2. Problems are just as frustrating…
Jim Kosek – Funny Weather Video
Three Key Forecasts related to Product Mgt:
• Domino Effect – Power outages, Traffic backup, Black Ice
• Redundancy Effect - Snow Drifts, Windy
• Anticipated Failure – Heavy Snowfall
http://www.youtube.com/watch?v=Awwg0SO4Nck
PPT Notes provide addt’l information.
3. Workshop Overview
• Forecasting – why is it important
• Forecasting Impacts Decisions
• Limitations Review – 20 min.
• Metrics & Data
• Methods & Techniques
• Leveraging forecasts workshop
– Key Product Metrics
– Internal partnering for product success
Case – 25 min.
– Method and Technique
DISCLAIMER: This session will not discuss how you should forecast, but you should walk
away having a better understanding of what to think about and the complexity of good
forecasting for new products.
4. New Product Forecasting
• Error Rates are HIGH!
• So Why Forecast? Error rate in Guessing a
Coin Toss (50%)
1. New Product Development and Forecasting Problems. R. Simon, Journal of Business Forecasting 2009-
2010.
5. Forecasting – Why?
New Product Development (NPD)
On average ~20% of company sales are New Products1
Newer products typically command higher profit margins1
In the US, 50% of revenues and 40% of profits are from New Products1
~26% of revenue from Engineering companies are from products < 3 years
old1
~70% of today’s manufactured goods will be obsolete in 6 years1
In Fashion and High Tech that’s closer to 2 years1
35%-45% of New Products fail immediately2
According to Herb Baum, Former CEO of Campbell Soup Company, in
consumer business, “80% of all new products fail, only 4% reach the 20 MM
level and 0.5% break the 100MM mark.”3
Drive Sales & Profit Reduce Market Costs of
Failed Products
1. New Product Forecasting 2006. M. Singh. MIT
2. Doing it Right: Winning with New Products. R. G. Cooper. Product Management Institute 2006.
3. Journal of Business Forecasting C. L. Jain, Editor. Winter 2009-2010.
6. Forecasting Impacts Decisions
Weather Forecasts Product Forecasts
let us decide: let us decide:
Cover/Clothing Product Launch
Time/Resources Sales Support
Emergency See Notes
Planning
Event Planning
7. Forecasting NPD Limitations
Weather Forecasts Product Forecasts
Are limited: Are limited:
Short term Accuracy High failure rate
Significant data collection Almost no accuracy
Many data points Data collection is sparse, erratic, and
not necessarily sales drivers
Change Impact
Incomplete/Unknown data points
New patterns emerge
Product Change Impact
Long term Impacts
Environment Change Impact, game
theory, competitive pressures
Forecasting is difficult! Long term Impacts are strategic only
8. Metrics for Product Managers
Qualitative Metrics
• Empirical Data • Subjective Data
Quantitative Metrics
• e.g. Sales • Delphi
• Unique Visitors • Sales Force
• Subjective Data Composite
• Market • Focus Groups
Research • Pattern Data
• Surveys • Pattern Recognition
• Look-Alikes
• Scenario Analysis
9. Metrics for Business
Business Metrics
Increase Decrease
Revenues Expenses
Product
Metrics
Product metrics must impact a business metric
Product metrics need to be translated into a P&L statement
Example: Unique Visitors X Est. Avg Revenue per Visitor = Revenue
10. Basic Meteorological Forecasting
Key Weather Forecasting Techniques:
Persistence
Today = Tommorrow
Trends – Nowcasting
Extrapolation of current variables
Climatology
Historical Extrapolation
Analog Patterns
Looks like June 6th, 1874 so…, Scenarios, Looks-Like
Numerical Weather Predictions
Computationally heavy, multi-variable predictive algorithms – many variations
11. Methods & Techniques
Three broad sets capture dozens
of methods
Mkt Subjective Quantitative
Research
57%
44%
39%
30%
19%
14% 15% Top methods used are
shown by percentage
Mkt Executive Sales Force Scenario Looks-Like Trend Line Moving
Research Jury Composite Analysis Analysis Analysis Average
1. Managing the Mysterious: How to Forecast New Products. Logistics Summit & Expo, Mexico 2010.
Kenneth Kahn
2. New Product Forecasting 2006. M. Singh. MIT
12. Some things to keep in mind to forecast
• Timeframe
• Assumptions
• Units of Measure – atomic
• Project Timeline and Milestones – including failure to meet impacts
• Ongoing, Cost Structure Estimations (for P&L Pro-Forma development)
• Risks & Mitigation
• Estimation technique for revenue or cost savings
• Revenue Derivation algorithm
• Validation & Assumptions Check
14. THE FORECAST CASEWORKSHOP
WeatherCommerce.com is a clicks-only online business that sells
Thermometers, Barometers, Hygrometers, and Weather stations. The site
has recently launched a new ecommerce sales engine to sell a new line of
product – the Baltimore Weather Gauge. We need to forecast product
performance post launch for 12 months.
• TASK 2: Each team take 5 minutes and create a list of 3-5 Key
Product Metrics to measure new launch success for the Baltimore
Weather Gauge
EXAMPLES:
• Monthly Sales (Units Sold) for 12 Months
• Monthly Sales ($) for 12 months
15. THE FORECAST WORKSHOP
• TASK 3: Each team takes 5 minutes to list 3-5 Key Resources and
Key Deliverables that they would reach out to develop their
forecast.
