More Intuitive Parameter Options
The usual Bass Model parameters are the potential market M, the innovation parameter p and the imitation parameter q.
The potential market M is easy to understand as the ultimate number of adopters that will adopt the product. The number chosen for M may require much discussion, but at least management can understand and participate with modelers in its guesstimation.
But parameters p and q in isolation are not intuitive to anyone. The classical way of determining them is to fit the Bass Model to sales data series of past products that are similar to the new product being forecasted. The p and q parameters for analogous products are refined for use in a new product forecast. Management could participate in the selection of analogous products. In some cases analogies are easy to come by (e.g., a new generation of DRAM chips is analogous to the prior generation). In other cases, analogies are not so obvious so opinion dominates guesstimation.
We can replace p and q with more intuitive parameters. The parameter p is approximately the percentage of the potential market M adopters that will adopt during the first full year (or other interval) of sales, a quantity within management domain. The parameter q can be replaced by two quantities: the number of years (or other interval) from the first full year of product sales to market saturation at a selected level. The quantities to be guesstimated by management are then as follows:
- sat — the saturation level that management feels is within their understanding and
- T — the number of years that it will take for the product to reach that level of saturation.
For most products, the saturation level is set to 60% to 95% while the number of years to saturation varies from 5 to 30. The guesstimation of sat and T still benefits from analogous, but candidate analogies can be more intuitively compared.
A future post will suggest experiments in setting parameters using the Forecast Joy App.