substantial barriers to the entrance and to the mobility.
The investigations described here are anyway needed to assess the potentialities of implementation of the business plan, those that may change drastically are the indices of adjustment of the various results we achieve and anything depends also on which is the market we address.
All this may lead to very different sales forecasts if we address successfully the internet market and social media with the use also of Word-of-Mouth Marketing (WOMM) compared for instance to the classical market.
In the next chapter we deepen the internet market development, the social media the Word-of-Mouth Marketing and we could understand how much our estimates and forecasts can be so affected.
What do you think? Tell us about your particular expertise on the subject and the advantages we can draw. Suggest your interest topics.
*Paul E. Green, J. Douglas Carroll and Stephen M. Goldberg, A General Approach to Product Design Optimization Via Conjoint Analysis, Journal of Marketing Vol. 45 No. 3 (Summer, 1981), pp. 17-37
*Glen L. Urban and Gerald M. Katz, Pre-Test-Market Models: Validation and Managerial Implications,Journal of Marketing Research Vol. 20, No. 3 (Aug., 1983), pp. 221-234
*Enrico Valdani, Bruno Busacca: Previsione delle vendite e ciclo di vita del prodotto, ETAS libri 1987
The author: Lanfranco Colella @salud2bienestar
He is a Digital marketing manager and he is working also with salud2bienestar.com, with interests in the Internet market, the social media and Word-of-Mouth Marketing.
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