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New Product Penetration

An important question facing many businesses is the potential growth of new products. Conventional analysis of this issue uses 40 year old techniques, fitting a curve to available data on a product or market which is then extrapolated to give a prediction of eventual sales. A key problem with this approach is that, once the shape of the curve is decided, growth is inevitable - it simply happens. The underlying process of how individual consumers make decisions about whether or not to buy the product is not made explicit; in other words, the procedure is a black box.

 

Volterra’s approach makes the analysis explicit, and recognises the inevitable degree of uncertainty which surrounds the launch of any new product. Using an ABM, we create groups of individual consumers, each of them following explicit behavioural rules: how they react to price, advertising, and word-of-mouth recommendations by family and friends. These rules can be based, for example, on evidence from market research or survey data. The market shares of brands emerge from these complex interactions of individuals - exactly as in real life.

The chart at left shows an example simulation of two brands competing, with sales very similar for a few years. One brand then pulls decisively away, by virtue of better and stronger word-of mouth endorsements. Volterra has recently used this approach for the UK Financial Services Authority, to analyse the uptake of a new financial services product, called Basic Advice, which was designed by the FSA for consumers who find it difficult to enter the financial advice market due to cost.