A Model of the Product Lifecycle forSales Forecasting

Competitive pressures and the speed of technological development have reduced the length of the typical product lifecycle in many markets to a matter of months. In addition to predicting sales of mature products, forecasting effectively in such markets entails addressing the transitional phases of a product’s life—the periods after introduction and prior to phase-out. Unfortunately, the sales patterns that emerge in the course of such transitions are not usually amenable to forecasting with conventional methods. This paper describes a forecasting system currently in use at Sun Microsystems, Inc. (a major manufacturer of network computer products) that seeks to address the challenges posed by diminishing product lifecycles. The system combines a diffusion model to describe transitional sales with very general constructs for time series analysis known as dynamic linear models (DLMs). The latter helps represent time-series artifacts such as seasonality and drift which are frequently found in practical forecasting situations, and which are only scantily addressed by diffusion models published to date. The model uses Bayesian statistical techniques, so that it is able to incorporate judgmental information relating to elements of a particular forecasting context, and to use records of actual sales for related products as precedents in forecasting. email address: [email protected] © 2004 Sun Microsystems, Inc. All rights reserved. The SML Technical Report Series is published by Sun Microsystems Laboratories, of Sun Microsystems, Inc. Printed in U.S.A. Unlimited copying without fee is permitted provided that the copies are not made nor distributed for direct commercial advantage, and credit to the source is given. Otherwise, no part of this work covered by copyright hereon may be reproduced in any form or by any means graphic, electronic, or mechanical, including photocopying, recording, taping, or storage in an information retrieval system, without the prior written permission of the copyright owner. TRADEMARKS Sun, Sun Microsystems, the Sun logo, and Java are trademarks or registered trademarks of Sun Microsystems, Inc. in the U.S. and other countries. All SPARC trademarks are used under license and are trademarks or registered trademarks of SPARC International, Inc. in the U.S. and other countries. Products bearing SPARC trademarks are based upon an architecture developed by Sun Microsystems, Inc. UNIX is a registered trademark in the United States and other countries, exclusively licensed through X/Open Company, Ltd. For information regarding the SML Technical Report Series, contact Jeanie Treichel, Editor-in-Chief .All technical reports are available online on our Website, http://research.sun.com/techrep/.