ECONOMETRICS IN ACTION © Vince Daly & Kingston University, October 2009 This work is licenced under a Creative Commons Licence. Forecasting the rate.

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Transcript ECONOMETRICS IN ACTION © Vince Daly & Kingston University, October 2009 This work is licenced under a Creative Commons Licence. Forecasting the rate.

ECONOMETRICS IN ACTION

This work is licenced under a Creative Commons Licence.

Forecasting the rate of adoption of new products

S-CURVES & MARKET DIFFUSION

THE CLASSIC STAGES OF MARKET PENETRATION FOR A NEW PRODUCT

The S-curve shape reflects the stages of market development.

100 90 80 70 60 50 40 30 20 10 0 2000 2002 2004 2006 Market Penetration 2008 2010 2012 2014 2016 2018 2020 Early adopters Take off Mass adoption Slow down

TRANSFORMING TO A LINEAR MODEL

The S-curve has a complicated formula but a change of variables produces a simple linear equivalent.

P t S

  1  1

 (    .

) The non-linear S-curve

Can be changed by ‘logistic’ transformation to

ln  

S P t



P t

      .

Its linear transformation S: market saturation level (i.e. max possible sales) = 100 in this example P t : penetration of market at time t

MOBILE TELEPHONES IN EUROPE

AN EXAMPLE OF FITTING & EXTRAPOLATING S-CURVES MSc student T. Vrionis gathered the OECD data for % penetration of this market

DATA:

t P 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 1.49 1.91 2.39 3.29 5.19 8.25 12.38 18.62 28.57 45.05 61.86

Ln[P/(100-P)] -4.19 -3.94 -3.71 -3.38 -2.91 -2.41 -1.96

-1.47 -0.92 -0.20

0.48

ln(P/(100-P)) trend EXCEL’s TREND function can be used to fit a linear trend to the transformed data by the OLS method, and also to extrapolate this trend.

5,0 3,0 1,0 -1,0 -3,0 -5,0 1990 1995 P 2000 forecast 2005 2010 The logistic transformation can then be reversed for a graph that shows observed and extrapolated market penetration.

100,0 80,0 60,0 40,0 20,0 0,0 1990 1995 2000 2005 2010

COMMERCIAL APPLICATION

ADVENTIS PLC have used S-Curve calculations as a basis for forecasting development of various M-commerce markets Saturation Levels Vary By Segment

30% 25% 20% 15% 10% 5% 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Clothing Computer Software Event ticketing

ECONOMETRICS IN ACTION © Vince Daly & Kingston University, October 2009 This work is licenced under a Creative Commons Licence. Forecasting the rate.

Transcript ECONOMETRICS IN ACTION © Vince Daly & Kingston University, October 2009 This work is licenced under a Creative Commons Licence. Forecasting the rate.