Demand Forecasting

DEMAND FORECASTING Meaning: Forecasting of demand is the art of predicting demand for a product or service at some future date on the basis of certain present and past behavior patterns of some related events. A demand forecasting is not a speculative exercise into the unknown but, essentially, reasonable judgement of future probabilities of the market events. It cannot be 100% precise but it gives a reliable approximation regarding the possible outcome, with a reasonable accuracy. Usefulness: Forecasting of demand is the art of predicting demand for a product or service at some future date. Hence it plays an important role in the process of planning and decision making at micro as well as macro level. Expansion of output of the firm should be based on the estimates of likely demand, otherwise there may be over production and losses may have to be faced. For controlling the business on a sound footing, it is essential to have proper budgeting of costs and profits that is based on forecasting. Similarly, a satisfactory control of business inventories raw materials, semi-finished products, finished products, spare parts requires satisfactory estimates of future requirements, which can be traced through demand forecasting. Demand forecasting at macro level is of great help to the planners and policy makers for better planning and rational allocation of country’s resources. Though, it is not fool proof and correct but it helps in evaluating various forces which affects demand. Scope of demand forecasting: Forecasting can be at Micro as well as macro level. The scope of it will depend upon the area of operation in the present and in future. Much would depend up on the cost and time involved in relation to the benefit of the information acquired through the study of demand. Methods of Demand forecasting:

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Demand Forecasting (NATIONAL ANALYSTS) National Analysts effectively generates demand estimates for clients in an array of industry sectors by: • • • • •

Identifying and describing the current and future competitive landscape. Framing the purchase/usage decision in meaningful ways. Generating forecasts for contingencies in as yet uncertain/undecided product profiles or competitive options. Anticipating demand among different market segments. Calibrating survey-derived demand estimates to predict actual—not just relative—revenue or usage volume.

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Integrating the influence of multiple decision makers on acquisition and usage.

National Analysts has a long history of forecasting new product performance for clients in pharmaceuticals/biotechnology, financial services, package transport, information technology, and energy/utilities.

Competitive Landscape A common error in demand forecasting is to ask potential decision makers what they would purchase or use without properly sensitizing them to environmental and competitive conditions that are likely to exist at a time in the future when the product will be introduced. For example, pharmaceutical firms need to forecast usage of a drug well before introduction, but to obtain estimates of usage that are reasonably reliable, it is critical to account for available brands and generic alternatives as well as the regulatory and reimbursement environment which is likely to appear when the new drug is introduced. Competitive Timeline

Because National Analysts has considerable industry and market expertise, we are able with client input to do a reasonably good job of anticipating future competitive, regulatory, and/or market conditions. Once 3

conditions are defined, we create context descriptions that precede the purchase/usage likelihood questions used in surveys. Using this tact, we "educate" respondents about future conditions so that they can meaningfully respond to options that will appear in the future. Framing the Purchase/Usage Decision National Analysts is frequently asked to develop volumetric forecasts. For instance, communications companies need to estimate minutes of usage a new product or service will generate, computer companies want to know how many processing units will be sold, and pharmaceutical firms require estimates of drug prescribing volumes. In some cases, volumetric estimates are straightforward, but increasingly they are complicated by usage or purchases that are tailored to individual applications or patients. Failure to frame the purchase or usage decision in a manner that accounts for real world differences in application will produce misleading estimates of usage or purchase. For example, the graphic below describes an estimate of new product usage without accounting for the fact that physicians might tailor drug selection to individual patient needs.

When physicians are asked to estimate usage in the context of the therapeutic needs of a sample of patients from their own practices, we get a real world estimate of usage that is considerably different than the aggregate usage forecast. Beyond estimating precision, proper framing can produce information to support effective downstream marketing activities. In the example below, notice how prescription behavior varies by patient type. This information can be used by sales to position utilization of the new drug more effectively.

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National Analysts' sophisticated knowledge of industries and markets, as well as research and modeling, enables us to conceive of and frame choice exercises that enhance precision and create actionable insight whether the product is currently available or clearly innovative.

