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Virtual Reality in New Product Development: Insights from Pre-Launch Sales Forecasting for Durables

Virtual Reality in New Product Development: Insights from Pre-Launch Sales Forecasting for Durables

Nathalie Harz, Sebastian Hohenberg and Christian Homburg

Most new products fail. However, a new study in the Journal of Marketing shows that durable product manufacturers could reduce this economic risk by leveraging virtual reality. With this investigation, our research team provides one of the first business research articles on virtual reality. 
 
In particular, we develop a new virtual reality forecasting approach that makes highly accurate monthly sales forecasts prior to the launch of a new durable. This approach includes 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. 
 
We tested the new forecasting approach in two field studies with two real-world innovations that our collaborating companies actually introduced—a new kitchen appliance and a new gardening tool. In total, a sample of 631 buyers participated. 
 
Using one year of actual sales data provided by GfK, a leading European market research agency, we validated our 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 the aggregated first-year sales forecasts and for the monthly sales forecasts. A comparison of our forecasts to the strongest benchmark model demonstrates that the new forecasting approach improves monthly forecasting accuracy by over 30%. In a supplemental analysis, we were able to approximate that a substantial part of this improvement can be attributed to the virtual reality feature. 
 
To examine why virtual reality leads to advantages in sales forecasting, we conducted a controlled laboratory experiment. 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 are 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, our 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. We identified pre-launch sales forecasting as 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. We therefore 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

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. Also, to avoid overburdening the virtual reality simulations, we recommend refraining from “all-in-one-solutions” and aim for one tool for one purpose (e.g., forecasting, 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. 

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From: Nathalie Harz, Sebastian Hohenberg, and Christian Homburg, “Virtual Reality in New Product Development: Insights from Pre-Launch Sales Forecasting for Durables,” Journal of Marketing.

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Nathalie Harz is a Research Assistant, Marketing Department, University of Mannheim, Germany.

Sebastian Hohenberg is Assistant Professor of Marketing, McCombs School of Business, University of Texas at Austin.

Christian Homburg is a professor of business administration and marketing and chairman in the Department of Marketing & Sales at the University of Manheim in Germany, as well as a professorial fellow at the University of Manchester in the UK.