forecasting the future for profit - scip presentation

© Copyright 2016 Milner Strategic Marketing Ltd

Forecasting the Future for Profit

Jonathan Davenport

Milner Strategic Marketing

10th May 2016

2© Copyright 2016 Milner Strategic Marketing Ltd

• Milner Strategic Marketing Ltd is a business

consultancy that specialises in working with

technology companies

• Clients want help with market analysis, strategy

and marketing programmes

• Extensive experience of forecasting markets with

high levels of accuracy

• Acknowledged experts: materials widely published

• I have built over 50 market models over the last 8

years with forecast models containing ~15m cells

Milner Strategic Marketing Ltd

QUESTION:


Which of your

companies has its

own market model?

WHY A

MARKET

FORECAST

MODEL?



What should Blockbuster’s market forecast have

looked like?

DISCUSSION

POINT:


Can you think of

other companies that

failed because they

did not understand

how their target

market would

evolve?


Consumer adoption of technological innovations

can be predicted

Consumer product S-curves Source: North (2012)


A market forecast model provides a detailed understanding

of future consumer and competitive behavior

WHERE TO

GATHER

MARKET

SIZE DATA?



Secondary research collects data on the size of

customer base and competitor position

Customer-focused data Competitor-focused data

Company Website

Company Internal Data

Social Media

Trade Press

Industry Analysts Popular Press

Statistics Authorities


Primary research provides insights into customer

behavior and competitor trends

Channel Partners

FOI

Customers

Internal

Experts

Industry

Experts

Internal

Experts

Customers

Customer-focused data Competitor-focused data

Structured Interviews

Surveys and Analysis Suppliers

DISCUSSION

POINT:


What challenges do

you face in your

company – too much

or too little market

data?

HOW TO

CONSTRUCT

THE MODEL?



Understand your market, which needs to be

precisely defined in the model

Total Available Market, Served Available Market, Target Market


Markets are complex. Identify the structural elements

that are relevant and bespoke to your market

GeographyGeography by Sector

by Product Type

2010 2019

Ma

rket S

ize

(G

eo

gra

ph

y,

Se

cto

r, P

rod

uct T

yp

e)

Product Type C

Product Type B

Product Type A

2010 2019

Product A

Ma

rket S

ize

(G

eo

gra

ph

y, S

ecto

r,

Pro

du

ct T

yp

e, P

rod

uct)

Geography by Sector by

Product Type by Product

2019

Country G

Country E

Country A

Ma

rket S

ize

(G

eo

gra

ph

y)

Country C

Country D

Country B

Country F

Geography by Sector

2010 2019

Ma

rket S

ize

(G

eo

gra

ph

y,

Se

cto

r)

Sector E

Sector C

Sector B

Sector D

Sector A

Other Product DRest of World

N=6 N=3

Product B

Product C

2010

N=4N=8


The model provides a detailed breakdown of sales

volumes by geography, sector, product type and product

DISCUSSION

POINT:


Would you describe

your market as

emerging or mature?

WHAT ARE

THE KEY

FORECAST

TECHNIQUES

?



Scenario planning helps you anticipate the

dynamics of different potential futures

The Day After Tomorrow

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Ut dignissim eleifend felis. Maecenas

tincidunt tincidunt nulla at tristique. Nam posuere lobortis mattis. Pellentesque eu quam odio.

Cras dictum enim et condimentum pretium. In commodo id augue nec sagittis. Maecenas

pellentesque metus sit amet ex sagittis sagittis. Ut eros purus, mollis quis sem at, tincidunt

tincidunt nisl.

Nunc id tortor vitae metus iaculis feugiat sed in eros. Suspendisse non sagittis mi, eu tincidunt

diam. Aliquam a massa quis magna tempor fermentum. Ut venenatis turpis id dolor laoreet, et

placerat orci cursus. Sed mi magna, ultricies et rhoncus et, finibus in velit. Quisque sem enim,

egestas consectetur dignissim sed, luctus vel tortor. In hac habitasse platea dictumst. Curabitur

tempus lobortis dapibus. Pellentesque habitant morbi tristique senectus et netus et malesuada

fames ac turpis egestas. Nunc in tortor vestibulum, tincidunt lorem a, feugiat nisi. Maecenas

molestie mattis leo, ut rhoncus orci pellentesque ut. Vestibulum porttitor, dolor eget hendrerit

ultrices, nisl magna porttitor sem, id pretium urna neque vel nisl. Morbi id diam venenatis nulla

vestibulum finibus eu sed diam. Integer hendrerit bibendum libero, sit amet accumsan quam.

Vestibulum egestas molestie velit nec varius. Integer rutrum, arcu vitae posuere finibus, arcu

lacus commodo elit, in posuere eros neque in augue.

