How do CPG / FMCG companies forecast volume for a new product?
There are many factors to consider before being able to forecast volume for a new product with reasonable accuracy, and even then many experienced marketers get it wrong as the variables are many and some of them are simply unknown.
The factors to consider are:
Product features and quality vs competition
Brand Strength, if it is a new product from an established brand
Advertising Investment to generate awareness and educate consumers on the features of the new product
Price and Promotional strategy vs competition
Product test scores vs. competitive products based on formal research
Retail or distribution capability or customer (retailer) buy in of your products
Timing of launch if product is seasonal
And any other factors which are unique and category specific
Most organisations take any one or more of these 4 approaches to work out volume for a new product over a specific time frame (lets say one year). The first approach is:
Market Share based : this is a holistic marketing approach…..brand managers take all the product and marketing features of the new product, its advertising, pricing etc. and compare it versus competition and estimate a potential market share. This requires experience and analysis of historical data.
Retail store based : this is a sales based approach where they estimate numbers of stores distributed, the initial sell in units, the potential unit sales per store per week to arrive at a volume
Advertising Awareness based : this is a pure above the line based approach which makes assumptions on how many consumers will be made Aware of the product, of that how many will try (Trial) the product, and this percentage is based on research of previous similar new products and how many will come back and buy again which is called Retention
Price Variation based : this is a trade marketing approach and assumes a certain distribution over which volume per week at Everyday shelf price is estimated and volume per week for promotional price is estimated. Then based on trade marketing investments the number of weeks on promotion is planned for the 1st year to arrive at a full year volume FMCG Academy’s recommendation is to use all 4 approaches and marry them together to see what is believe able and possible. It takes experience and it can be a bit of a hit and trial the first few times, but with experience you will get it right.
For e.g. you might come up with the following numbers: Market share based may come up with 10 million dollars of sales, Retail Store based may deliver 6 million dollars of sales, Advertising awareness based may deliver 12 million dollars in sales while Price Variation based may deliver 8 million in sales. The truth normally is somewhere within these numbers. With experience one will learn which method works best for their categories and brand. Good Luck.
If you do want to learn how to Price a new consumer product (FMCG) then do consider taking our E-learning course on Udemy by clicking here.
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