Researchers from University of Mannheim and University of Texas at Austin published a new paper in the Journal of Marketing that examines how a new virtual reality forecasting approach can assess realistic consumer behavior even before the product or prototype physically exists.
The study, forthcoming in Journal of Marketing, is titled “Virtual Reality in New Product Development: Insights from Pre-Launch Sales Forecasting for Durables” and is authored by Nathalie Harz, Sebastian Hohenberg, and Christian Homburg.
Most new products fail. However, durable product manufacturers could reduce this economic risk by leveraging virtual reality. In particular, the researchers develop a new virtual reality forecasting approach that makes highly accurate monthly sales forecasts prior to the launch of a new durable. Harz explains that “Our approach builds on a simulated purchase journey in virtual reality encompassing various touchpoints and information sources, which allows assessing realistic consumer behavior even before the product or prototype physically exists. Thus, managers do not only benefit from more accurate prognoses, but also from a flexible application of the new approach.”
The new forecasting approach was tested with two real-world innovations—a new kitchen appliance and a new gardening tool. In total, a sample of 631 buyers participated. Using one year of actual sales data, the researchers validated their pre-launch sales forecasts after the launch of the two new durables. Results show that the new pre-launch forecasting approach achieves a very high forecasting accuracy for aggregated first-year sales forecasts and for monthly sales forecasts. A comparison of the forecasts to the strongest benchmark model demonstrates that the new forecasting approach improves monthly forecasting accuracy by over 30%. In a supplemental analysis, the authors were able to approximate that a substantial part of this improvement can be attributed to the virtual reality feature.
A laboratory experiment was used to examine why virtual reality leads to advantages in sales forecasting. In this experiment, participants either experienced a simulated store visit in a lab virtual reality, an online virtual reality, or in a studio setting with the actual products. Results reveal that the forecasting advantages of virtual reality arise because virtual reality participants on average behaved more consistently within the simulation than the studio test participants. Moreover, these differences can be explained by increased presence (i.e., the feeling of actually being in the simulation) and vividness (i.e., the feeling that the simulation is detailed and easy to imagine). Alternative explanations, such as decision uncertainty and convenience, did not apply.
Overall, the study contains actionable implications that fall into three categories: (1) application fields of virtual reality for new product development (NPD), (2) visualization mode selection, and (3) guidance for implementing virtual reality for NPD.
Application fields: Despite the increasing interest in virtual reality, many companies remain reluctant to use virtual reality because of the complexity and the costs of programming virtual reality environments. Moreover, companies experience challenges when implementing virtual reality in NPD due to a lack of knowledge within the company. Therefore, effective use cases for this technology remain scarce. Pre-launch sales forecasting is a promising application field for virtual reality. In addition, results hint at additional applications for virtual reality in NPD associated with its superior visualization capability: virtual reality is a great tool to showcase products, objects, and entire worlds. This insight guides finding further uses, such as virtual prototype testing, new product ideation, and point-of-sale optimization.
Visualization mode selection: Virtual reality can provoke large benefits, such as more flexible use throughout NPD or more accurate prognoses. However, results also reveal some limitations of virtual reality: programming virtual reality simulations can be expensive and virtual reality equipment has some use constraints when testing products that require touch and motion. The researchers present specific guidelines for managers on how to choose between lab virtual reality and online virtual reality as well as when not to use virtual reality. For instance, virtual reality is highly beneficial when early, detailed, and precise consumer information is needed. However, when managers only need high-level insights (e.g., a go/no-go decision), they should refrain from using virtual reality.
Guidance for implementing virtual reality for NPD: For managers, Hohenberg says “We recommend clearly defining the goals of using virtual reality and specifying a comprehensive implementation plan to ensure focus throughout the project. Our experience reveals that many companies get very excited about this technology, sometimes resulting in unrealistic expectations regarding simulation scope and length.” Homburg continues with “To avoid overburdening the virtual reality simulations, we recommend refraining from “all-in-one-solutions” and aim for one tool for one purpose, for example, forecasting or prototype testing. Using virtual reality several times during NPD creates synergies because programming virtual prototypes or environments can be slightly adjusted to different tests and contexts.”
Full article and author contact information available at: https://journals.sagepub.com/doi/pdf/10.1177/00222429211014902
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