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Market Forecasting with ConfidenceThe Problem: Long-Range Strategic PlanningA battery manufacturer sought help in developing a U.S. battery market forecasting model to be used in long-range strategic planning and new product development. The company wanted a simulation tool in which staff could clearly incorporate their insights regarding long-term trends for battery-using devices, while acknowledging short-term fluctuations due to economic factors and electricity outages. Our Approach: Historical Analysis and Model Building Since batteries are essentially an intermediate product used in a variety of devices, understanding device penetration and usage rates became a critical element of the project. Global Insight collaborated with our client to define the key devices associated with each battery size, device penetration rates, batteries per device, batteries per year, and the use of rechargeable batteries. The information was compiled to build a device index for total battery demand and for each cell size. Historical regression analyses were used to explain deviations in actual battery demands from the device index trends based upon battery prices, economic factors, and electricity outages. The historical analyses defined the structural forms for the forecasting model equations. Since the device index specification required extensive tracking of devices, alternative forecasting equations were developed with real disposable income and time trend terms in place of the device index. This second specification was used as a reality check for the company's device assumptions. The Answer: Market Forecasts from the Bottom Up and the Top Down Our client now has a user-friendly tool to assess market opportunities based upon detailed information about the devices that use batteries, as well as within the context of long-term income growth. They have the confidence that strategic planning decisions are driven by internal assumptions and independent economic forecasts. Finally, they have the ability to quickly determine how the latest hurricane or grid failure will impact short-term demand based upon Department of Energy estimates of electricity outages.  |
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