NPD First Year Growth Calculator
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Question: How do you estimate your sales in the first year of a product launch if there is no reference product or product category already in the market (where you could say that you are going for X% of the market)?
Answer: the traditional way has been to work up the estimate from analysis of the buildings blocks of a new product commercialisation – the size of the total universe of potential customers, the build of awareness amongst that universe, the conversion from awareness to trial and then to repurchase, discounted by restrictions in weighted distribution and competitive activity.
Key points
The greatest value of this tool is in providing an objective basis for a discussion as to how a new product or service should be commercialised:
- how much will be invested in building awareness in the market?
- what is the likely conversion rate from awareness to trial?
- what is the likely conversion rate from trial to repeat purchase?
- how many units will a typical customer buy a year?
It focuses entirely on sales in the first year of launch, and its primary emphasis is that time is your enemy – delays in building awareness, and in moving potential customers between awareness and trial and trail and repurchase may well mean that significant sales are lost in the first year. This follows the dictum that “in a sales launch, delayed sales are never recaptured.”
In more detail….
We have seen some highly complex new product / service sales estimators which explicitly take into account such complexities as:
- estimating conversion rates all the way up the “customer ladder”:
- non-awareness to awareness
- awareness to serious consideration
- serious consideration to trial
- trial to repeat purchase
- repeat purchase to loyalty
- time delays between each of the above rungs on the ladder
- restrictions on sales resulting from low weighted distribution – trials / sales that are obstructed because the customer cannot find a source for the product / service
- calculations as to how many people will try to find the product if they fail initially
- the impact of competitive activity – how many customers will be lost to competition
- different average annual unit purchases according to different categorisations of customer
- related profitability / profit growth
From our experience, the more sophistication / complexity that is built into a marketing model, the less accurate and less practical it generally is. Each variable comes with its own margin of error. The more variables there are, the more the margins of error compound each other and, as we are modelling a social environment not a production line, this can lead to much greater levels of inaccuracy than much simpler / cruder calculations.
The dials on this NPD First Year Growth Calculator can be manipulated to take more complex issues into account, but it is primarily designed to match Albert Einstein’s comment that a plan / recommendation “should be as simple as possible, but no simpler.”
It therefore follows the lines of an AIDA model (Awareness, Interest, Decision, Action) and similar, but keeps the variables to a minimum:
- the size of the universe of potential customers
- the awareness build among that universe
- the conversion rate from awareness to trial
- the conversion rate from trial to repurchase
- the average number of units bought at trial
- the average number of units bought annually
We believe that this gives you enough variables to play with to reflect the complexities without succumbing to the consequences of compounded margins of error.
For instance, you can (and should) adjust the conversion rates to reflect the fact that some people will not be able to find the product or service. Equally, you can adjust the average annual units purchased to reflect competitive activity.
The key is that the model will give you a solid ballpark estimate, and allow you and your team to discuss the fundamentals of pulling sales forward by seeking ways to minimise time delays in the decision-making cycle.
This tool can be bought separately here.
It also makes up part of our broader “Innovation” training e-package which comprises an e-booklet and nine of our new product / service development tools. To find out more, please click here.
Click here for free tools and know-how materials from the Mud Valley™ strategy & brand marketing community.
Buy our training packs for tools which guarantee your business growth. For more details, click here.
For further information, please contact us by telephone at +44 208 123 1438 - Skype: mudvalley (Belgium) - or by e-mail at enquiries@mudvalley.co.uk.
© 2008, Mud Valley ™ brand marketing community.
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