The Functional Regression: A New Model and Approach for Forecasting Market Penetration of New Products

The Bass (1969) model has been the standard for analyzing and predicting the market penetration of new products. Recently a new class of non-parametric techniques, known as Functional Data Analysis (FDA), has shown impressive results within the statistics community. The authors demonstrate the insights to be gained and predictive performance of Functional Data Analysis on the market penetration of 760 new categories over numerous products and countries. The authors propose a new model called Functional Regression and compare its performance to the Classic Bass, and several other models for predicting eight aspects of market penetration. Results a) validate the logic of FDA in integrating information across categories b) show that the Functional Regression is distinctly superior to every other model and c) characteristics of products are far more important than those of country for predicting penetration of an evolving