The idea that a new product launch will create incremental demand individually, and also halo onto other products within the range, is not unreasonable. However, we have found that the impact may not be so simple.
In the Automotive category, we have seen that volumes of cars sold can fall by 15% in the 12 months post launch. Now this may sound difficult to comprehend, but there is actually a very rational explanation. In the months leading up to the launch, the company need to shift as many units of the old model as possible, to make way for the new. In order to do this they create offers and deals that increase demand drastically over the period, but with a lower margin per unit sold, known as the ‘pull-forward effect’. However, the down side of this effect is that customers can be much more likely to go for a slightly older model at a cheaper price, leading to saturation of demand post-launch. Additionally, as manufacturers close factories to prepare for production of the new model, consumers are unable to place orders, pushing demand elsewhere.
Despite these effects, we have found that the launch can create an improvement in orders. In one example, there was an uplift of 7% onto total orders across the portfolio during and post campaign despite the ‘pull forward effect’. However, this uplift could have been greater, if it hadn’t been for the pull-forward effect. These results can also help businesses learn a lot about their consumers. If consumers are very certain on waiting for the new edition of a model, this pull- forward impact is not likely to be significant. However, with less prestigious models, this impact will be great, and adjusting the media plan to fit the consumer type is central to optimising profit.
So in terms of media planning optimisation, what does this mean? Well in this case, companies should focus on the new launch and avoid too much emphasis on special offers and deals on old models. And again, as economic theory reminds us, it’s important to never underestimate the impact price elasticity can have on overall demand.