Describe each scenario

Analyse potential scenarios

Identify critical variables

Variables

Historic sales

Consumer

Adoption Theory

Market

penetration

Seasonality

Country

demographics

Economic factors

Forecast the impact of scenarios

1

2

3

4


Forecasting Emerging Markets: Diffusion of Innovation and

Market Churn provides a robust approach for new tech

New

Adopters

Total

Demand

Market

Churn

Innovators

(2.5%)

Early

Majority

(34%)

Late

Majority

(34%)

Early

Adopters

(13.5%)

Laggards

(16%)

Market Churn:

Technology has a predictable life cycle. Milner analyses the

churn (replacement) rate, which is affected by product durability

and technology upgrade, to forecast the long-term sales

demand for replacement products.

Total Demand:

The total demand forecast takes into account both sales of new

and replacement products over time.

New Adopters – Diffusion of Innovation:

According to Diffusion of Innovation, the adoption curve can be

broken into five sections of adopters with different

characteristics and behaviours, affecting the market dynamics.

The curve predicts the proportion of the target population that

will adopt the new technology over time.

Diffusion of Innovation and Market Churn Methodology


Forecasting Mature Markets: Anchor Metrics can be

used to calculate sector demand

Anchor

Metric

Sector

Demand

Output

Multiplier

Anchor Metric:

A unit which allows us to scale the size of the sector

and understand the market trends e.g. car

production.

Production Output Multiplier:

The amount of product used in a single anchor

metric point e.g. number of widgets per car.

Total Sector Demand for one time period:

The sector’s anchor metric is multiplied by the

appropriate production output multiplier.

Total Sector Demand over time:

The sector demand is anchored to changes in sector

size, by the sector anchor metric. This allows

changes in demand over time to be calculated.

The Anchor Metrics Methodology

DISCUSSION

POINT:


What are the key

drivers that influence

customer purchasing

behaviour in your

markets?

HOW TO GET

BUY-IN?



Analysis of the results yields valuable and

sometimes unexpected insights into the marketM

ark

et S

ize

Se

cto

r S

ize

Pro

du

ct T

yp

e

Siz

eP

rod

uct S

ize

Market Units Market Value


Building credibility of the model and developing

data-driven recommendations ensures buy-in

Model

results

and

analysis

Conclusions and

recommendationsDiscussion

-20.0%

-10.0%

0.0%

10.0%

20.0%

0

2,000

4,000

6,000

8,000

CountryA

CountryB

CountryC

CountryD

CountryE

CountryF

CountryG

Other

Sale

s V

olu

me (

un

it)

Forecasting Accuracy

Forecast 2013 Actual 2013 Forecast 2014 Actual 2014 Forecast 2015

Actual 2015 Accuracy 2013 Accuracy 2014 Accuracy 2015

0%

5%

10%

15%

20%

25%

30%

35%

Country ACountry BCountry CCountry DCountry ECountry FCountry G Other

Mark

et

Sh

are

of

Un

it S

ale

s

Triangulation of Model against Analyst Market Share Estimates (2015)

Analyst ReportEstimate 2015Milner Model Estimate2015Internal Estimate 2015

Data-driven conclusions and recommendationsTriangulation ensures forecasting accuracy

DISCUSSION

POINT:


How would this sort

of information help

you in your day job?

WHERE ARE

THE

OUTPUTS

USED?



The forecast output is valuable to all departments. Using

one data source means the whole company is aligned

3 key applications of model output

• Supporting an internal

investment decision1

• Developing the

product roadmap2

• Identifying revenue

growth opportunities3


2008Evaluating a Business Unit

- To underpin an internal decision

about whether to invest in or divest

one of its Internet Sector business

units

Practical examples of using a market forecast

model

2014Forecasting the Smart Phone and

Tablet Markets

- To understand the buying behavior

across different price points,

vendors and operating systems

2015Gauging Revenue Growth

Opportunities

- To identify the global market

demand for ceramic fibre used in

high temperature and fire protection

• Growth in demand from

emerging markets, e.g. China

and India

• Change in vendor dynamics –

16 key vendors

• Change in consumer buying

behavior – 11 price points, 11

operating systems

• The rise of Android operating

system was identified

• 27 individual countries across 4

regions were analysed to

identify geo hotspots

• Revenue opportunities in 11

sectors by material type (3) by

product form (8) were examined

• Detailed pricing analysis

revealed market trends and

Morgan’s price premium

• Key market forces were outlined

• The impact of the recession on

sales was quantified

• The market size of the unit was

estimated both in volume and

value terms

• Four commercial options were

provided

DISCUSSION

POINT:


Where does the

strategic decision

making function sit

within your

company?

forecasting the future for profit - scip presentation

Presentations & Public Speaking