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Needs
Prof Narayan Janakiraman
Market Sizing
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CIRCUS CIRQUE DE SOLEIL
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MOP SWIFFER
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Time SeriesRegression
Bass Diffusion Model
New
Markets
New
Products
Existing
Markets
Existing
Products
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Frank1926-2006Bass
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Basics
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What is this? and why is it important?
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Time (t)
Per Year sales
S(t)
Introduction ofproduct
SALESBell Shaped Curve
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N(t-1)
N(t)
M
Time
t-1 t
Cum Sales
Cumulative SALESS Shaped Curve
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Probability (1) * RemainingConsumers(2)
SALES =
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1. Probability
p q
Effect of Advertising Effect of Word of Mouth
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1. Probability
p q
Effect of Advertising Effect of Word of Mouth
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2. Remaining Consumers1 M2 M - S13 M - S1
YEAR Consumers LeftSalesS1S2S3 - S2
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SALES = p q * N t-1 / MM - N t-1
+[ ]X
[ ]Probability
Remaining Consumers
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M Market Potential
p Effect of Advertisingq Effect of Word of Mouth
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An exampleM = 30 million p = 0.0112 q = 0.5
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S1 = (Prob) * (Remaining Consumers)= [p + q (N0/M)] * [M N0]
= [p + q (0)] * [M 0]= [p ] * M= 0.0112 * 30 = 0.336 = 336,000 consumers
Year 1
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S2 = (Prob) * (Remaining Consumers)= [p + q (N1/M)] * [M N1]
= [0.0112 + 0.5* (0.336/30)] * [30 0.336]
= 0.498 = 498,000 consumers
Notethat498,000=332,237innovators+165,763imitator
Year 2
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Year 3,4,5....?
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p = 0.01 q = 0.5
p increases
q decreases
??
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Answeringmachines
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Determining theBass Diffusion Model
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M Market Potential
p Effect of Advertisingq Effect of Word of Mouth
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MARKET POTENTIAL
(1)Ask Consumers
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Total market Relevant market Have a need
Need a productIndicate purchase when
shown a product concept
Actual purchase
MARKET
POTENTIAL
For each segment we should be able to get
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Example
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MARKET POTENTIAL
(2)Ask Experts
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Estimatingp & q(1)
Other products
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PRODUCTInnovaon
parameterp
Imitaonparameter
q
B&WTV 0.108 0.231ColorTV 0.059 0.146RoomAC 0.006
0.185
ClothesDryer 0.009 0.143UltrasoundImaging 0.0001 0.534Cellphones 0.008 0.421CDPlayer 0.055 0.378SteamIron 0.031 0.128MicrowaveOven 0.002 0.357HomePC 0.121 0.281
p and q for existing products
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Estimating p &q
(2)Three data
points
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St = [p + q (Nt-1/M)] * [M N(t-1)]S
t
= a + bN(t-1)
cN(t-1)
2Solve for a,b, c p = a/M
q = -Mc
Three data points
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(1)Ask Consumers
(2)Ask Experts
(1)Other products
(2)Three data
points
Mp & q
P d Lif C l
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Product Diffusion
Product Life Cycle
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p
q
Effect of AdvertisingInnovation Rate
Effect of WOMImitation Rate
DIFFUSION RATES
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An example ...
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1. Market Potential
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Product p q
PortableCDplayer 0.00605 0.66
Automobileradio 0.0161 0.41
Cellularphone 0.008 0.421
2. Estimation of p & q
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Effect of p and q Satellite Radio
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Why the slow start and rapid acceleration?
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Actual sales of XM &
Sirius
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E x t e n d i n gthe Bass Diffusion Model
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Binary (consumer adopts or not)Constant potential i.e. no repeat purchase
Eventually, all will buyWOM independent of adoption time
Independent of substitutesNo effect of marketing strategies
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1. Varying market potential2. Incorporation of marketing variables
Coefficient of innovation (p) as a function of advertising p(t) = a + b * Adversing
Effects of price and detailing.3. Incorporating repeat purchases4. Multi-stage diffusion process
Awareness Interest Adoption Word of mouth
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Generations of PCs
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Rules of DiffusionForecasting
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(1) Hazy
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(2) Time is of essence
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(3) Garbage in, Garbage out
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(4) p and q from other
countries
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Where does it fit in the
product developmentprocess?
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