Question 2. (15 POINTS) mArketing Management please help

Read the case Forecasting the Adoption of E-Books (Course Pack) and answer the following questions. I suggest you also read the article titled, Forecasting the Adoption of a New Product.

2. You are interested in forecasting the sales of E-books. Based on the information provided in the case, explain the steps you would take in developing the sales forecast for E-books. Explain in detail.

3. Develop a forecast for E-book demand for the first ten years (from the time e-books first became available). State all assumptions clearly. Tabulate all the results nicely.

Case Study

Question 2. (15 POINTS)

Read the case Forecasting the Adoption of E-Books (Course Pack) and answer the following questions. I suggest you also read the article titled, Forecasting the Adoption of a New Product.

2. You are interested in forecasting the sales of E-books. Based on the information provided in the case, explain the steps you would take in developing the sales forecast for E-books. Explain in detail.

3. Develop a forecast for E-book demand for the first ten years (from the time e-books first became available). State all assumptions clearly. Tabulate all the results nicely.

Case Study.

Forecasting the Adoption of E-books

We havent issued forecasts for the industry in two years because the market is going nowhere. E-books were a dumb idea. I am very negative on this market.

Pretend for a moment that you are currently exploring business opportunities in the publishing industry. In the late 1990s, industry analysts began predicting that consumers would replace traditional books, magazines, and other literature with e-books. The concept behind e-books was that the digital content of books or magazines could be purchased and downloaded from commercial websites such as Amazon.com and read on a PC or portable device such as a handheld PDA or cell phone i.e., conceptually like an iPod, but for books instead of music. But by 2002, many analysts (like David Card above) began to distance themselves from these predictions. The lack of suitable display screens in hardware devices and the small selection of reading material (due to copyright concerns of publishers) were often cited as the main reasons for the slow initial uptake of e-books. However, after reading in mid-2004 of the improved sales of e-book titles during the first quarter of the year (421,000 e-book titles were sold during 1Q04, up nearly 50% relative to 1Q03), you wonder if the time for e-books has now come and you dont want to miss out if the previous hurdles to a successful launch can be overcome.

In assessing the market opportunity for e-books, one of the critical factors that you wish to consider is how the adoption curve for e-books will progress (the pattern of diffusion for the first-time at which a consumer begins downloading e-books). Specifically, your task is to determine the size of the market for e-books in the long-run and then how many years it will take to reach 95% penetration of this potential market. For purposes of this exercise, you may focus on the US market.

Market Data and Potential Analogy Products

As you consider how to construct your forecast for the diffusion of e-books as a category, the following data (Exhibits A-C) are available to you.

Forecasting the Adoption of E-books

Pretend for a moment that you are currently exploring business opportunities in the publishing industry. In the late 1990s, industry analysts began predicting that consumers would replace traditional books, magazines, and other literature with e-books. The concept behind e-books was that the digital content of books or magazines could be purchased and downloaded from commercial websites such as Amazon.com and read on a PC or portable device such as a handheld PDA or cell phone i.e., conceptually like an iPod, but for books instead of music. But by 2002, many analysts (like David Card above) began to distance themselves from these predictions. The lack of suitable display screens in hardware devices and the small selection of reading material (due to copyright concerns of publishers) were often cited as the main reasons for the slow initial uptake of e-books. However, after reading in mid-2004 of the improved sales of e-book titles during the first quarter of the year (421,000 e-book titles were sold during 1Q04, up nearly 50% relative to 1Q03), you wonder if the time for e-books has now come and you dont want to miss out if the previous hurdles to a successful launch can be overcome.

In assessing the market opportunity for e-books, one of the critical factors that you wish to consider is how the adoption curve for e-books will progress (the pattern of diffusion for the first-time at which a consumer begins downloading e-books). Specifically, your task is to determine the size of the market for e-books in the long-run and then how many years it will take to reach 95% penetration of this potential market. For purposes of this exercise, you may focus on the US market.

Market Data and Potential Analogy Products

As you consider how to construct your forecast for the diffusion of e-books as a category, the following data (Exhibits A-C) are available to you.

