Tuesday, June 1, 2010

Demand vs. supply-oriented forecasting

by Karen Coppock

Apple has sold more than 2 million iPADs over the past sixty days. Who would have expected such uptake? Not many if historic, supply-oriented forecasting techniques were used.

Future technology sales are often based on recent sales levels (e.g., how many PCs were sold in the previous quarter), which are adjusted based on current industry and economic conditions. With new technology, such as the iPad, this approach falls short as there there is little (tablet PCs have not been a vibrant product category) or no sales history to use to inform the estimates. Therefore, industry players can be blindsided by new product categories or innovations.

One solution to this problem is to use demand-oriented forecasting. By understanding what features and functionalities consumers (as well as businesses and government clients) value and the trade offs they are willing to make between performance, features, functionality and price, firms will be better positioned to estimate the demand for innovative products and services.

Apple seems to be quite adept at launching category-changing  innovations...their forecasters must be looking at more than historical data to inform their business plans or else we may never have seen the iPad.

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