L6 Flashcards
Full screen scoring models, what is it and how to do it?
“NPV”
Net Present Value (NPV) is the value of all future cash flows (positive and negative) over the entire life of an investment discounted to the present.
NPV>0 accept
NPV< 0 reject
NPV = 0 does not add monetary value, decision should be based on other criteria, e.g. strategic positioning
“Scoring model”
Full screen scoring models, what is it and how to do it?
> Given a scoring form (big table), the team members who will be doing the scoring first undergo a familiarization period during which they get acquainted with each proposal (market, concept, concept test results).
Then each scorer rates each factor by selecting the most appropriate point on the semantic (difficult > easy) differential scales.
These scorings are multiplied by the assigned importance weights, and the factor totals are extended.
All factors’s ratings are totaled to get the overall rating for that concept by each individual.
Various methods are used to combine the individual team member’s ratings, an average (mean) being the most common. Some firms use the Olympic method of dropping the highest and lowest ratings before averaging. Some firms have an open discussion after the averages are shown, so individuals can make a case for any view that is at odds with the group. Many firms have found that collaborative softwares aids the process greatly.
“Analytical hierarchy process”
Full screen scoring models, what is it and how to do it?
Analytical hierarchy process is systematic gathering of expert judgements
> The manager builds a hierarchical decision tree
- Start with the goal (choosing the best new product)
- Then all primary criteria important to reach the goal
- There may be several levels of criteria (secondary, tertiary, etc.) under the primary criteria in the tree.
- Lastly, the choices (new product projects under consideration) are placed at the bottom of the tree.
> Next, the manager provides comparison data for each element in the tree with respect to the next higher level. That is, the criteria are compared in terms of their im- portance in reaching the goal, and the choices are compared in terms of their ratings on each criterion.
> The AHP software calculates overall weights for each project
Ultimately, the available choices (new product projects) are rank ordered in terms of their preferability to the manager.
Easier to understand if you look at example in p. 255-256
How to perform Judgement-based Sales forecasting?
Qualitative based evaluation where you ask sales force, jury of experts and forecast based on their opinion.
Sales forecasting problems and how to handle them (5) ?
1) You cannot predict everything (The folks at Google or Twitter did not know their Web sites would become that popular.).
2) We don’t know the exact product costs, further capital investment, probable taxes on future income etc. We rely on estimates.
3) information is constantly changing. Resellers, regulators, and market advisers are in a constant flux.
4) target users don’t always know what the new product will actually be, what it will do for them, what it will cost, and what its drawbacks will be thus they ca provide us with false info.
5) most common forecasting methods are extrapolations and work well on established products. New products don’t have a history.
How to perform Customer-based Sales forecasting
1) Market testing
Situations in which potential customers are asked to respond to a product concept (Mall Intercept Surveys or Focus Groups)
2) Market surveys
A form of primary market research in which potential customers are asked to give some indication of their likelihood of purchasing a product
How to perform Regression Sales forecasting?
Regression analysis is a statistical technique for quantifying the relationship between variables. In simple regression analysis, there is one dependent variable (e.g. sales) to be forecast and one independent variable. The values of the independent variable are typically those assumed to “cause” or determine the values of the dependent variable. Thus, if we assume that the amount of advertising dollars spent on a product determines the amount of its sales, we could use regression analysis to quantify the precise nature of the relationship between advertising and sales
Regression is used for the most straightforward kind of forecast to conduct - sales analysis, used for current technologies being sold into current markets (for example, Kellogg’s assessing how many boxes of corn flakes it will sell next year if it can reduce costs per package by 5 percent).
Simple regression:
It is for short time period, low cost and easy to learn.
Multiple regressions:
Short/medium time, moderate cost and more difficult to learn and interpret.
How to reduce dependence on poor forecasting (6)?
Forecast what you know
Approve situations, not numbers
Commit to a strategy of low-cost development and marketing
Go ahead with sound forecasts but prepare to handle risks
Use different methods of financial analysis on new products, dependent on the situation
Improve current financial forecasting methods
