forecasting product performance like a meteorologist (june 2012)
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Ananda Chakravarty's presentation at ProductCamp Boston, June 2012TRANSCRIPT
Forecasting Product PerformanceLike A Meteorologist
ProductCamp Boston 2012
#pcampBoston
A.Chakravarty 6/9/2012
Problems are just as frustrating…
Jim Kosek – Funny Weather VideoThree 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.
Workshop Overview• Forecasting – why is it important
• Forecasting Impacts Decisions
• Limitations
• Metrics & Data
• Methods & Techniques
• Leveraging forecasts workshop
– Key Product Metrics
– Internal partnering for product success
– Method and Technique
Review – 20 min.
Case – 25 min.
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.
New Product Forecasting• Error Rates are HIGH!
• So Why Forecast?
1. New Product Development and Forecasting Problems. R. Simon, Journal of Business Forecasting 2009-2010.
Error rate in Guessing a Coin Toss (50%)
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
1. New Product Forecasting 2006. M. Singh. MIT2. 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.
Reduce Market Costs of Failed Products
Drive Sales & Profit
Forecasting Impacts Decisions
Product Launch
Sales Support
See Notes
Cover/Clothing
Time/Resources
Emergency Planning
Event Planning
Weather Forecastslet us decide:
Product Forecasts let us decide:
Forecasting NPD Limitations
Short term Accuracy
Significant data collection
Many data points
Change Impact
New patterns emerge
Long term Impacts
Weather ForecastsAre limited:
Product ForecastsAre limited:
High failure rate
Almost no accuracy
Data collection is sparse, erratic, and not necessarily sales drivers
Incomplete/Unknown data points
Product Change Impact
Environment Change Impact, game theory, competitive pressures
Long term Impacts are strategic only
Forecasting is difficult!
Metrics for Product ManagersQ
uanti
tati
ve
Metr
ics • Empirical
Data• e.g. Sales• Unique
Visitors• Subjective
Data• Market
Research• Surveys
Qualit
ati
ve
Metr
ics • Subjective Data
• Delphi• Sales Force
Composite• Focus Groups
• Pattern Data• Pattern
Recognition• Look-Alikes• Scenario Analysis
Metrics for Business
Product Metrics
Decrease Expenses
Increase Revenues
Business Metrics
Product metrics must impact a business metricProduct metrics need to be translated into a P&L statement
Example: Unique Visitors X Est. Avg Revenue per Visitor = Revenue
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
Basic Meteorological ForecastingKey Weather Forecasting Techniques:
Methods & TechniquesThree broad sets capture dozens of methods
1. Managing the Mysterious: How to Forecast New Products. Logistics Summit & Expo, Mexico 2010. Kenneth Kahn
2. New Product Forecasting 2006. M. Singh. MIT
57%44%
39%
14%
30%
19%15%
MktResearch
ExecutiveJury
Sales ForceComposite
ScenarioAnalysis
Looks-LikeAnalysis
Trend LineAnalysis
MovingAverage
Subjective QuantitativeMktResearch
Top methods used are shown by percentage
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
Workshop Preparation…
• TASK 1: Break out into groups of 2-5 people each and introduce yourselves.
THE FORECAST CASEWORKSHOPWeatherCommerce.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
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.
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?
THANK YOU!
Ananda S. Chakravarty
@achakravartyhttp://www.linkedin.com/in/anandachakravarty