EXAMPLES:
• Marketing - Customer Market Survey, Realistic Price Points,
Existing Customer Interest
• Ecommerce Sales Operations – Site Traffic and Conversion Rates
for similar products.
16. THE FORECAST WORKSHOP
• TASK 4: Each team takes 5 minutes to list one method they would
rely on to forecast – and a quick justification of why they would
choose it.
• Note: There are no right or wrong answers. Many companies use
up to 3 methods at the same time for validation and cross-check.
EXAMPLE:
• Online Market Surveys –With many existing customers through an
ecommerce platform, we can quickly gauge product sentiment.
YOUR ORGANIZATION
• TASK 5: What techniques would you use for your company’s
products?
17. THANK YOU!
Ananda S. Chakravarty
@achakravarty
http://www.linkedin.com/in/anandachakravarty
Editor's Notes
Most resources on product mgt tell you to go talk to your finance people. They are a great resource, but you need to be able to pull together some basic numbers you can share with leadership and build your own estimations of product performance – a timeline with milestones is a great way to build this out, especially in conjunction with a specific metrics guidelines at specific stages.
New products include: (M. Singh)Cost improvements – reduced price/cost productsProduct improvements to existing products/servicesLine Extensions – incremental innovationsMarket Extensions – same product, new segment/marketNew Category Entry – New to company product or market, but already exists in general marketNew to the World – Completely new product concept, may be competing with current marketsWithout knowing what to expect, even if you’re not going to be on target, it helps to drive actual sales & profit, keeps you on top of what you need to mitigate, and helps reduce the market costs of a failed product – it’s just as good to know if a product isn’t worth building…
Forecasts enable decision making – including:Product Launch decisions (go/kill)Business Strategic Impact, CannibalizationCapacity PlanningManufacturingLogisticsMarketing BudgetsMarketing PromotionsSales SupportSales TrainingFinance BudgetsFinance ImpactEngineering/Development Feature DevelopmentCustomer service planningPartnership/Distribution of products/servicesStrategic product decisions – Build, buy, partnerStrategic product decisions – extend the line, expand the line, new featuresStrategic market decisions – adjacent market entry, new market creation
Short Term – Best meteorology is up to 10 days out with any level of accuracySignificant Data Collection – Satellites, Weather Stations, Direct ReportingMany Data Points –Temperature, humidity, dew point, atmospheric pressure, wind speed, wind direction, geo-location, topography, distance to water bodies, climatologySignificant Change impact - small changes in weather patterns translate to large impactNew patterns emerge – each day brings about significant new patterns in weather and similar conditions are challenging depending on location and historyLong Term Impacts – Impacts to terrain and local environment is a major challenge when considering longer term forecastingProduct Forecasts Limited:High Failure rate – 96% of consumer product fail to break even by year 1No Accuracy – most products have overpromised forecasts and substantial sales hype – cannibalization is not taken into accountData collection – inadequate at best, even with web technology, most new products take into account a few parameters related to it’s nature, e.g. site traffic or conversion rates. These don’t necessarily translate into sales relevant dataIncomplete/Unknown data points – examples are brand presence, market product rejection, native competition, product errors/recall, geographic/cultural preferencesProduct Change Impact – product updates are regularly changing, even for existing (Not-NPDs) product features may not be relevant or include customer sentiment, backward compatibility can become an issue with certain productsEnvironment change impact – review SWOT, but essentially, competitive factors can blot out successes quickly – fast copycats and new entrants can obliterate a product’s successLong Term impacts – Strategic in nature – usually defensive or supportive, impacts product portfolio and product mix hence actual impact to the organization can be indirect. A strong loss leader may be driving substantial value for the company, but examining the product shows poor results. Indirect metrics are challenging
All metrics roll up to the eventual fiduciary responsibilities of the organization – typically this is profitability best described as increase revenues or decrease expenses.
Typical techniques used in Meteorology are quite similar to what we might use in basic product mgt.
Dozens of methods, the most common fall into meteorological forecasting stylesQualitative methods, including market research, Delphi, and others are unsubstantiated by quantitative data.Key Quantitative methods, e.g. Bass and other Diffusion models are plagued by parameter and initial value accuracy issues.
Review per team up to 3 teams (5-10 min)Key product metrics are critical to define up front– these are the metrics that will have the most impact .Focus on the product should be the physical product, not the ecommerce engine (although this may impact sales)Issues that come to mind include cannibalization, site traffic, similar.No right or wrong answers, looking for the best way to measure product success and tie it back to key business metrics (profitability through incremental revenue or cost savings)
Forecasts enable decision making – including:Product Launch decisions (go/kill)Business Strategic Impact, CannibalizationCapacity PlanningManufacturingLogisticsMarketing BudgetsMarketing PromotionsSales SupportSales TrainingFinance BudgetsFinance ImpactEngineering/Development Feature DevelopmentCustomer service planningPartnership/Distribution of products/servicesStrategic product decisions – Build, buy, partnerStrategic product decisions – extend the line, expand the line, new featuresStrategic market decisions – adjacent market entry, new market creation