Forecasting for Product Configuration & Market Contingencies Frequently clients has the opportunity to configure a product to maximize revenue or usage. However, on some occasions, clients will not have the freedom to configure the attributes of the product as they wish, and they may not even know what attributes the product will ultimately possess because the product is still in development. Independent of product configurations, there may be considerable uncertainties about future competitive offers or responses. In each of these situations, the accuracy and utility of demand forecasts are threatened. One of the most effective ways to account for these types of contingencies is to use conjoint or discrete choice analysis. These techniques expose decision makers to samples of alternative configurations to obtain measures of the relative impact of each candidate attribute or contingency. Using decision maker preferences, conjoint and discrete choice analysis permits forecasts for thousands of alternative configurations or contingencies. National Analysts has considerable experience and skill in the use of conjoint, choice, and optimization modeling methodologies. But even more importantly, our in-house world-class modeling expertise enables us to develop creative yet reliable solutions to the most complex product configuration and market contingency problems. Demand among Market Segments 5

Demand estimation by segment can create considerable value for clients. Understanding what groups are more likely to acquire or use a product permits cost-effective targeting of promotional and sales activities. Consider the example below:

Primary Physicians Size of population

Care Specialists

doctor 85,000

Patients per doctor

15,000

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Size of eligible 255,000 patient population

300,000

% of patients new product

10%

35%

# of patients

25,500

105,000

In this example there are five times more primary care physicians than specialists yet specialists manage about the same number of patients who are eligible for a new therapy. Demand forecasting estimates that specialists will prescribe the new therapy for five times as many patients. Clearly, by targeting specialists, a pharmaceutical firm could use a smaller sales force to produce considerably more sales.

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The presence of world-class segmentation and modeling expertise makes National Analysts particularly effective in helping clients cost-effectively target and acquire revenue.

Calibrating Survey-Derived Demand Estimates Survey-derived demand estimates can be very effective tools for product development, marketing, and sales. However, demand estimates that are not adjusted for sources of error can be misleading and very costly. Consider the following example: • •

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There are five million diagnosed heart failure patients in the U.S. A survey of physicians who treat heart failure produces an unadjusted estimate that 40% of all heart patients would receive drug X if it were available. Anticipating more than two million patients, pharmaceutical firm A invests heavily in advertising, promotion, and sales reps. Three years after introduction, only 200,000 patients receive drug X.

Pharmaceutical firm A learned an expensive lesson about adjusting surveyderived demand estimates for various sources of potential error. Some of the more common sources of error pharmaceutical A should have adjusted for include: • • •

The gap between intention to acquire and actual acquisition. Inaccurate assumptions about market, competitor, product, and/or economic conditions. Assumptions about awareness and availability.

While some research and consulting firms claim to have a formula for various forms of error, National Analysts has found that variations in product, market, and competitive conditions make canned approaches unreliable. In fact, our most reliable calibrations for error are customized using a combination of forecasting experience and modeling expertise supplemented by a healthy dose of product, industry, and market knowledge. Integrating the Influence of Multiple Decision Makers In many cases, reliable forecasts require an understanding and measurement of multiple influencer or decision maker effects on demand.

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National Analysts’ experience has taught them to tailor their forecasting approach to the appropriate decision-making conditions. Frequently, it is necessary to identify and survey multiple influencers or decision makers, and then integrate their views. For example, if they are asked to estimate the prescribing volume of a new drug therapy: •

Managed care decision makers would be asked for the formulary status that a new prescription product would be likely to earn in their organization (1) if the decision were entirely up to the payer and (2) given varying levels of patient and physician demand.

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Patients would be asked what they would do if they saw advertisements for the new drug or if their doctors gave them a choice of several alternatives, and how their decisions would change as a function of what they personally would have to pay for different drug options.

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Physicians would be asked to predict their product-prescribing behavior not only based on changing clinical profiles, but also in response to patient requests and/or formulary restrictions.

Then, for any particular combination of (1) a drug's clinical profile, (2) its formulary status, and (3) the degree of patient demand and preference, National Analysts can generate an estimate of prescribing volume. Product Development National Analysts is an industry leader in product development research. Our client research support for product development is distinguished by: •

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A complete suite of product development research services, from qualitative concept testing to product adoption and performance tracking. Powerful conjoint methodologies which ensure a realistic respondent choice experience and yield extraordinarily accurate market size, value, and product adoption estimates. State-of-the-art market simulators that give our clients unparalleled flexibility in modeling "what if" product configuration, portfolio, pricing, and competitor response scenarios. A unique and proprietary product optimization system which determines the product/service, package/bundle, and portfolio configurations that maximize penetration, share, revenue, and margin.

