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Modified Bass Sales Model Simulation

The Bass diffusion model is a mathematical model used to describe the relationships between advertising and word-of-mouth effects in a product's life cycle. In reality, it is often difficult or impossible to predict or measure the values of the parameters needed to accurately define a model, so it is mainly useful as a conceptual or training tool to help one consider the relative effects of paid advertising versus word-of-mouth sales growth.

The Bass model variant most commonly used only considers the case of positive word-of-mouth feedback. Negative feedback is also an important consideration, as this can result in dramatically lower sales under some circumstances. This webpage implements a modified version of the Bass model that accounts for negative word-of-mouth feedback and reflects it in the form of 'lost' potential sales, as shown in the system dynamics flow diagram shown below:

This model uses the following inputs:

• Total Market for product in $.

• Advertising Effectiveness – this is the recruitment rate of 'unsold' potential market in %/week when advertising is conducted. (0-100%)

• Advertising Duration – this is the number of weeks that advertising will be conducted from the initial product launch. (>= 1 week)

• Positive Word-of-Mouth Effectiveness (PWOME)– this is the recruitment effect resulting from feedback from satisfied customers. It is given as a percentage relative to the total market, where the weekly recruitment rate corresponds to R = PWOME * %Unsold_market * %Served_market. (0-100%)

• Negative Word-of-Mouth Effectiveness (NWOME)– this is the recruitment effect resulting from feedback from unhappy customers. It is given as a percentage relative to the total market, where the weekly recruitment rate corresponds to R = NWOME * %Unsold_market * %Served_market. These customers drop out of the unsold market and can be consdiered 'lost business' who will never buy the product. (0-100%)

• Satisfied Customers – This is the percentage of served customers who bought your product, liked it and contribute to positive word-of-mouth. The remaining unsatisfied percentage contribute to negative word-of-mouth effects. (0-100%)

• # of Weeks to Run Model – This is the model run time. (5 to 200 weeks)

In response to the above inputs, the model generates the following variables in tabular form:

• Weekly Sales – Total sales ($) for that week.

• Weekly Sales from Advertising – Sales ($) for that week resulting from advertising

• Weekly Sales from WOM – Sales ($) for that week from positive word-of-mouth customer feedback

• Cumulative Sales – Cumulative Sales ($) from all sources up through that week

• Lost Sales – Market ($) that has been lost for that week as a result of negative word-of-mouth customer feedback

• Cumulative Lost Sales – The cumulative market ($) that has been lost up through that week as a result of negative word-of-mouth feedback.

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