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Sales Forecasting
Sales Forecasting
The investment cost and risk , time pressure and the research cost .
High risk products those who creates new product categories or have novel
features.
The amount of market testing is reduced if the company is having great time
pressure because the season is just starting.
Test markets
In sales wave research a consumer who initially tried the product at no cost are
reoffered it, or a competitors product at slightly reduced prices. The offer may be made
as many as five times (sales waves), while the company notes how many consumers
selected the product again and their reported level of satisfaction.
Its quick, secure, and can be carried out without final packaging.
Consumer are provided small amount of money and they are invited to a store
where they may buy any items.
This provides a measure of the ads relative effectiveness against competing ads
in the market.
This method gives fairly accurate result of effect of ads and trial rates. The
results are incorporated in to new product forecasting model to project ultimate sales
levels.
Disadvantage:
4. Test markets:
WHICH CITIES?
LENGTH OF TEST?
Expensive industrial goods and new technologies will normally undergo two type of
test marketing.:
During beta testing the companys technical people observes how test customers use
the product.
The company can also observe how much value the equipment to the customers
operation as a cue to subsequent pricing.
The company asks test customers their purchase intention and other reaction after the
test.
Disadvantages:
Sales Forecasting
Starting point of short term (3 to 6 months), medium term (6 to 24 months), and long
term planning.
Long term forecasting - useful in determining what new facilities, labor, and
funding will be needed.
Sales forecasting is not just the estimation of sales; it is also matching sales
Forecasting Process
The forecasting process is defined as the series of decisions and actions taken by
a business organization in:
Using the available data in the selected method to estimate the sales in
future
Forecasting process
finalize the fo
The sales forecasting method is a procedure for estimating how much of a given product
(or product line) can be sold if a given marketing program is implemented. No sales
forecasting method is foolproof-each is subjected to some error.
Well managed companies do not rely upon a single sales forecasting method but use
several methods.
Qualitative methods
Best used when executives have a strong working knowledge of the area and other
sources of data is hard to find.
Advantages
Can be done easily and quickly without a lot of elaborate statistical manipulations
Incorporated a variety of opinions from executives
Disadvantages
Advantages
Disadvantages
Advantages
Useful in predicting short-term and intermediate sales for firms that serve only a few
customers
People that are going to purchase the product are involved
Disadvantages
Intentions to buy may not result in actual purchases (They may report what they want
to buy, but not what they are capable of buying)
Quantitative methods
Market Test
Trend Projections
Moving Averages
Regression Analysis
Market Test
Time-consuming
Expensive
Trend Projection
A quantitative sales forecasting method that estimates future sales through statistical
analyses of historical sales patterns.
Advantages
Quick
Inexpensive
Disadvantages
O b s er v d S a le s F o r e c a s t S a le s
60
50
4 0 T r en d
L in e
30
20
10
0
19 84 19 8 5 19 8 6 19 87 19 8 19 8 19 0
T im e
Moving averages are used to allow for marketplace factors changing at different rates and at
different times.
Month
Actual
60
65
Forecast
68
(60+65+68/3)=
64
73
69
64
69
70
69
65
69
70
62
65
69
59
62
65
63
61
62
10
66
63
61
11
58
62
63
12
60
61
62
L i n e a r R e la t i o n s h i p C u r v i l n e a r R e l a t i o n s h i p
s
a
S
l e
a
S
l e
Regression Analysis
P o p u l a ti o n
(A )
P o p u l a ti o n
(B )
Regression analysis is a statistical method used to incorporate independent factors that are
thought to influence sales into the forecasting procedure.
Reveals average relationship between two variables and this makes possible estimation or
prediction.
Naive Method
The following formula shows how to adjust the nave method to account for a change in rate of
sales levels. The formula is stated this way:
Exponential Smoothing
It allows consideration of all past data, but less weight is placed on data.
Advantages
Quick
Inexpensive
Disadvantages
FORCASTING
METHOD
TIME SPAN
Executive
Opinion
Short to
medium
Minimal
Not essential
Limited
Delphi Method
Medium to
long
Minimal
Not essential
Limited; good in
dynamic conditions
Sales Force
Composite
Short to
medium
Minimal
Not essential
Accurate under
dynamic conditions
Users
Expectations
Short to
medium
Minimal
Not essential
Limited
Test Markets
Medium
Needed
Needed
Accurate
Nave Method
Present to
medium
Minimal
Not essential
Limited
Minimal
Helpful
Exponential
Smoothing
Short to
medium
Minimal
Helpful
Least Squares
Short to long
Needed
Desirable
Varies widely
Regression
Analysis
Short to
Medium
Needed
Essential
Accurate if variable
relationships stable
One of the most frequently used forecasting methods is time series analysis.
Time series refers to the values of a variable arranged chronologically by days, weeks, months,
quarters, or years.
Time-series analysis attempts to forecast future values of the time series by examining past
observations.
The assumption is that the time series will continue to move as in the past.
The classical time series model takes the following form:
Y=T*S*C*I
This approach to economic forecasting assumes that economic time series can be decomposed into four
elements (T, S, C, I)