Wk5 LecNotes Bass Model(1)

7/28/2019 Wk5 LecNotes Bass Model(1)

1/58

Needs

Prof Narayan Janakiraman

Market Sizing


2/58


3/58


4/58


5/58

CIRCUS CIRQUE DE SOLEIL


6/58

MOP SWIFFER


7/58


8/58

Time SeriesRegression

Bass Diffusion Model

New

Markets

New

Products

Existing

Markets

Existing

Products


9/58

Frank1926-2006Bass


10/58

Basics


11/58

What is this? and why is it important?


12/58

Time (t)

Per Year sales

S(t)

Introduction ofproduct

SALESBell Shaped Curve


13/58

N(t-1)

N(t)

M

Time

t-1 t

Cum Sales

Cumulative SALESS Shaped Curve


14/58

Probability (1) * RemainingConsumers(2)

SALES =


15/58

1. Probability

p q

Effect of Advertising Effect of Word of Mouth


16/58* N t-1 / M+

1. Probability

p q

Effect of Advertising Effect of Word of Mouth


17/58

2. Remaining Consumers1 M2 M - S13 M - S1

YEAR Consumers LeftSalesS1S2S3 - S2


18/58

SALES = p q * N t-1 / MM - N t-1

+[ ]X

[ ]Probability

Remaining Consumers


19/58

M Market Potential

p Effect of Advertisingq Effect of Word of Mouth


20/58

An exampleM = 30 million p = 0.0112 q = 0.5


21/58

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


22/58

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


23/58

Year 3,4,5....?


24/58

p = 0.01 q = 0.5

p increases

q decreases

??


25/58


26/58


27/58

Answeringmachines


28/58

Determining theBass Diffusion Model


29/58

M Market Potential

p Effect of Advertisingq Effect of Word of Mouth


30/58

MARKET POTENTIAL

(1)Ask Consumers


31/58

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


32/58

Example


33/58

MARKET POTENTIAL

(2)Ask Experts


34/58

Estimatingp & q(1)

Other products


35/58

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


36/58

Estimating p &q

(2)Three data

points


37/58

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


38/58

(1)Ask Consumers

(2)Ask Experts

(1)Other products

(2)Three data

points

Mp & q

P d Lif C l


39/58

Product Diffusion

Product Life Cycle


40/58

p

q

Effect of AdvertisingInnovation Rate

Effect of WOMImitation Rate

DIFFUSION RATES


41/58

An example ...


42/58

1. Market Potential


43/58

Product p q

PortableCDplayer 0.00605 0.66

Automobileradio 0.0161 0.41

Cellularphone 0.008 0.421

2. Estimation of p & q


44/58

Effect of p and q Satellite Radio


45/58


46/58

Why the slow start and rapid acceleration?


47/58

Actual sales of XM &

Sirius


48/58

E x t e n d i n gthe Bass Diffusion Model


49/58

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


50/58

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


51/58

Generations of PCs


52/58

Rules of DiffusionForecasting


53/58

(1) Hazy


54/58

(2) Time is of essence


55/58

(3) Garbage in, Garbage out


56/58

(4) p and q from other

countries


57/58

Where does it fit in the

product developmentprocess?


58/58

Documents

Wk5 LecNotes Bass Model(1)