parting words, she returned to her office to
begin what would be a hectic weekend.
She mulled over the other forecasting
alternative that she had not been allowed to
present at the meeting. She had been about
to tell her bosses that she could develop an-
other mathematical model based on data
other than employment. She would have to
do a lot of statistical work to locate and val-
idate such a series of information, but after
all that was her job.
Case 14-3
THE NEWPORT COSMETICS COMPANY
Forecasting sales for a new product
"What in the world is going on in there?"
asked Marcia Fox, the operations manager
for The Newport Cosmetics Company of
Newport Beach, California, as she walked
into the office on a foggy Monday morning.
Her question, addressed to no one in partic-
ular, was answered by the accountant.
"They're at it again!"
"What's it all about this time?"
"The sales forecast for the new shaving
oil. As usual, they can't agree on it," the ac-
countant added.
"All that noise over coming up with a
number that is at best a wild guess. They'll
argue over anything," Marcia observed.
"It's not the number they're arguing
about; it's how they are going to get the
number," the accountant said.
The Newport Cosmetic Company had
been founded in 1988 by three young people,
Sara Haskell, Kent Graham, and Jim
Porter, who had developed an interest in the
cosmetic uses for various herbs and herbal
compounds. After more than a year develop-
ing a line of herbal cosmetic products, they
introduced it to the market using various di-
Cori wondered if she should recommend
continued use of a forecasting method with
which management was familiar or if she
should recommend switching to the survey
of customers' buying intentions system.
Question:
What forecasting method should Cori New-
man recommend that the company adopt?
rect marketing techniques which included
both direct mail and party-plan selling. The
company prospered.
While Sara was legally the firm's presi-
dent with Jim its treasurer and Kent its sec-
retary, the three founders served jointly as
the firm's top management, each with an
area of special interest. Jim concentrated on
marketing; Kent was concerned with con-
trols and finance; Sara spent her time on
production and operations.
In its ongoing product development pro-
gram, a combination of exotic oils such as
frankincense, rosemary, and jasmine proved
to be a particularly effective shaving prepa-
ration to be used instead of the traditional
shaving soaps and after-shave lotion. The
panel of people who tested the product
praised it highly.
Once the product's effectiveness and ac-
ceptability had been established, Jim
Porter, the founder who was mostly con-
cerned with marketing, had developed a
marketing plan for the new shaving oil, yet
unnamed. It was thought that the new oil
could not be marketed as a man's shaving
preparation because of the extreme compe-
tition from big advertisers in that market.
Instead, after extensive conversation about
positioning the oil as a woman's shaving
product particularly designed for legs, it
was decided to market the new oil as a
woman's cosmetic.
Moreover, a consultant suggested that it
might be difficult to get men to change their
traditional shaving rituals. For centuries
men have shaved with soap, not oil. Market-
ing history deals unkindly with firms that
have tried to get people to change such
firmly implanted rituals. Thus the consul-
tant suggested that the company begin by
selling the oil as a woman's cosmetic item.
While the three founders were good
friends and worked well together, some-
times it was not without considerable strife
and stress. They were not quiet people. They
yelled a lot: at each other, at other people,
and often at no one in particular. Their joint
defense of their operating behavior was that
it was "therapeutic."
On this day, they disagreed about how to
develop a sales forecast for the new shaving
oil. Jim Porter strongly insisted that all they
could do was to use a "must-do" forecast. He
maintained that because the product was so
new, there was no way to forecast its sales
without a test market. "We're trying to pen-
etrate a market so large that even a 1 per-
cent market share would be a tremendous
success. We would need a market test to get
some data on which to develop a market-
based sales forecast," Jim said.
"So let's test it!" Sara shouted.
"And tell the world what we're up to! Get
real!" Kent shouted back. He continued, "I
shudder to think how difficult it would be to
test market the oil, let alone the validity of
the results. It costs as much to test it as to
go ahead and market it. We've got the prod-
uct, now go with it."
Sara defended herself, "Look, it costs us
nothing to mix up a batch of the stuff and
choose an isolated market to test it in. Let's
do it!"
"Why bother? We don't need a sales
forecast except to pacify management
purists who insist that one should be devel-
oped. Since when do we do what those peo-
ple think should be done? Let's figure out
how much sales we need the first few years
to make the program worthwhile to us,
what sales volume we must have for us to
come out all right on the venture." Jim con-
tinued his support for his must-do forecast.
"I figure that we must sell $500,000 of this
stuff the first year to cover our costs. And
that's using the marketing program with-
out the heavy advertising campaign! If we
use the program that calls for a substantial
advertising campaign, we'll have to sell at
least $2 million the first year to cover
costs."
Kent suddenly threw a different idea
onto the table. "There's got to be some other
product like this that has been sold in the
past. Why don't we do some research and see
what we can find out about it and what it
sold the first year?"
Both Sara and Jim screamed at him
with rude statements about his refusal to
make a decision and his bureaucratic incli-
nations to stall and delay. He tried to defend
his thoughts, but to little avail.
Marcia Fox grew weary of listening to
the founders' quarrel, particularly because
there was much work that was waiting for
their attention. She decided to go into the of-
fice and tell them what to do. It was not the
first time that she had moved things along
this way.
Question:
What forecasting method should Marcia tell
them to use?