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A LINK tool that identifies the optimal product/service package and positioning for each and every record in your marketing database, facilitating product-specific prospect list generation and prioritization.

Customer Satisfaction Market Research National Analysts' approach to customer satisfaction market research is designed to address the shortcomings of traditional customer satisfaction measurement (CSM) and customer value analysis (CVA). Targeted customer satisfaction market research includes: •

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Measures of customer requirements and supplier performance sufficiently granular to support process improvement initiatives at the line management level. Summary measures of competitive performance suitable for upper management presentation. Customer behavior-based relative importance measures for prioritizing process improvements. Modeling tools for assessing and optimizing the financial impact of process improvement. Designs for tracking change over time and implementing a continuous improvement program.

National Analysts has devoted more than a decade to the development of our customer relationship optimization approach and has earned a prominent position in the history of customer satisfaction market research.

Brand Marketing Research National Analysts' comprehensive brand marketing research process enables brand managers to: 1) develop a thorough understanding of their brand's assets; 2) identify opportunities for building and leveraging its equity; and 3) pinpoint specific areas where brand-building investment will achieve significant returns. Since no two brands are alike, there is no rigid formula for brand marketing research; rather, there are rules of logic and good judgment. Important components of the process include: • •

Identifying brand essence. Performing a detailed brand image and performance assessment.

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Implementing systematic brand equity measurements, exploring the brand's value and resilience (flexibility) in existing markets as well as its leverage (control) potential for extensions into new markets. Monitoring ongoing performance through a systematic brand health tracking program.

National Analysts has substantial experience performing brand marketing research in a wide range of product categories in both consumer and business-to-business markets

Portfolio Strategy National Analysts helps clients maximize portfolio value by: • • • •

Understanding each product’s competitive set Characterizing and quantifying the opportunities for incremental portfolio revenue vs. cannibalization Identifying optimal portfolios Supporting implementation of portfolio strategies

Portfolio Strategy… Competitive Product Set Analysis Understanding and quantifying the competitive products for each candidate portfolio is a critical first step in portfolio strategy selection. We help our clients measure share capture from competitive brands as well as cannibalization from existing products. Consider the choices XYZ Inc. confronts. Portfolio A consists of a set of related products. By offering Portfolio A, XYZ Inc. would have a family of products which could result in category dominance while leveraging existing sales resources. Portfolio B is compelling because XYZ Inc. senses that there is a growing opportunity for a new product line. XYZ Inc. has to choose between Portfolios A and B.

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Product Lifecycle Research National Analysts works closely with clients to identify emerging needs create responsive programs and maximize market performance throughout the product lifecycle by: • • •

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Broadening understanding of the pre-launch environment and the contingencies for success in current and future marketplaces Helping to devise and fine-tune strategies that will create/increase product awareness and generate trial at launch/introduction Guiding and supporting clients' decision-making throughout the product growth phase when maximizing market share is the primary objective Helping to inform and guide strategies to maximize profit while defending market share during products' mid-life or maturity stage Working closely with clients during the product decline phase when extracting maximum returns from the brand is the primary objective.

Pre-launch …. Clients from a broad array of industries rely upon National Analysts to help understand current and future market landscapes as they plan for new product launches. •

Pre-launch research routinely involves qualitative and quantitative research to help clients successfully launch new products.

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Preliminary demand forecasts. Quantitative techniques like conjoint and discrete choice analysis are frequently used to evaluate alternative product configurations; forecast revenue and share, and 11

help clients identify the features most likely to drive or suppress trial and sustain usage in current and future markets. •

Pricing research. The same quantitative modeling techniques used to develop preliminary forecasts for new products are also applied to test price sensitivity assuming different product configurations, brands and market environments.

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Market segmentation. Pre-launch segmentation helps our clients identify profile and target the most receptive potential customers, and to understand the demographic, psychological and attitudinal dynamics that will propel and limit interest in the new product. National Analysts has a wide repertoire (range) of analytic tools that enhance the usefulness of clients’ segmentation data, including need-based, occasion-based, multi-dimensional and individual level segmentation frameworks.

