Are You Using Yesterday's Forecasting Tools for Today's Innovations?

The innovation process has changed dramatically over the last several years and yet the primary forecasting tools available to Marketers are basically the same as those used in the 1970s. There have been no significant changes in forecasting approaches despite the fact that the early stages of innovation have become a greater focus, time to market has been cut dramatically, advertising is being developed earlier, and retailers are giving new products less time to prove themselves at the shelf.

With so many issues to address and deadlines to meet, Marketers are finding traditional forecasting tools too rigid to apply to current new product development processes. In response to today's challenges, Ipsos Marketing has developed an alternative approach to forecasting that significantly changes the way this critical research tool can be used in the development of new products. This new paradigm of forecasting involves a modular approach that provides Marketers with the flexibility to forecast sales at any point in the innovation process, including the very early stages (for example, at the idea testing stage). With this new approach, Marketers can assess market potential whenever they need to, instead of waiting until the end of the NPD process when all of the marketing mix elements are ready to test - but when most of the go-to-market decisions have already been made.

The Game Has Changed, but the Team Still Needs to Forecast

Based on our new product development experience with major CPG companies, we have identified three key challenges Marketers face in trying to determine new product market potential:

Challenge #1: How can I adapt my research to a non-standard innovation process?

The process to develop an idea into a finalized product ready for market can differ dramatically. Within the same industry, same company, and even the same division, we have observed vast differences in how products are developed. Life for Marketers would be easier if the innovation process were always the same, but there are very good reasons why the process must adapt to the situation:

• Objective...Launches of a strategic nature will often have different needs and success criteria than launches that are tactical.
• Risk...A high-risk innovation (such as a breakthrough product) will likely undergo more thorough testing than a low- to moderate-risk innovation (such as a line extension).
• Speed to market...Corporate and retailer expectations for launch timing will impact the degree and nature of testing.

While we often generalize about the "innovation process," the reality of any given innovation process may look quite different.

Challenge #2: When should I conduct a sales forecast?

A forecasting model is only as strong as the assumptions and data used. To ensure the highest level of accuracy, Marketers may wait as long as possible before conducting forecasting research. Unfortunately, a forecast loses much of its usefulness late in the innovation process. Many decisions have already been made along the way and are irreversible. The reality is that a forecast can actually be most helpful in informing critical innovation decisions earlier in and throughout the process, especially when there exists:

• The desire to kill low-potential ideas early in the process and advance high-potential ideas faster
• The drive to be first to market
• Retailer demand for earlier alerts to new products

Challenge #3: What am I really trying to learn from the forecast?

Current forecasting tools were tailored to a specific set of questions, most notably, "Should we launch?" This classic "go/no-go" decision can still be informed by STMs. Moreover, STMs serve an important purpose in helping Marketers to optimize their mixes immediately prior to launch.

However, there are many more questions facing Marketers during the innovation process that could benefit from forecasting. For example, depending on the type of innovation and its place in the innovation process, forecasting should be able to address any of the following business issues:

• Roughly how much volume is this idea worth?
• Which product formula will drive greater repeat rates?
• Which package will increase trial at shelf the most?
• Will this alternative advertising increase sales?
• Will consumers try the product at a higher price?

Adding Value to the Innovation Process: A New Forecasting Paradigm

Recognizing the industry's need for a new forecasting paradigm, Ipsos Marketing developed a new approach to forecasting that takes into account the three challenges described above: customized innovation processes, the need for early and continuous forecasting, and forecast actionability. We call our approach Designor174 NextGen Modular Forecasting - or Designor174 NextGen.

Designor NextGen is based on Ipsos' Designor174 forecasting system, launched by our Novaction business in 1976. Designor is a validated forecasting model for consumer packaged goods that produces estimates within 9% of actual sales on average. Designor has been used for more than 10,000 innovations, in over 250 categories, and in more than 55 countries. Designor continues to be an important forecasting tool to predict Year I and Year II sales, analyze source of volume and conduct in-market simulations.

Forecasting Has Finally Evolved

Designor NextGen Modular Forecasting was designed to meet the innovation challenges of today, so that Marketers do not need to make due with the tools of yesteryear.

Innovation is a fundamentally difficult task, and marketing research shouldn't make it harder. Designor NextGen enables the Marketer to customize the forecasting tool to work effectively with the unique circumstances and issues of a particular innovation.

Moreover, innovation is a process of development and choices. During the process of turning an idea into a real consumer product, things will change. The Designor NextGen approach is a continuous, dynamic process, not a one-time measurement or assessment.

Finally, when Marketers make decisions impacting new product development, they must consider a variety of factors and weigh different options. One of the most important questions they should ask is: "What is the in-market impact of this decision?" Today, many research tools are used as in-market indicators, not in-market assessment. "Designor NextGen" explains to the Marketer the specific sales implications of the options at hand.