Module 3- Forecasting

7/30/2019 Module 3- Forecasting

1/18

Forecasting


2/18

Agenda

Sales Potential and Sales Forecasting

Different Methods for the above

Converting industry forecast into company sales forecast

Evaluation of forecasts


3/18

Sales Potential

A sales potential is an estimate of the maximum possible sales

opportunities present in a particular market segment open to a

specified company selling a good or service during a stated future

period

To illustrate, an estimate of the number of low- priced pocket

cameras that might be sold in San Mateo County, California, during

the calendar year 1987 by the Eastman Kodak Company would be

the 1987 San Mateo County sales potential for Eastman Kodak low-price pocket cameras


4/18

Sales Potential

In other words, Sales potentials are quantitative estimates of the

maximum possible sales opportunities present in particular

market segments open to a specified company selling a good or

service during a stated future period

They are derived from market potentials after analyses of

historical market share relationships and adjustments for changes

in companies and competitors selling strategies and practices


5/18

Sales Potential V/s Market Potential

A Sales potential indicates sales opportunities available to aparticular manufacturer, such as to Eastman Kodak Company,

while Market potential indicates sales opportunities available to

an entire industry, say steel industry


6/18

Sales Forecast

A Sales Forecast is an estimate of sales, in dollars or physical

units, in a future period under a particular marketing program and

an assumed set of economic and other factors outside the unit for

which the forecast is made

A sales forecast may be for a single product or for an entire

product line

It may be for a manufacturers entire marketing area, or for any

sub- division of it

4


7/18

Sales Forecasting Methods

5

Jury of Executive Opinion

The Delphi Technique

Poll of Sales Force Opinion

Projection of Past Sales

Time- series Analysis

Exponential Smoothing

Evaluation of past sales projection methods

Survey of Customers Buying Plans

Regression Analysis Econometric Model Building and Simulation


8/18

Jury of Executive Opinion

6

There are two steps in this method:

i. High- ranking executives estimate probable sales, and,

ii. An average estimate is calculated

The assumption is that the executives are well informed about the

industry outlook and the companys market position, capabilities and

marketing program

All should support their estimates with factual material and explaintheir rationales


9/18

7

Jury of Executive Opinion Method

Companies using the jury of executive opinion method do so becauseof the following reasons:

1. This is a quick and easy way to turn out a forecast

2. This is a way to pool the experience and judgment of well-informed people

3. This may be the only feasible approach if the company is so young

that it has not yet accumulated the experience to use otherforecasting methods

4. This method may be used when adequate sales and market

statistics are missing, or when these figures have not yet been put

into the form required for more sophisticated forecasting methods


10/18

The Delphi Technique

8

Several years ago, researchers at the Rand Corporation developed atechnique for predicting the future that is called the Delphi Technique

This is a version of the Jury of Executive Opinion Method in which

those giving opinions are selected for their expertise

The panel of experts responds to a sequence of questionnaires in

which the responses to one questionnaire are used to produce the next

questionnaire

Thus information available to some and not to other experts is

disseminated to all, enabling all to base their final forecasts on all

available information


11/189

Poll of Sales Force Opinion Method

In the Poll of Sales Force Opinion Method, often tagged the

grass- roots approach, individual sales personnel forecast salesfor their territories; then individual forecasts are combined and

modified, as management thinks necessary, to form the company

sales forecast

This approach appeal to practical sales managers because

forecasting responsibility is assigned to those who produce the

results

Refer Page No. 44 of Cundifff and Still Text for strengths and

weaknesses of Poll of Sales Force Opinion Method


12/18

Projection of Past Sales Method

10

Next years sale= this years sales* this years sales/ last years

sales

Time- series analysis: A statistical procedure for studying

historical sales data

Exponential smoothing: A statistical technique for short- range

sales forecasting

Next years sale= a(this years sale)+ (1-a) (this years forecast)


13/1811

Survey of Customers Buying Plans

Here, customers are asked about their future buying plans

Industrial marketers use this approach more than consumer goods

marketers, because it is easiest to use where the potential market

consists of small numbers of customers and prospects, substantial

sales are made to individual accounts, the manufacturer sells directto users, and customers are concentrated in a few geographical

areas( all the more typical of industrial than consumer marketing)


14/18

13

Regression Analysis

Regression Analysis is a statistical process and, as used in salesforecasting, determines and measures the association between

company sales and other variables

It involves fitting an equation to explain sales fluctuations in

terms of related and presumably causal variables, substituting

for these variables values considered likely during the period to

be forecasted, and solving for sales


15/18

Regression Analysis

There are three major steps in forecasting sales through regression

analysis:

1. Identify variables causally related to company sales

2. Determine or estimate the values of these variables related to sales

3. Derive the sales forecast from these estimates


16/18

Econometric Model Building and

Simulation

Econometric model building and simulation is attractive as a sales

forecasting method for companies marketing durable goodsThis approach uses an equation or system of equations to represent a

set of relationships among sales and different demand- determining

independent variables

Then, by plugging in values (or estimates) for each independent

variable (that is, by simulating the total situation), sales are forecast

An econometric model (unlike a regression model) is based upon an

underlying theory about relationships among a set of variables, and

parameters are estimated by statistical analysis of past data

An econometric sales forecasting model is an abstraction of a real-world situation, expressed in equation form and used to predict sales

For example, the sales equation for a durable good can be written :

S= R + N


17/18

Converting Industry Forecast to Company Sales Forecast

Deriving a company sales forecast from an industry sales forecast

requires an appraisal of company strengths and weaknesses (as wellas marketing programs) against those of competitors

The result is an estimate of expected market share that (when applied

to the industry sales forecast) results in forecast of company sales

Forecasting a companys market share varies in complexity from one

industry to another

In the steel industry, the number of competitors is small and market

share is stable, so determining a given companys market share is a

simple task- a matter of projecting a past trends and adjusting for

anticipated changes in the companys relative strengths andweaknesses

But in the womens clothing industry, the number of competitors is

large and market shares fluctuate widely, so determination of market

share is difficult


18/18

Evaluation of Sales Forecasts

17

Before submitting forecasts to higher management, sales executives

evaluate them carefully, regardless of the extent of their personalinvolvement in the preparation

Every forecast contains elements of uncertainty

All are based on assumptions

So a first step in evaluating a sales forecast is to examine the

assumptions (including any hidden ones) on which it is based

Sales executives should view each assumption critically

Sales executives should evaluate the accuracy and economic value of

the forecast as the forecast period advances

Forecasts should be checked against actual results, differencesexplained, and indicated adjustments made for the remainder of the

period

Documents

Module 3- Forecasting