Why use the ATAR forecasting model for new products?
Obviously there are many ways of approaching a financial forecast. However, the ATAR forecasting model is one that is explicitly designed for marketing purposes. So let’s explore the key advantages and benefits of using this particular forecasting model for new products and marketing.
It aligns financial metrics and marketing goals
The core of the ATAR forecasting model is built around four fundamental components, which are controllable (to a reasonable degree) marketing factors.
Therefore the first advantage of the ATAR model from a marketing perspective is that there is a direct connection between the end sales/financial forecasts and marketing goals/targets.
In other words, we know what marketing needs to deliver in order to achieve the overall sales and profitability targets.
Often, other financial approaches to forecasting only provide a top level sales number, with no indication of how this is to be delivered. However, the ATAR forecasting approach provides explicit and precise marketing information/targets.
It provides detailed information to the marketer
There are numerous outputs of the ATAR forecasting model that are helpful for marketing purposes (which would be helpful in incorporating into control and contingency plans, setting targets, and so on) – these outputs include:
- overall size of the customer base
- sales revenues over time
- sales units over time
- market (brand) penetration levels
- average margin per unit over time
- profitability over time
- new products and promotional ROI
It allows marketing flexibility in achieving the financial goals
Because of the structure of the ATAR forecasting calculation – that the model is primarily a multiplication model – there is an ability for the marketer to experiment with alternative approaches to achieving the required sales and profitability.
For example, a marketer could have a look at a scenario of generating a high level of awareness with a low percentage of initial trials OR look at the opposite scenario of low awareness, but with high initial trials.
As you can see, this flexibility can then allow the marketing department to consider the most viable marketing approach that will achieve the desired customer base, sales volume, and profit contribution. This is also important as it allows flexibility to the marketing program over time.
It provides financial metrics to demonstrate the marketing ROI and payback
Because it is a financial forecasting system that incorporates the initial upfront investment of research and development plus ongoing promotional costs, it is possible to determine the net present value (NPV) and return on investment. (ROI). Please note that these financial metrics are automatically calculated using the free Excel template available on this website for the ATAR forecast.
It converts marketing data into “financial speak"
In today’s more data driven business world, it is important that marketers are able to demonstrate the potential return of a campaign or a new product by using financial metrics.
The ATAR as the dual advantage of providing both the marketer with relevant marketing goals/targets (as highlighted above), while outputting clear financial projections and associated financial metrics.
It has the flexibility to run scenarios (sensitivity testing)
Generally a firm’s management likes to see a variety of scenarios developed for its forecasts. This is because most forecasts of new products – especially for a new category entry, or another product quite new to the firm – rely heavily upon assumptions and estimations.
Obviously the intention is to be relatively accurate with these input assumptions, but this is not always possible. Therefore, one way of reducing the negative consequence of a poor assumption in a financial forecasts, is to run various scenarios – which is sometimes referred to as sensitivity testing.
In this case, the marketer would input high and low values into the ATAR Excel template to generate different financial forecasts. For example in one scenario, the marketer might assume that their initial promotional campaign might be quite effective and generate 50% awareness of the new product in the marketplace. However, they could also run an alternate scenario, where the promotional campaign is less effective and the overall awareness is only 20%.
This variety of scenarios usually provides management with a sense that a robust forecast that has been carefully considered. It also allows management to establish the likely “worst-case" scenario
It can be adapted to different industries and business models
While the ATAR is primarily designed for industry/firms that rely upon all four of the ATAR components (awareness/trial/availability/repeat) – the model does have the flexibility to be easily adapted to different business models – which is discussed in this article on business variations.
As a quick example of this benefit of the ATAR, a push marketer generally does not rely upon general market awareness. Therefore, awareness is not a relevant factor in their overall new product forecast – however, this can be adjusted accordingly so that the ATAR model becomes a TAR model only and still effective for this business.
Limitations of the ATAR forecasting model