Blog All you need to know about forecasting a new product
01 June, 2022

All you need to know about forecasting a new product

The Greek philosopher, Heraclitus, once stated, “The only constant in life is change.” While this observation is applicable to how we can live our best lives, it also relates to the business world. If businesses did not actively upgrade their products, we would still be using products that are nowhere close to meeting their potential performance and efficiency. For example, imagine still using bulky telephones with manual dialing rather than sleek smartphones that utilize touchscreen tech to make calls, have instant online access, and take photographs that would make Ansel Adams envious. Therefore, change is essential to the survival of a business.

But just because something is new does not translate into heavy demand in the marketplace. In his On the Origin of Species, Charles Darwin wrote, “The species that survives is the one that is able to adapt to and to adjust best to the changing environment in which it finds itself.” For a business to survive, its products and services must adhere to this Darwinian principle.

While the marketplace sees a constant introduction of products featuring the latest and greatest technological advances and innovations, research suggests that 70% of the manufactured products are rendered obsolete within six years. In fact, according to the Harvard Business School, around 30,000 new products are launched every year, and surprisingly 95% of them end up failing!

To safeguard yourself from losses and falling behind your competitors, you need to diligently plan and forecast your company’s new and improved products. This article shares insights about product forecasting and practical strategies to perform it better.


What is product forecasting?

Product forecasting is the science of predicting the future performance and revenue of a product based on historical data about a product’s results and external factors, such as customer buying behavior, seasonal trends, etc. In a nutshell, product forecasting is all about predicting the success and challenges of a selling product.

Based on forecasting estimates, an organization can strategize its production plans. For instance, if the forecast indicates declining future demand, the business can reduce production quantity and invest in resources for another product with better potential. Think of forecasting as a blueprint for planning your business’s future course of action.

How, though, does one conduct product forecasting for a new product? After all, it is not as easy as forecasting the performance of an existing product. Let’s first investigate the challenges of forecasting a new product.


Challenges in forecasting demand for a new product

Forecasting demand for your existing products is relatively easy; you can use statistical models to find trends in sales patterns. Based on the previous trends, you can develop a tentative estimate of the future demand. For instance, if you spot a rising trend in your product’s sales by 10% every year, you can adjust your production to cater to the increased demand in the future.

Forecasting is not that easy, however, in the case of launching a new product. Why? Because there is no historical data, that’s why! To illustrate, it is like pondering whether you can be a successful programmer, even though you have never written a single line of code in your life. It is difficult to predict because you have never attempted one of the many fundamentals of programming, right?

If the new product is planned to be launched on a large scale, prediction becomes even more challenging. There are so many variables for which you require data including customer demographics, geography, competition, and more.

A small retailer can still make educated assumptions about some variables, but the same process is more complex for businesses with hundreds of stores across different regions.

Now that you are aware of the difficulties in forecasting a new product, let’s examine six factors to consider while ascertaining your new product’s demand.


Six factors for launching a new product

#1 Product pricing

The price of your new product is a key determinant of its demand, but how do you decide what to charge for the product?

One way to price your product is to use the cost-plus pricing model. In this method, you ascertain the cost of making the product and then determine the price covering the cost and some extra amount for the profit margin. Although this method is simple to compute, it has certain limitations. For example, it does not factor in the competition and the demand of the product. Moreover, it does not encourage the business to control their cost as the entire cost – with some margin – would be covered in the price.

Launching a new line of products requires an investment in research and development (R&D), and—to become profitable—the business should prioritize covering R&D costs. The high-low pricing strategy (or skimming) aims to rapidly cover the new product’s associated costs. In this method, the product is initially launched at a higher price and is gradually discounted as the demand decreases. This strategy can be observed in the smartphone industry where new phones are launched at a higher price and then reduced as the initial hype diminishes.

Regardless of the pricing strategy you choose, the quality should justify its price.

Helpful hint: High-low will not work for utility products since the customers expect those items to be affordable. Also, if you frequently use this tactic, some of your customers may prefer waiting until the price comes down.

#2 Vendor assessment

Create a bill of materials (BOM) documenting all the resources necessary to make the new product. A BOM will also assist you in determining the items that require suppliers. The quality of your final product heavily depends on the raw materials you use to create it, so identifying the supplier that provides the best quality raw materials is crucial. In addition to quality, the time taken by the suppliers to deliver the materials (lead time) should also be considered. Lesser lead time helps you quickly fulfill any surges in demand.

Helpful hint: There may be times when you may need to revamp your supply chain to optimize for the product launch, so it is advisable to report this to your suppliers in order for them to prepare for any changes accordingly.

#3 Stock levels

While launching a new product is an exciting time for any company, you may end up compiling a large amount of inventory, with the expectation of making more sales. But what if the product does not meet the customers’ expectations, flops, and you end up with lots of unsold inventory? Conversely, if you keep lower inventory levels (to minimize any risk of a loss) and the product ends up being hit, you run the risk of frustrating and losing potential customers.

