Robust testing of the utility-based high-technology product sales forecasting models proposed by decker and gnibba-yukawa (2010)

Abstract

Decker and Gnibba-Yukawa (2010) propose an elegant utility-based model for forecasting the sales of high-technology products and suggest that the model yields forecasts that are highly accurate. However, this finding is based on forecasts for a total of only six holdout observations shared across three products. This number of observations is insufficient for reliable inferences to be drawn about the accuracy of a method and the use of such a small data set runs counter to an accepted principle of forecast evaluation. The authors' proposed model was tested on more extensive data and sensitivity analysis applied to the results. No evidence was found that the utility-based model could outperform a relatively simple extrapolative model despite the much greater effort involved in applying the proposed model. In addition, the utility-based model is only applicable for forecasting sales during a narrow interval in a product's life cycle and requires several periods of historic sales data before it can be implemented. It also depends heavily on the accurate estimates of parameters that are determined outside the model (and which may depend on difficult judgments by managers) and assumes that consumers or households will only purchase the product once between the launch date and the forecast horizon. In light of this, it is argued that the utility-based model is likely to have limited usefulness as a sales forecasting tool.