Part 2. MM4XL Tools > 2. Analytical Tools > Business Formulas > mmBUYRATE, Purchase Rate Model

Business Formulas

mmBUYRATE, Purchase Rate Model

Category: Market Research & Statistics

A natural use of the product life cycle concept is the prediction of the performance of a new product. The BUYRATE Purchase Rate diffusion model used by Brady and Adams (1962) is a good example of product-life-cycle-based new product forecasting models. Their model is:

Business analysis formulas for Excel. Marketing tool for professionals

Where:

rt = Purchase rate at time t (determined as the percentage of purchases of all potential purchasers)
S = Limit of purchase rate, i.e., maximum percentage of buyers or saturation level (this is determined by the researcher)
b = Percent of S that buy the product (this too can initially be determined by the researcher and adjusted as real sales data are generated)

In this model, the shape of the growth curve depends on the value of b. If b is small, the curve is predominantly S-shaped. For higher values of b, the curve becomes less S-shaped and eventually resembles an exponential growth pattern.

Business analysis formulas for Excel. Marketing tool for professionals

The major assumptions of this model are:

  1. There is no difference in the purchase rate of users and non-users.
  2. The repurchase rate of users is 1; i.e., all first buyers would repeat their purchases.
This model fits well for durables and frequently purchased products, although it makes no explicit inclusion of the firm's marketing, strategy, or the actions of competitors.

Syntax

mmBUYRATE(Max_Buyers, Buyers, Buy_Time)

Max_Buyers Percent of buyers who can potentially buy the product
Buyers Percent of buyers who presently buy the product
Buy_Time An integer value for the time period to estimate

Example

See example file Business Formulas.xls, sheet mmBUYRATE.

Business analysis formulas for Excel. Marketing tool for professionals

Note:

Related functions
  • mmBASS
  • mmREBUY
  • mmREBUYS
  • mmHERF
  • mmPRESS
  • mmSEASON
Related MM4XL software tools
  • Risk Analyst
  • Profile Manager
  • Brand Switch Analyst
  • Forecast manager
Source
Yoram J. Wind, 1982, Product Policy: Concepts, Methods, and Strategy
Lifetime license:

Price: euro

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