Forecasting the Adoption of E-books

Pretend for a moment that you are currently exploring business opportunities in the publishing industry. In the late 1990s, industry analysts began predicting that consumers would replace traditional books, magazines, and other literature with e-books. The concept behind e-books was that the digital content of books or magazines could be purchased and downloaded from commercial websites such as Amazon.com and read on a PC or portable device such as a handheld PDA or cell phone i.e., conceptually like an iPod, but for books instead of music. But by 2002, many analysts (like David Card above) began to distance themselves from these predictions. The lack of suitable display screens in hardware devices and the small selection of reading material (due to copyright concerns of publishers) were often cited as the main reasons for the slow initial uptake of e-books. However, after reading in mid-2004 of the improved sales of e-book titles during the first quarter of the year (421,000 e-book titles were sold during 1Q04, up nearly 50% relative to 1Q03), you wonder if the time for e-books has now come and you dont want to miss out if the previous hurdles to a successful launch can be overcome.

In assessing the market opportunity for e-books, one of the critical factors that you wish to consider is how the adoption curve for e-books will progress (the pattern of diffusion for the first-time at which a consumer begins downloading e-books). Specifically, your task is to determine the size of the market for e-books in the long-run and then how many years it will take to reach 95% penetration of this potential market. For purposes of this exercise, you may focus on the US market.

Market Data and Potential Analogy Products

As you consider how to construct your forecast for the diffusion of e-books as a category, the following data (Exhibits A-C) are available to you.

Exhibit A Key Statistics in Considering Values for the Total Population of Adopters for E-books

1. Total US Population (7/1/2004 estimate) 293.7 million 2. Percent of US Population Reading Literature 293.7 million 3. Number of US households46.7% 4. US household PC penetration (2002) 111.3 million 5. US internet penetration74.1 million 67.8% 6. Percentage of internet users likely to buy music online 42% 7. Percentage of traditional paper books purchased online in 2003 8% 8. US household penetration of cell phones 66% 9. US household penetration of MP3 players 6% 10. Cumulative number of downloads from iTunes music service (4/03 4/05) 350 million

11. Amazon.com worldwide customer base 47 million 12. Average number of books purchased per year per consumer 3.25

Exhibit B summarizes the results of a market research survey that examined the likelihood of consumers to read various types of material on electronic devices.

Exhibit B Market Research of Consumer Behavior Regarding Electronic Publications

Read recreational material on a PDA 12%

Read recreational material on a dedicated e-book device 28%

Sample a business-related publication on a computer 44%

Read a reference book on a computer/laptop 66%

Exhibit C Bass Model Parameter Estimates for Several Products/Technologies

Product (Period of Analysis). m (in millions) p. q CD player (1986-1996) 29.6 0.055. 0.378

Cable television service (1981-1994). 68.0 0.100 0.060

Home Personal Computer (1982-1988) 25.8. 0.121. 0.281

Cellular telephone (1986-1996) 45.1. 0.008. 0.421

Handheld Organizer (1997-2004) 80.5*. 0.043. 0.565 MP3 player (1999-2004). 388*. 0.009. 0.783

* Global estimates; all other estimates were based on US sales.

Questions/Points to Consider

As you develop your forecast for the adoption of e-books, the following points and issues are worth considering.2

1. Assume that you are making a prediction from the time e-books first became available (year 2000). Although early unit sales data for e-books are available, construct your forecast irrespective of these sales.

2. What do you expect the long-run total adoption of e-books to be (i.e., the parameter m in the Bass model)? The total market size, m, should be the total number of potential consumers for e-books as opposed to the total number of e-book purchases/downloads.

3. Do you expect the market for e-books to be guided more by imitators or innovators? Why?

4. Once you have modeled the first-time adoption of e-books, create a 5-year annual forecast of the overall demand for e-books by making assumptions about the number of e-book purchases per consumer per year.

5. Will the adoption of e-books be similar or different than digital music obtained online?

6. Do you think that attitudes about reading/purchasing e-content have changed much in recent years?

7. What role will hardware devices play in the adoption of e-books?

8. Do you expect the size and pattern of diffusion to be different globally as compared to the United States?