The Fourt & Woodlock Model Structure of the Model Intuitively, we can see that repeat purchase behavior

is influenced by the relationships (ratios) between the following:

A low awareness-to-trial ratio (i.e., of those aware of the product, few are trying it) suggests, as a starting point, discovering problems in the promotional campaign, positioning, or media; or problems with the pricing or distribution of the product. Each of these problems could be corrected. But a low trial-to-repeat (or repeat-to-repeat) ratio suggests problems with the product itself. This is a more difficult problem to correct since the product may be failing to satisfy the buyer. If the number of consumers at each step did not diminish (a ratio of 1.0), the product would be a remarkable success. But because each step is a necessary condition for the succeeding step, the number of consumers ordinarily does diminish at each step. This framework is fundamental to both the Fourt & Woodlock and Parfitt & Collins models; both are new product adoption models for frequently purchased products. The Fourt & Woodlock model is one of the earliest, best-known, and useful market penetration models. Their model consists of two procedures: a prediction for first-purchase penetration and a prediction for repeat purchase. In developing the first-purchase penetration procedure Fourt and Woodlock, like many model-builders, observed that, as market penetration of a new product accumulates, diminishing returns cause sales to approach but not reach a "ceiling" or saturation level (Figure 6-5). As they stated, "the increments in penetration for equal time periods are proportional to the remaining distance to the limiting 'ceiling' penetration."

They define the additional penetration for any period as,

1

Q t = r P ( 1- r ) t-1 where, Q t = the increase in sales at time t, as a proportion of potential sales, r = the rate of penetration of unrealized potential sales (a constant), P = the potential sales as a proportion of all buyers, and t = time period. Only two values are necessary for the equation: r and P. For example, suppose we believed that our new product would eventually be tried by 50 percent all households (P = 0.5), and that in each period 30 percent of the remaining potential buyers will actually buy (r = 0.3). Using Fourt & Woodlock's equation, the new-buyer penetration of this market for the first period is, Q1 = r P(1-r)1-1 = r P = (0.3)(0.5) = 0.15 or, 15 percent of the market. For the second period, the increment in new-buyer penetration is, Q2 = rP(1-r)2-1 = r P(1-r) = (0.3)(0.5)(1-0.3) = 0.105, or, 10.5 percent of the remaining market. Subsequent periods would continue to penetrate the market at declining rates. For period three: Q3 = rP(1-r)3-1 = r P(1-r)2 = (0.3)(0.5)(1-0.3)2 = .0735 Naturally, when the product is actually introduced or test-marketed we can watch penetration during the first few periods and update our estimates of r and P. Fourt and Woodlock's repeat-purchase procedures build on the above. They examined penetration rates for several new products and observed a curious trend. While the absolute number of consumers at each successive step grew smaller, the ratios between steps grew larger. Typical findings (Table 6-1) include 48.5 percent of the new buyers making repeat purchases, a larger percentage (55.9 percent) of those continuing on to buy once again, and so on. These data are calculated from consumer panel data for the new product. TABLE 6-1 Ratios Over Repeat Purchase New Buyers 1st Repeat 2nd Repeat 3rd Repeat Repeat Ratio .485 .559 .645

4th Repeat 5th Repeat

.593 .797

Fourt and Woodlock used this to predict product sales. First they used results from their firstpurchase procedure (discussed above) to predict estimated new-buyer sales. (For example, if 100,000 potential buyers comprise the market for a new product, and 15 percent of these are expected to buy in the first period, we would have 15,000 first-period sales.) If the values of Table 6-1 were observed for our product, we would take the product of 15,000 and the firstrepeat ratio of .485 to predict 7275 repeat sales for the first period. Second-repeat sales would be the product of 7275 and .559, or 4067, third-repeat would be 2623 (4067 multiplied by .645), and so on for each level of repeat and then for each period. Running the Fourt and Woodlock Worksheet