By Greg Spira
Planning demand for existing products already being sold is tough enough, where consumer and market behaviors are understood. Planning demand for new products is even more challenging given added complexities, such as:
- Timing the launch of new products
- Predicting market acceptance of those products
- Planning the phase out of existing products that the new products are intended to replace
- Anticipating competitive response
Planning demand for new products should be tightly linked with the new product development process itself. When we consider the four P’s of marketing (Product, Price, Place, Promotion), many organizations think only about the product itself: what makes this product different or better than our other products and how it will fit the needs of our customers. However, the other three P’s are also important. In particular, understanding where the product will be sold and what promotional activity will be associated with it can be very challenging to assess for products that will be launching many months or years in the future. Sales will often remind us that customers are not likely to make commitments that far in advance. That said, good assumptions still need to be established, even without firm commitments.
In many organizations, new products are developed by a marketing or product management function. This group typically includes the people who are experts in understanding customer and consumer needs and matching those with product features. They are tasked with creating a pipeline of new products that will be sufficient to drive the growth of the company. A common issue, however, is that the same people who are being asked to create a sufficient pipeline are also the ones who are establishing the volume projections for new products. This lack of segregation of duties can become problematic. There may be an incentive to exaggerate or be overly optimistic when deciding on planning assumptions and estimating volumes for new products.
This is compounded by the fact that new product planning is typically on a much longer lead-time than existing in-life products – commonly looking out several years in advance. The demand planning function that is responsible for existing products may not be looking out that far. They may not even aware of the new products until after the business cases have been approved. By that point there is often a tremendous amount of pressure to deliver on the initial business case commitment. A significant investment in capital may have been made to produce the product, for example. Highlighting flawed or missing assumptions behind the volume projections may be politically untenable.
When an Integrated Business Planning process begins to uncover and highlight misalignments between portfolio plans and demand plans, it naturally establishes the expectation that those misalignments be resolved in the underlying management processes. It creates the incentive for Demand Management and Project Management processes to become connected.
This leads to appropriate checks and balances being introduced into the new product development process. New product business cases should have their volume planned or validated independently, ideally by the demand planning team. Properly documented assumptions, including distribution, price, promotional support, and launch timing, should be a mandatory requirement to pass through a gate in the product development process. Failure to do so creates unnecessary risk in the process – particularly where there are often many hand-offs from one person or team to another. The initial scoping or development of a product may be done by a different group than those who launch it. Those key planning assumptions need to be preserved and handed-off as the project changes hands so that they can be maintained going forward and risks & opportunities understood.
Where possible, new product business case volumes should be planned or approved by the team that will be responsible for the product once it is in-market. New products are rarely launched into a market on their own – they regularly coexist with and/or replace existing products. It is important to consider impacts to existing products, whether they are being intentionally removed from the portfolio to make room for the new product or not. These considerations may not impact the volume plan for the new product, but certainly the net impact to the portfolio, including any cannibalization of existing products.
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