Saturday, September 5, 2009

New Products Forecasting

Yesterday Nokia officially launched X6 touch phone at Nokia world. This is a nice touch phone with features comparable to or better than iphone 3GS. It took them almost two years to release a phone which is comparable to or better than iphone. This phone is also very competitively priced (Rs 30,000). It's good to see that competition for Apple Iphone has finally arrived. Apple has been ignoring Indian market for long time now. Apple Iphone launch in India was a big failure due to very high pricing. India is suppose to be one of the largest mobile handset markets in the world. One can't afford to ignore them. I hope Apple learns from their past mistakes and launches Iphone 3GS at very competitive pricing in India.

Nokia comes out with a new product or model every month. Lot of time they launch a model which has overlapping features with existing model in market. I always wondered how they forecast inventory for their new phone.Typically, forecasting is done based on past data and events. There is no such data available for new products. Moreover, there are similar products available in market from the same manufacturer. Each of these products eat into each other's revenue. In high tech companies, typically there are 50-60% of mature or stable products, 35% of new products and 5% of "first-of-its-kind" products. How do you ensure that the new product doesn't impact sales of existing product in market?

Each product follows a particular life cycle. A new product launch should be decided in such a way that it doesn't cannablize revenue of other similar products in market. E,g Nokia X3 is a new music phone. Most probably, it will replace Nokia X5300 express music phone. Launch of Nokia X3 is planned when Nokia X5300 is reaching towards end of its life. If two models are going to co-exists than you need to ensure that messaging & target consumer audience is different for both the products. In case of Nokia, both Nokia N97 and N97 mini are going to co-exist. Both the products are meant for different consumer segment.

There are several new product forecasting techniques available. One of the most common one is a Bass diffusion technique. The bass diffusion technique requires 3 parameters
  • Lifetime expected sales - the total amount of units sold in its product lifetime. Also known as market potential
  • P(Mass media) - influenced by the technical aspects of a product that drives a consumer purchase. Also known as coefficient of innovation.
  • Q(Word of Mouth) - Reflects the internal dynamics of the consumer. Also known as coefficient of imitation.
Typically, the following methodology is used for new product forecasting
  • Find a cluster of like (similar) products. This is used to determine the historical data we can use from like products.
  • Perform regression analysis on the cluster
  • Use Bass diffusion model to determine the forecast of the new product
  • Adjust or reforecast after we have some actual data
There are several high tech companies in world who are using sophisticated forecasting techniques to ensure that there is increase in profitability, market share & reduction in excess inventory.

I am ardent fan of Apple iphone. I personally believe that competition is always good for end consumer. With Nokia X6 launch, Apple will not be complacent. It will accelerate innovation at both the places. Finally end consumers like me will get benefited.

You can find more details about Nokia X6@

Nokia Phone Comparision


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