Both understocking and overstocking are bad for your business, yet you need to strike a balance between them. Having inventory management software can help you avoid such situations. With the automatic reordering feature, the system automatically sends a purchase order to replenish the inventory whenever it falls below a set threshold.

Understanding the type of the product also helps in avoiding such scenarios. For instance, the sales of games are very high during its launch, and then it plateaus. It makes sense to store high inventory for such products during the launch period.

#4 Production and storage capacity

Your manufacturing capacity is another constraint that determines the quantity of your new product. The production team should thoroughly inspect the requirements to manufacture the new product and determine whether the current production capacity can meet the forecasted demand. Businesses should also review their storage space to prevent producing goods where there is not enough space to store them.

Besides manufacturing and storage, your business should be equipped with the necessary logistical support to smoothly deliver the products to the customers. Your warehouses should be ready with the shipments at least one week before the launch date to timely deliver the products.

Helpful hint: Once you receive the raw materials, you should create sample products to check whether the output meets the standard requirements or not.

#5 Brand Cannibalization

While planning your new product, you should be mindful of brand cannibalization. Brand cannibalism occurs when one of your products ends up “eating” the sales of your other products.

While launching a new product, you might adopt the pricing strategy of a launch discount. While the discount can raise sales of your new product, it can hamper the sales of your other similar products. This can be problematic when the new selling product is of low-profit margin, and it replaces the sales of the better profitable product. Therefore, it is essential for you to find the biggest bang for your buck when you have multiple products hitting the marketplace.

#6 External Factors

Several external variables can impact the performance of your newly launched product. For instance, if you launch it during the holiday season – say Christmas – there is a higher likelihood of it getting sold as consumers usually shop during that season.

You should also factor in the seasonal fluctuations and trends while forecasting your product’s demand.


Five strategies to improve new product forecasting

Here are five tactics to help you forecast estimates for your new products:

#1 Leverage your existing knowledge

Even though forecasting a new product without historical data is a challenge, it is not impossible to do. Your newly introduced SKU might share some similar characteristics with your existing products. If that is the case, you can create a baseline for forecasting. For example, when Sony launched the PlayStation 5 – seven years after the PS4 – they had the historical data about the previous model to make prognostications. If there is no similar predecessor to your product, you can analyze the historical performance of competing products.

Helpful hint: Using inventory management software can offer all the product’s information from a centralized location, and it can also generate reports of your existing product’s performance.

#2 Understand your customers

If you have made a breakthrough discovery – with no similar offering – you need to rely on market research to understand customer preferences.

Perform research to understand what your customers need/feel about your product. To gather customer feedback, conduct customer surveys, observe customers, or organize focus groups. The data you accumulate will help you understand your customers better, and you can appropriately tailor your product for them.

#3 Qualitative research

Quantitative research relies on numbers and statistical analytics. However, with no historical data, it is not feasible to conduct quantitative analytics for new products.

The best option is to conduct qualitative research, which relies more on human judgment rather than numbers. There are several types of resources to use to gather this kind of research. For one, industry consultants and experts can provide your business valuable insight about the market’s receptivity towards your product. Secondly, utilize your suppliers to offer their observations of any changes and trends in the industry. Lastly, your salespeople are in daily contact with your prospective customers, so their suggestions should be considered as well.

Helpful hint: Since your salespeople’s goals are linked to your forecasted demand, they might make lower projections to meet those goals more easily. You might want to take their advice with a grain of salt.

#4 Pilot testing

It is far too risky to do a mass-scale launch of a new product without testing it with consumers. There could be a myriad of issues with the product, including ones you never anticipated. This kind of scenario could be disastrous for your product, if not your business. It is critical to conduct pilot testing. Think of pilot testing as a real-world experiment where you create a controlled environment for some select customers to use the product and then provide feedback based on their satisfaction (or lack thereof) with the product. One benefit of pilot testing is it will gain you access into the customer’s experience and repeat purchase patterns. Another benefit is that your product will receive feedback that will help you make any modifications to improve the product’s performance. The more successful a pilot test is, the better idea you will have to make an accurate product forecast.

#5 Create customer enthusiasm

Prior to launching your product, direct your marketing team to devise an advertising campaign that excites your customers and motivates them to purchase the product. Use the following metrics to assess the enthusiasm of your customer while you are promoting:

  • What are they posting on social media?
  • How many pre-orders has the product received?
  • What is the number of visits to your business’ webpage?

All these insights can help you gauge the potential demand.


In summary

Launching new products is always risky, thanks to scarcity of data, changes in the economic climate, and more. Leveraging modern technology and predictive analytics, however, can reduce the risk. Effective product forecasting can only improve your business acumen and boost sales.

After the launch, as you keep gaining actual data about your product’s performance, you should match it with your original forecast and continue doing this to refine your forecasting skill set. Your business and customers will thank you for putting in the extra work to fulfill orders and get your product right.

Contact us for a Cin7 demo and gain advice, tips, and more information about forecasting demand.





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