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Research to support marketing, promotions and communications. Since National Analysts usually works closely with clients in the early stages of product positioning, they are routinely asked to draw on their industry knowledge and marketing expertise to assess and fine-tune materials to be used in early promotional and marketing efforts. Qualitative techniques (focus groups, one-on-one interviews) are preferred methodologies.

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Tracking research. Quantitative tracking research often begins in the pre-launch phase, with a baseline survey designed to assess any pre-launch awareness and impressions of a product still in development; perceptions and use of currently available competitors; and anticipated positioning and usage of the new product once launched. Periodic post-launch survey research tracks changes from baseline over time in terms of awareness, impressions and market penetration of new products.

Product Introduction… The primary objective at product launch is to build product awareness and trial usage among early adopters and rapid followers. This phase of the product lifecycle is characterized by heavy marketing and promotional activity targeted to key customer segments. Emphasis is placed on building effective distribution channels, and generating momentum with regard to positive hearsay about and experience with a new product.

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Thus, communications effectiveness and early-stage product trial are key concerns to clients in this phase, and National Analysts is often called upon for guidance in design and execution of research to address: •

Awareness and impressions of the product among early adopters and other "influencers." Data from this research helps clients fully understand and build upon positive experience in early adopter segments to encourage even broader trial, and identify any unforeseen barriers to adoption that will require attention moving forward.

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Effectiveness of launch-related marketing and promotional activities.

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Post-launch tracking research. The first wave of post-launch survey research typically occurs a few months after product introduction, and measures product awareness, impressions and positioning by early users; changes in perceptions since the baseline (pre-launch) research; and market penetration since launch. In addition to mapping the product’s market progress, data from this and subsequent waves serve as guidelines for any necessary re-directing or fine-tuning of marketing and/or promotional activities going forward.

Product Growth … Subsequent to introduction, a product may experience a rapid increase in sales and profit. At this time, the primary objective is to sustain growth for as long as possible while maximizing market share, often in the context of a growing number of competitors. It is common in this stage for companies to further differentiate a product and enhance its competitive edge. Other methods for sustaining market growth include additional productrelated services, entry into new markets or market segments, the creation of new promotional platforms, as well as the adoption of more competitive pricing strategies. National Analysts has had decades of experience supporting and helping to guide clients' decision-making during this crucial phase of a product’s lifespan. Examples of the types of assignments we routinely conduct include: • •

Assessments of value-added initiatives to help fortify brand loyalty and attract new users Evaluations of strategic alliances to broaden market reach and penetration

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Assessments of new pricing and reimbursement strategies to sustain growth and brand loyalty, while encouraging broader market penetration Analyses of repositioning efforts to take advantage of any changes in the marketplace Evaluations of alternative marketing and promotional campaigns and materials to build awareness and interest in broader market

Product Maturity … As a product matures sales growth slows and competition intensifies. The primary objective in this phase is to maximize profit while defending market position. Companies frequently will seek to further differentiate products from competitors by diversifying the brand. National Analysts has a long history of providing customized marketing research and consulting support to clients who are navigating products through maturity. During this lifecycle stage, we frequently conduct research to: •

Assess the appeal, potential positioning and forecasted use of new brand formulations or packaging designed to further differentiate the product (e.g., a new "SR," sustained release, form of a drug).

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Determine interest in and market prospects for potential product-line extensions (e.g., feature enhancement).

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Evaluate new pricing and incentives strategies aimed at attracting new users/switchers and fortifying loyalty of current customers (e.g., the "bundling" of a company's products at competitive pricing; volume discounts; improvements in distribution and purchasing processes, services, etc.) Enhance the effectiveness of marketing platforms and promotional activities, designed to re-emphasize brand differences and benefits, revitalize product interest, and entice new users and brand switching.

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Product Decline/Change in Status … In all product lifecycles there is an eventual decline in sales due to factors such as technological advances, demographic changes, shifts in preference, or increased competition. In most cases, the objective during 14

this phase is to extract maximum revenue from the product while reducing marketing, sales and promotional costs. There are various ways to maximize revenue gain during a product’s decline, including: • •

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The development and launch of replacement products. The transfer of the original product to a generic manufacturer or distributor in exchange for a co-marketing arrangement at a particular price. The development of new markets, applications or segments.

