Substitution & end use methods – new products



A new product generally displaces some old products or old use patterns. When nylon came to India, it was a totally new product. Those who entered the nylon business knew that it would in some way replace cotton, rayon, coir and jute. But they did not know by what precise quantity it would replace. The product was new and it could substitute a variety of existing materials in a variety of ways. Taking rayon as an example, nylon displaced rayon in two ways — in textiles, nylon filament yarn (NFY) displaced rayon filament yarn and in tire cord, nylon tire cord (NTC) displaced rayon tire cord. It did not, however, displace rayon by 100% in either in either of these segments. Obviously, the prevailing demand for rayon in the textile and tire cord segments, and the rate at which it was supposed to be displaced by nylon in each segment would have provided the clues to the new nylon makers in India on the demand for nylon.

As per the substitution/displacement method of demand forecasting, as the first step, the demand for the existing product is forecasted using standard forecasting methods. Based on that, an idea of the demand for the new product is gained. Analysis will show which products and markets are amenable for substitution by the new product. But, the difficulty is that in many cases, the new product may not displace the existing product totally and in all categories of uses. The estimated demand for the existing product can serve as the maximum limit for the demand for the new product. The forecaster has to work out the substitution possibilities separately for each category of use.

End Use Method

In the substitution / displacement method, it is assumed that some products that are comparable in use with the new product already exist and that the new product will substitute the former. There are situations where there is no comparison in use between the new and existing products. The substitution method may not work in such cases.

Products that have an altogether new end use do come to the market in a while. The only way to assess the demand for such products is to define the end use of the new product and to locate the potential customers for it. Here again, it is possible that the new product has more than one end use. The aggregate of potential customers in each use category is taken as the potential demand in that category. By adding the demand in the various use-categories, one can get an indication of the total potential demand for the new product. This is to be taken again as the upper limit of potential; after all, some of the users in some of the categories may not be attractive to the firm, or they may not be attainable. With careful analysis, the forecaster makes the relevant refinement in his choice of end uses/market segments, reckons the marketing mix, which he can employ and works out his forecast.

In this method, the forecaster has to be particularly cautious in defining the end uses for the product. If he is over ambitious, he will tend to be too broad in use identification; the estimate of demand may then go wrong. Similarly, if the use identification is too narrow and short sighted, the forecast may not again correctly reveal the demand for the product. Only careful and realistic pinpointing of all the possible uses can create reliable framework for estimating demand by this method.