Fore Cast E-books
use the case write up for the requirements. That data has been provided in the attachments.
answer questions two and three based on the attachments provided and the analysis in the word document titled Bass model E book.
This case write-up is tantamount to an open-book exam and tests your ability to analyze data on diffusion of innovation. Please form a group of two members to conduct an analysis of market adoption of E-Book based on the information in the case. Your case write-up should address the following questions.
1. Based on the information in the case, use Bass model to construct your forecast of the demand for E-books for 2004 2020 and display the forecasted diffusion of E-books in a graph. Notice, the forecasted demand should refer to the number of first-time adopters as opposed to the number of E-books purchases. Also, draw a graph comparing the forecasted sales with the actual sales. Data on actual sales are available through 2009 and you need to convert them into sales in units based on information in the case. Please use Excel worksheet to conduct the analysis and describe the steps of the analysis in a Word document. (50 points)
[Hint: Figure out the unit actual sales in steps. First, use the information of number of E-book titles sold in Q1 of 2004 and the actual sales data to estimate the average price. Then, use the average number of books purchased, the average price, and the actual sales in dollars to figure out the unit actual sales.]
2. Do you expect the market for E-books to be driven more by innovators or imitators? Why? (25 points)
3. Do you expect any hurdle or resistance to adoption of E-books? Why? (25 points)
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Market Size(000s) 30 (millions)
Innovation Rate 0.07
Imitation Rate 0.532
S(t) = [p + q/m*N(t-1)]*[m N(t-1)]
Year Sales (S(t)) Cumulative Sales (N(t)) Revenue E books (millions) Cumulative Revenue EBooks (millions)
2004 1 1,950,000.00 1,950,000.00 $8,310,103.33 $8,310,103.33
2005 2 2,793,219.00 4,743,219.00 $11,903,558.21 $20,213,661.53
2006 3 3,766,116.50 8,509,335.50 $16,049,649.86 $36,263,311.39
2007 4 4,639,810.46 13,149,145.95 $19,772,976.57 $56,036,287.96
2008 5 5,024,557.13 18,173,703.08 $21,412,609.70 $77,448,897.66
2009 6 4,580,092.23 22,753,795.31 $19,518,481.87 $96,967,379.53
2010 7 3,394,851.51 26,148,646.82 $14,467,470.17 $111,434,849.70
2011 8 2,036,220.71 28,184,867.53 $8,677,540.76 $120,112,390.46
2012 9 1,025,207.97 29,210,075.50 $4,369,017.50 $124,481,407.96
2013 10 460,519.67 29,670,595.17 $1,962,546.69 $126,443,954.65
2014 11 194,730.48 29,865,325.65 $829,861.77 $127,273,816.42
2015 12 80,078.95 29,945,404.61 $341,263.78 $127,615,080.20
2016 13 32,540.59 29,977,945.20 $138,674.72 $127,753,754.92
2017 14 13,158.09 29,991,103.29 $56,074.41 $127,809,829.32
2018 15 5,309.93 29,996,413.22 $22,628.76 $127,832,458.09
2019 16 2,141.08 29,998,554.30 $9,124.40 $127,841,582.49
2020 17 863.05 29,999,417.35 $3,677.95 $127,845,260.43
Year Revenue Total Sales
2004 $9,619,503.00 2,257,256
2005 $10,828,970.00 2,541,062
2006 $20,000,000.00 4,693,082
2007 $31,800,000.00 7,462,001
2008 $53,500,000.00 12,553,996
2009 $165,800,000.00 38,920,188
Q1 04 Rev. Q1 04 Price/e
421,000 $1,794,130 $4.26
To determine the forecast demand for the number of first time adopters, we used the total US population in 2004. This result was a population of 293,655,404 (census.gov). The key statistic provided in considering values for adopters for E-books. Two key percentages are those of people reading literature and internet penetration. This data is concrete and thus important for our calculations. The users of cellphone and those likely to purchase online music can be seen as innovated and willingness develop a trust and desire for new technology, which will be important for the future of E Books. Using the US population and these percentages the number of potential E book first adopters would be approximately 25.7 million.
Key Statistics in Considering Values of the Total Population of Adopters for E-Books Population
Total US Population 293,655,404
US Population Reading Literature 46.7%
US Internet Penetration 67.8%
Internet Users likely to by music online 42%
User penetration of cell phones 66%
Total number of potential customers 25,773,761
Next we needed to find the p (innovation coefficient) and q (imitation coefficient) to complete our Bass modal construction for forecasting E book demand. Products can carry different aspects when predicting the purchases of potential customers. The two we chose were home computers and MP3 players. Home personal computers lean toward the innovated side, the value of technology and being able to access documents from home. The MP3 players is another innovated value and the tendency for a customer to want the convenience and portability with them on a devices. Aspects of these products help to understand the aspect or
Product P q
Home personal computer 0.121 0.281
MP3 Player 0.009 0.783
Average .0650 .5320
values for future e-book users.
We have the calculated the number of potential customers (m), the p (innovation coefficient), and q (imitation coefficient), these numbers will be used to complete the Bass model forecast the demand for e books for 2004-2020.
S(t) = [p + q/m*N(t-1)]*[m N(t-1)]
All the values: m = 25,773,761, p = .0650, q = 0.5320 will be plugged into this equation. Using EXCEL the equation for year one is = ($D$10+$D$13/$D$7*0)*($D$7-0) and for year two = ($D$10+$D$13/$D$7*D21)*($D$7-D21).
After completely the Bass model using the key statistics and the estimation or average of effect from innovators and imitators, we need to show the difference between the estimations and actual volumes (provided for us). The estimated sales per years using the Bass model predicts a much higher volume. During 2004 there were 421,000 e books actually sold. By determining the average price using that data price per e book would be $ 4.26 ($1,794,130 (revenue for Q1 04) divided by 421,000 (e books purchased) = $4.26 per e book.
The sum of all revenues for 2004 divided by $4.26 gives us 2.25 million sales. The Bass model for 2004 estimates 1.95 million. If we compare the Bass model (S(t)) estimates from 2004 2009 to the forecasted sales from actual revenue the Bass model numbers are slightly lower. This difference could be caused by the data used to create the market size or the selection of parameters. The Bass model is describes the process of how new products get adopted. It acts as a forecasting tool for new product sales. This data can often be different from the actual sales data (in this case, sales were higher than expected).
Year Bass Model (S(t)) Actual Forecast Sales
2004 1,950,000 2,257,256
2005 2,793,219 2,541,062
2006 3,766,166 4,693,082
2007 4,639,818 7,462,001
2008 5,024,577 12,553,996
2009 4,580,092 38,928,188