Three Alternative Forecast Scenarios That Became Reality

The Benefits of Scenario Thinking

Business Insider recently challenged an analyst company for forecasting great success for Windows Phone five years ago and getting it all wrong.

We’ve long been an advocate of scenario-based forecasting. Forecasts don’t always come true: they’re simply a set of expectations based on current market knowledge and reasonable assumptions about the future. Some forecasts, such as those concerning market shares, have a lower chance of being realized as they project elements with higher uncertainty than others.

Scenarios highlight the main uncertainties in assumptions about the future, allowing strategists and planners to be prepared for different outcomes. Our forecasts for operating system splits of mobile devices, for example, are always developed in scenarios and cover a shorter time scale in recognition of the volatility of mobile device markets.

Fundamental market structure should also be challenged with scenario thinking. Here are three market structure scenarios — alternative to the core forecast expectations — which eventually became core scenarios.

1. In mid-2012, we identified a risk to the tablet market, depicting an alternative scenario in which “emerging markets don’t adopt tablets as, by the time the growth is expected to pick up, a new and more attractive device (such as a new super-smartphone device) captures consumers’ attention”.

This scenario now seems more viable than ever. Adoption of tablets in the emerging markets is very low, projected at just over 4 percent of the population at the end of 2015 despite the steep price erosion of tablets between 2012 and 2014. Large smartphones have instead gained popularity in the emerging markets, and these along with two-in-one convertible laptops make it possible for most consumers to leapfrog the tablet altogether.

2. The short-term potential for wearable fitness trackers in emerging markets thanks to ultralow prices wasn’t always as obvious as it is now. We’ve run a low and a high scenario since our first forecast in 2013 owing to the nascent nature of the market for quantified self products. The early core scenario was that fitness bands would initially be a developed market phenomenon, with consumers in the emerging markets preferring to spend their technology budgets on devices like tablets.

But this didn’t happen. Xiaomi’s sub-$15 Mi Band revolutionized the market and changed expectations. The once high scenario, based on “faster price erosion and much higher adoption in emerging markets”, has now become the core expectation. Our latest forecast projects the share of emerging markets in the fitness tracker category of wearables at 44 percent in 2015, growing to above 50 percent in 2019.

3. Consolidation in the UK operator market was an alternative scenario that we forecast in late 2013, outlining the potential effect of such structural market change on mobile operators’ ARPU and churn. Our prediction that Three would acquire O2 was met with some friendly reservations in late 2013.

However, in early 2015, this alternative scenario became core (though we’re running an alternative scenario of no consolidation while awaiting the European Commission’s ruling on the deal).

The key aspect of scenario-based forecasting is the focus on the main uncertainties, which form the different scenarios. These bring a clearer understanding of market’s sensitivity to its more volatile drivers, and of any linkage to adjacent markets. Such awareness allows our clients to more quickly identify when the market deviates from the core expectation and begins to evolve toward a different reality.

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