And so now let me give you a simple road map for
thinking about demand forecasting methods and different kinds of rules.
First of all, you want to try and surround yourself as the entrepreneur
with as many experts call them domain experts, as possible.
So if you were launching a new kind of a business to educate people around
the world in mathematics or something else, you might talk to people who were
professors of mathematics that would be an example of a domain expert.
The second thing you want to do when you set up the forecast is try and
decompose all the customer behaviors that lead to demand.
That means the search for information.
That means the evaluation of alternatives.
That means thinking about the criterion that people use
before they make a buy versus no buy decision.
So all of those drivers that ultimately lead to one individual making a decision
in favor of your product or service, added up over all of those individuals.
The next thing you should think about doing are what we call
judgemental methods.
So a judgemental method is exactly as it seems you simply ask
experts what they're opinions are about the demand for your product or service and
also most importantly get them to articulate by writing down or
verbalizing what the reasons are their demand forecast.
When you do this you should use structured analogies.
Remember Eisenhower's quote?
The future looks more or less like the past, that's my paraphrase.
So when people are thinking about the demand for your new product and
service, what kind of analogous products or
services that already exist in the market are they referring to?
And then, finally, very, very importantly,
again my colleague Scott here at the Wharton School is very big on this.
You should combine forecasts from different individuals,
different experts to give some kind of a weighted average which will ground you in
the good territory for the ultimate forecast for your product or service.
And then finally, if you're a little bit more sophisticated or
a little bit more inclined to quantitative analysis, you could do this yourself or
you could outsource it.
Running some kind of regression based models where you're trying to figure
sales, market share or demand as a dependent variable.
Model is a function of different cause or factors, that's a little bit beyond our
lesson for now but there are companies out there that can help you do it.
Probably most of you know somebody who's somewhat facile in the area of regression
analysis as well.
And so now in our final piece for forecasting demand let's go
through situation where demand might be really quite uncertain.
So a little bit of a counterpoint to president Eisenhower
that things are not necessarily the same today as they were in the past.
So, the first thing that you would want to do here with your team is sit down as
an entrepreneur and try to identify all the potential users and
also users of the product.
So one of my favorite examples here that lead to a lot of expansion around demand
is that little thing called baking soda.
Baking soda used to be used of course just by people who cooked and
in cooking but now that product appears in all kinds of things from toothpaste and
detergent and so on.
So try and identify as many users and uses as you can for
this potentially new product or service.
Same thing if we were to think about eyewear.
Eyewear could be used as a functional product just because i need to be able to
see but also one use could be as a fashion use that might have an implication for
me buying more than one pair of sunglasses or one pair of eyewear.
The second thing that you should do is really drill down into the different
segments for the product.
The component pieces of demand, group A versus B versus C, and so on.
Thirdly, you should try and develop a point of view on what are the key forecast
drivers or macro factors affecting the demand for your product or service.
This will be something that you'll have to think about in the example that we're
going to go on to in just a moment.
For example, if we were thinking about eyewear,
perhaps the fact that people now get LASIK surgery and
permanently correct their eyes may have a very, very big impact on a market for
a product that is something that we're currently wearing on our face.
And then finally of course, all good forecasters taking the golden rule
from Scott Armstrong, being as conservative as possible,
but on top of that, can we identify sensitivities?
Are there particularly extreme scenarios where demand might literally explode and
or fall off a cliff?
And if so what would be those things that would cause that dramatic change?
Again, if you were to go through these four steps in detail.
If you are faced, as an entrepreneur, with a product or service that was particularly
new I think you will find this very instructive and very helpful.
And now as the final part of our session, I'd like you to focus on an exercise.
There is nothing quite like it as an entrepreneur
to really have the rubber meet the road and
really put these concepts into practice than to actually do them.
So here's the example I'd like you to think about.
This is a product that I've come across quite a lot recently at the gym and
other places.
Coconut water, no particular brand but
if you've been living in the United States you might recognize this as a product that
all of a sudden is appearing all over the place.
So imagine that you are introducing a new
high quality premium brand of coconut water.
I'd like you to take two concepts from our lesson today.
First of all the ACCORD model.
What would be the various factors that might inhibit or
retard demand for your new brand of coconut water.
And then number two,
could you do a decomposition that would give you an estimate of roughly how much
coconut water might be drunk in a year in the country that you live in?
Could be the United States or it could be elsewhere?
So, take those two concepts, ACCORD and decomposition.
Pretend that you're an entrepreneur, as there are many now coming up with
new types of coconut water and try and go through that process of forecasting.
Again all the best are applying these concepts from our lesson.
Forecasting demand for your product or service, is absolutely make or
break particularly in the early stage of the entrepreneurial journey.