Bass Model

You are product manager for a brand of a durable good (such as televisions, air-conditioning units, stereos), and you would like to determine future profitability for your brand. One extremely useful number to forecast is product class sales (e.g. sales of all televisions including your brand). Suppose you knew that product class sales had been growing rather slowly in recent years. If you forecasted that the product was reaching maturity, and that sales would remain constant over the next five years, you know that you would have to increase your share of the market in order to increase sales (say from 10% to 12%). If product class sales were going to increase every year for the next few years, your sales would increase even if your share of the market remained constant (say 10%), since every year you would be getting 10% of a bigger "pie". If you knew your brand's sales and could estimate your future costs, you could assess future profitability. So, the starting point to developing a pro-forma profit statement is determining product class sales. Ideally, you would like to be able to forecast product class sales using data that are relatively easy to obtain.

Professor Frank Bass developed a very useful sales growth model (1969) that predicts future product class sales for durable goods using easily obtained data: historical product sales. As shown below, his model has done a very good job in the past predicting how long it took for product class sales to peak, and what sales levels were in the peak year.