National Analysts is particularly adept at helping clients identify opportunities for revenue maintenance and growth as well as market replacement or exit. Research analysis Qualitative Research Considered by many to be the masters of qualitative research, National Analysts offers a comprehensive array of qualitative methods inside the United States and abroad. The cornerstones of their approach to qualitative research are industry expertise, in-depth interviewing skill, and extensive business and marketing experience. Regardless of the techniques required, clients can feel confident that they will get below the surface to elicit meaningful insight, wringing the most from each method. Focus Groups National Analysts played a seminal role in the development of the focus group methodology and remains a leader in its effective application. Their moderators are experienced and adept, and the roster of respondents includes every conceivable type of respondent from patients to physicians, children to CEOs. Under the heading of focus groups come traditional group discussions with grass-roots participants as well as idea-generating sessions and advisory panels with industry leaders at home and abroad. Skilled, well-trained moderators with industry experience are supported by a seasoned qualitative operations management staff, ensuring that the proper respondents are recruited to the appropriate facility anywhere in the world. Online Qualitative Research To reduce travel burden and costs, many clients are turning to online qualitative research. National Analysts offers online access to respondents through both video conferencing and video streaming. One of their offerings 15

is a proprietary online bulletin board service that can be used to conduct cost-effective in-depth interviews or group interviews anywhere in the world. Qualified participants are recruited by phone, mail, or e-mail to the bulletin board. After logging on to the bulletin board, a moderator facilitates an iterative discussion among participants. Clients find their bulletin board service a valuable way to uncover new product ideas, test concepts, and probe decision processes and motivations. Other applications include panels of selected groups including early adopters for iterative concept development and segment members for monitoring changing needs and preferences. Idea Generation & Delphi Groups National Analysts employs a group of skilled facilitators experienced at guiding meaningful discussions designed to test hypotheses or develop new ideas among client personnel or industry experts. Advisory Boards & Expert Panels Keeping ahead of market trends often requires drawing on the expertise of established leaders in science and industry. National Analysts convenes and leads ad hoc and semi-permanent advisory panels for their clients in a variety of fields and venues. The sophistication of their moderators and the efficiency of our operations teams draw world-class panel participants and a corresponding level of business insight.

Quantitative Research National Analysts offers comprehensive global quantitative research services including project design and management, sampling, questionnaire development, data collection, and data analysis/interpretation. Project Design & Management Experienced senior project managers are closely involved in all phases of research, from design through analysis to provide counsel and guide implementation.

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Problem Definition Successful assignments always begin with effective problem definition. Helping clients conceptualize marketing issues and translate business problems into practical research questions are what National Analysts professionals do. Sampling The accuracy and credibility of research ultimately depend in large part on a rigorous well-conceived sample design at the front end and proper weighting procedures applied at the back. The presence of the experienced sampling experts with them gives the flexibility to design and execute exacting sampling plans. Recent contributions to the field include refinement of a technique called "ranking," a process designed to improve the accuracy of complex data projections to a sampled population. Questionnaire Development National Analysts approaches the fine art of questionnaire design with sensitivity to the challenges of measurement and a thorough appreciation for all the various metrics that can be used to capture attitudes and behaviors. Data Collection in the US and Abroad The breadth of what they do requires use of every data collection technique including in-person interviews, mail or fax, telephone, electronic (web, disk, CD) and any combination. National Analysts was an early practitioner of electronic data collection with over a decade of experience behind us. Data Analysis National Analysts is also prepared to incorporate secondary and customer databases when necessary to support customer segmentation and econometric modeling. The types of database services they provide include merging, matching, and fusion of client and secondary proprietary databases, as well as database scoring. Statistical modeling is a valuable decision support tool; predictive models help businesses make sound decisions that maximize revenue and profit, and avoid missteps. Successful modeling helps decision makers understand the relative influence of various factors on a desired outcome. For instance, product developers use statistical modeling to identify the configuration of features and pricing that produce the most revenue and the largest profit. Statistical 17

modeling helps marketers locate potential buyers; determine how much they have to spend; determine customer priorities and specify the combination of product, price, promotion, and placement that will earn the greatest revenue and maximize demand. •

In general, the most effective statistical models accurately forecast outcomes while also identifying the relative influence of key contributors to desired outcomes.

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