The success of a new product launch largely depends on accurately forecasting the demand for the product. Accurate demand forecasting through demand planning software helps businesses plan their production, marketing, and distribution strategies, avoid overproduction or stock-outs, and optimize profits. However, forecasting demand for new products can be challenging, especially if there is limited historical data available or if the product is in a new or emerging market.
Despite the difficulties, making sales estimates is crucial for planning the inventory stock, the safety stock, and the cash flow that you’ll need to meet actual demand. In this blog, we will discuss some effective strategies for forecasting demand for new products accurately.
Conduct Market Research
One of the most crucial steps in forecasting demand for a new product is conducting thorough market research. Market research helps businesses understand the needs and preferences of their target customers, the size of the potential market, the competition, and the market trends. This information can be used to estimate the demand for the new product, determine the optimal pricing strategy, and identify potential barriers to entry. Market research can be conducted through surveys, focus groups, interviews, and online analytics.
Use Historical Data and Trend Analysis
If the new product is an extension of an existing product line, businesses can use historical sales data and trend analysis with the help of good demand planning software to forecast demand. Historical data can be used to identify seasonal trends, demand patterns, and customer preferences. Trend analysis helps businesses identify the growth rate of the market, the growth rate of the competition, and the market share of the product. This information can be used to estimate the potential demand for the new product.
Analyze the Competition
Analyzing the competition can also provide valuable insights into the potential demand for a new product. By analyzing the pricing strategies, product features, and marketing campaigns of the competition through demand forecasting software, businesses can estimate the demand for their new product. Businesses can also conduct competitive intelligence analysis to gain insights into the competition’s strengths and weaknesses, and to identify potential opportunities for their new product.
Use Statistical Models
The demand forecasting software offers exceptional accuracy in predicting demand by analyzing granular data at the SKU level. This analysis starts at supply chain nodes closer to the customer and is then aggregated to higher nodes such as the main warehouse. The software first generates baseline predictions that consider historical sales trends, seasonal effects, cyclical patterns, and outlier corrections at the SKU, channel, and store levels. In the next stage, the software factors in changes in pricing, promotional campaigns, holidays, and weather to produce factor-adjusted demand predictions. These predictions can still be modified by users based on their business expertise. Once finalized, the updated prediction numbers are sent to the inventory planning module. The software also simplifies the process of forecasting new products or stores by intelligently associating them with existing ones that share similar attributes. With continuous learning, the system can independently predict demand and plan inventory for new products and stores.
Use Social Media Analytics
Social media analytics can provide valuable insights into the potential demand for a new product through demand planning software. By monitoring social media platforms, businesses can identify the sentiment of customers towards the new product, identify potential influencers, and gain insights into the conversations surrounding the product. Social media analytics can also be used to track the performance of marketing campaigns, identify potential issues with the product, and make necessary adjustments to the marketing strategy.
Establish Communication With Your Sales Team
Your sales team possesses industry knowledge, including information about your competitors’ activities. Similarly, your customer support team is aware of the potential of new products. You can leverage their expertise by seeking their assistance in estimating the initial sales volume and projected growth rate of your new product. By explaining your product concept, you can engage them in the product launch process and foster their involvement in ensuring its success.
Make Use of Flexible Periods
It’s crucial to closely monitor the sales performance of a new product during its initial days and weeks since they can indicate its future demand trajectory. While the sales and finance departments may focus on monthly figures, it’s beneficial to prepare detailed daily projections for the first quarter to track actual sales against them. This approach can help you gain a deeper understanding of the product’s market performance and adjust your strategies accordingly.
Conduct Test Markets
Test markets can be used to estimate the demand for a new product before its official launch. Test markets involve launching a new product in a small geographical area or to a limited target audience. The sales data from the test market can be used to estimate the potential demand for the new product, identify potential issues with the product, and make necessary adjustments to the product and marketing strategy through the demand forecasting tool.
Develop Granular Models
Consumer demand patterns are highly dynamic and can vary significantly across different regions and segments. To forecast accurately, businesses typically aggregate demand data by product and geography, which is then disaggregated for daily supply execution. However, this approach is time-consuming and inefficient, limiting the ability to decipher daily customer demand and emerging patterns at a granular level. With the advent of advanced demand planning software, businesses can now process large datasets efficiently and gain insights into daily demand trends in different market segments and locations. Thus, it’s crucial to invest in a sophisticated forecasting system that can consider the complex and evolving demand patterns across different regions and segments.
About the Company
Retail companies can accurately predict demand for new products with the help of AI-powered demand planning software, Kronoscope, by Fountain9. This demand forecasting tool takes into account various factors that can affect demand, such as sales data for similar products and previous product launches, to provide granular-level demand predictions across multiple channels. By using Kronoscope, retail companies can efficiently estimate demand for new products and avoid overstocking while ensuring that customer demand is met on time. Overall, Kronoscope is a reliable and effective tool for demand forecasting in the retail industry.
