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Forecast Model

Multivariate Solutions

determine optimal pricing of a product/service, and market share

penetration of a given product at specific price points.

built using simulation methods.

decision about pricing a given product or service based on the

highest likelihood of maximum revenue.

confidence intervals for each of the revenue parameters taken

alone, what is really at issue is the confidence interval for

projected differences taken jointly. Such a problem is best

addressed through the use of so-called Monte Carlo methods.

set up and the cells whose values come from the survey results

are identified (and which are therefore subject to sampling

error). For each of these cells, a distribution of possible values

using the appropriate means and standard errors is specified. A

series of trials is then generated, each one of which represents

a possible outcome of the process.

(cont.)

mean, since the distributions are typically bell-shaped and high

values for some parameters are likely to be offset by low values

for others. Expected revenue represents a best-case outcome

given the survey results and confidence intervals associated

with the individual parameters. But if the simulation is

performed, say, 1,000 times, such a best-case outcome would

represent only a small fraction of the total trials.

cumulative distribution, so that the probability of percentage

growth falling into any given interval can be read off as the

number of trials with outcomes in that interval.

fielded. This model does not test different features for product

constructionthat is left to tradeoff methodologies.

cleaning of kitchens and bathrooms.

described in detail to the respondent. Possible sale points are:

$3.19

$3.49

$3.79

$4.09

5

The pricing module on the questionnaire is constructed as

follows:

Given the features of this product, would be willing to pay

$3.49 for it?

If yes, then ask, Would you pay $3.79 for it?

If no, then ask , Would you pay $3.19 for it?

Continue with Yes until the respondent says, No. Record

the highest Yes.

Continue with No until the respondent says, Yes. Record

that Yes.

If Yes at top price ($4.09), record top price.

If No at bottom price, ($3.19), record No Answer.

Rotate the starting points so that all price points begin equally.

6

The assumption is that if a respondent is willing to purchase the

product at $4.09, he/she will be willing to purchase that product at

$3.79 and all lower price levels.

Probability

74%

68%

61%

57%

$3.19

$3.49

$3.79

$4.09

Size of potential market (range OK)

Our market is said to be 2 million foam-using households, +-10%

Fixed costs are said to be $2.5 million, +-10%

Revenue Forecast

Projected Size of Target Market (Households)

Projected Fixed Costs

Price Point

2,000,000

$2,500,000

$3.19

Market Penetration

Number of Interviews

74%

300

Projected Revenue

$2,221,200.00

Revenue Forecast

Probability That Revenue Is Greater Than or Equal to Forecast

$3.19

Probability

100%

$3.49

Probability

1626

100%

1688

2030

2014

2094

2084

80%

80%

2136

2153

2179

2200

60%

60%

2221

2270

2264

2293

40%

40%

2306

20%

2363

20%

2349

2409

2434

2479

2668

0%

1600

2875

0%

1700

1800

1900

2000

2100

2200

2300

2400

2500

Forecast Revenue=$2,221,000

2600

2700

1600

1700

1800

1900

2000

2100

2200

2300

2400

2500

2600

Forecast Revenue=$2,270,000

Estimated Revenue for Cleaning Foam Sales at $3.19 and $3.49 Price Points

2700

Revenue Forecast

Probability That Revenue Is Greater Than or Equal to Forecast

$3.79

Probability

100%

$4.09

Probability

1366

1317

100%

1846

1863

1972

1972

80%

80%

2023

2054

2073

2108

60%

60%

2124

2163

2200

2217

40%

40%

2250

20%

2272

20%

2301

2353

2402

2490

2882

0%

2953

0%

1300 1400 1500 1600 1700 1800 1900 2000 2100 2200 2300 2400 2500 2600 2700 2800 2900

Forecast Revenue=$2,124,000

1600

1700

1800

1900

2000

2100

2200

2300

2400

2500

2600

Forecast Revenue=$2,163,000

Estimated Revenue for Cleaning Foam Sales at $3.79 and $4.09 Price Points

10

2700

90% sure that revenue will exceed $2,029,800, but only 10%

sure that it will exceed the higher amount of $2,433,867.

exceeding the revenue at $3.19 are 59%.

chances of exceeding the revenue at $3.19 are 36%, and at

$3.49, 27%.

sure this revenue will exceed $1,862,667, but only 10% sure it

will exceed $2,489,800. The chances of exceeding the

projections at $3.19 are 37%; at $3.49, 29%. Revenue at the

latter price is expected to be higher than at $3.79; the chances

of that are 57%.

11

Mean Expected Revenue at Tested Price Points

x000s

$2,300

$2,250

$2,267

$2,221

$2,200

$2,163

$2,150

$2,124

$2,100

$2,050

$3.19

$3.49

$3.79

$4.09

12

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