Our client, a European software company, wanted to predict which would be more profitable: using a royalties-based approach or licensing out their technology to partners and competitors.
We first had to link the multiple data sources to have a holistic view of the available sales, marketing, and competitor data. Once the data was prepared, we then had to understand the contribution of the technology across different geographies and forecast future sales for a 5-year horizon. In order to build a decision-making approach for the different scenarios, we had to couple internal with external data and build a simulation tool.
In order to build a robust scenario-based forecasting model, we took a customer-centric approach to the data. We did this for our client gradually using a phased-out approach:
- We identified the main market drivers, to oversee the variety of possible scenarios that are dependent on external factors.
- We estimated what were the overall market opportunities and where is the potential on the market for the new technology (overall market size and value).
- We helped our client validate their business proposition with their customers and prospects to assess the revenue potential and estimate what the adoption rate would be. We accounted for substitutes in the market as well as external market trends (size of addressable market and conversion rate) to analyze the overall product positioning in the market.
- We also analyzed the buying power of our client’s customer base in order to predict what would be the potential deal size for each scenario (average order value).
Using the above inputs, we created a simulation tool that allowed us to experiment with different forecasting scenarios. The insights from the tool allowed our client to understand the most likely outcomes from each scenario along with the costs and benefits and to make evidence-based decisions for their new product launch.
Scenario planning benefits for business:
A data-driven simulation tool, for the business strategy team, that has adjustable market and competitor parameters. Based on the chosen parameters, the tool makes predictions on which scenario is aligned with the team’s business strategy and is more profitable to pursue. The tool allowed for a detailed cost-benefit analysis of the most likely outcomes from each scenario, which led the client to choose the product roll-out option that led to higher conversion rates and overall higher incremental sales.
In the longer term, scenario planning can be used to track how market changes are affecting the business. By making proactive changes, the business can prevent losses and gain additional benefits in force-majeure situations.