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Estimating the Bass Diffusion Model

Using EXCEL
Enter sales in Column A. For example,

A
1 Sales
2 208
3 249
4 287
5 315
6 327
7 317

Enter the lagged cumulative sales in Column B, and the square of Column B in Column C. For example,

A B C
1 Sales Lagged Cumulative Square Cumulative
2 208 0 +B2^2
3 249 +A2+B2 +B3^2
4 287 +A3+B3 +B4^2
5 315 +A4+B4 +B5^2
6 327 +A5+B5 +B6^2
7 317 +A6+B6 +B7^2

Here, the numbers would be:

A B C
1 Sales Lagged Cumulative Square Cumulative
2 208 0 0
3 249 208 43264
4 287 457 208849
5 315 744 553536
6 327 1059 1121481
7 317 1386 1920996

Go to the pull down menu under Tools and select Data Analysis.

File Edit View Insert Format Tools Data


Spelling
.
.
Data Analysis

If the Data Analysis Option is missing from the menu, then go to “Add-Ins” in the Tools Menu and add the
following two options: Analysis ToolPak and Analysis ToolPak – VBA.
Next select “Regression” from the list of Data Analysis Options.

Data Analysis
Analysis Tools
Random Number
Generation
Rank and Percentile
Regression
Sampling

For the Input Y Range, put in the column for Sales.


For the Input X Range, put in the two columns for Lagged Cumulative and Squared Cumulative Sales.
For the preceding example,

Regression

Input Y Range: $A$2:$A$7

Input X Range: $B$2:$C$7

Press “OK” to run the regression. The Results should appear (see Table 1 on the following page):
Now, use the formulae to compute the coefficients of the Bass Diffusion Model.

For example, consider the estimated coefficients in Table 1. In this example, a = 207.8353, b = 0.219893,
and c=-0.0001017.
Remember,
− b − b 2 − 4ac
m=
2c
So,
− .22 − .22 2 + .084
m= = 2873
− .000203
And,
a
p=
m
So,
207.8
p= = .07235
2873
Finally,

q = p+b

So,

q = .07235 + .21989 = .2922

It is now possible to compute predicted versus fitted sales. It is also possible to predict sales for future periods.
Just use the equation,

S t = a + bYt −1 + cYt 2−1

Time Fitted ACTUAL ERROR


1 207.84 208.0000 -0.165
2 249.14 249.0000 0.143
3 287.08 287.0000 0.077
4 315.13 315.0000 0.127
5 326.61 327.0000 -0.388
6 317.19 317.0000 0.192
7 287.27 predicted predicted
8 242.50 predicted predicted
9 191.64 predicted predicted

Table 1.
SUMMARY OUTPUT

Regression Statistics
Multiple R 0.999988
R Square 0.999976
Adjusted R 0.99996
Square
Standard Error 0.295309
Observations 6

ANOVA
df SS MS F Significan
ce F
Regression 2 10908.57 5454.286 62543.69 1.17E-07
Residual 3 0.261623 0.087208
Total 5 10908.83

CoefficientsStandard t Stat P-value Lower


Error 95%
Intercept 207.8353 0.254915 815.3131 4.07E-09 207.0241
X Variable 1 0.219893 0.000912 241.2331 1.57E-07 0.216992
X Variable 2 -0.0001017 6.35E-07 -160.306 5.35E-07 -0.0001