FORECASTINGFORECASTING IMPLIES PREDICTING THEFUTURE AFTER STUDYING AND ANALYSING THEPAST AND PRESENT DATA.
Sales Forecasting MEANING Prediction of the future sales of a particular product over a specific period of time based on past performance of the product, inflation rates, unemployment, consumer spending patterns, market trends, and interest rates. Sales forecasting, though crucial, is one of the grey areas of marketing management.
A sales forecast predicts the value of sales over a period of time. It becomes the basis of marketing mix and sales planning. A short-term sales forecast (say for a period of one year) when linked to the sales budget helps in the preparation of an overall budget for the firm as a whole. A long-term sales forecast (say for a period of 5 years or so) on the other hand, focuses on capital budgeting needs and process of the firm.
Two types of approaches: Breakdown Approach Market Build-up Approach
Reasons for undertaking sales forecastsBusinesses are forced to look well ahead in order to plantheir investments, launch new products, decide when toclose or withdraw products and so on. - Employment levels required - Promotional mix - Investment in production capacity
QUALITATIVE TECHNIQUESQualitative techniques are a valuable resource forany forecaster. The value of experience and theability to analyze complex situations as input tosales forecasts should never be discounted.
Qualitative Forecasts consider the range of factors which influence the demand. These factors are then ranked in order of importance and each of them in turn is analyzed to reveal future trends.Qualitative methods of forecasting are: 1.Consumer expectations 2.Sales force composite 3.Jury of executive opinion 4.Delphi technique
Qualitative techniquesConsumer Expectations Consumers are frequently interviewed with the help of questionnaires concerning their buying habits, motives and intentions. The consumer feedback is used to estimate the expected consumption or purchases of the product.
Advantages Forecast estimates straight from buyers. Information about projected product can be detailed. Insights give assistance in planning the market strategy. Practical for forecasting new-products.
Disadvantages Company has to choose potential customers carefully and the number of customers has to be small. Works well with business to business goods, but not with consumer goods. Depends on how precisely the users make their evaluations. Takes a lot of money, time and labour.
Delphi technique Delphi is based on iterative approach and it uses anonymous repeated feedback. The people involved in the feedback give their own forecast about the subject and the feedbacks are gathered into a summary.
STEP 1 – Various Experts are asked to answer independentlySTEP 2 – A summary of all the answers is then prepared. No expert knows, how any other expert answered the questions.STEP 3 – Copies of summary for modification if necessarySTEP 4 – Another summary is made of these modifications, and copies again are distributed to the experts. This time,however, expert opinions that deviate significantly from the norm must be justified in writing.STEP 5– The forecast is generated from all of the opinions and justifications that arise from step 4.
Advantages The effects of group dynamics is reduced. Statistical information can be used. Disadvantages Can take a long time and is money consuming
Sales Force PollingSome companies use as a forecast source salespeople who havecontinual contacts with customers. They believe that thesalespeople who are closest to the ultimate customers may havesignificant insights regarding the state of the future market.Forecasts based on sales force polling may be averaged todevelop a future forecast. Or they may be used to modify otherquantitative and/or qualitative forecasts that have beengenerated internally in the company.
Advantages It is simple to use and understand. It uses the specialized knowledge of those closest to the action. It can place responsibility for attaining the forecast in the hands of those who most affect the actual results. The information can be broken down easily by territory, product, customer, or salesperson.Disadvantages Salespeople’s being overly optimistic or pessimistic regarding their predictions and inaccuracies due to broader economic events that are largely beyond their control.
Executive OpinionsThe subjective views of executives or experts fromsales, production, finance, purchasing, and administrationare averaged to generate a forecast about future sales.Usually this method is used in conjunction with somequantitative method, such as trend extrapolation. Themanagement team modifies the resulting forecast based ontheir expectations.
Advantages The forecasting is done quickly and easily, in the absence of adequate data.Disadvantages Strong leadership fosters group pressure for unanimous opinion.
Advantages of qualitative technique Qualitative forecasting techniques have the ability to predict changes in sales patterns. Qualitative forecasting techniques allow decisionmakers to incorporate rich data sources consisting of their intuition, experience, and expert judgment.
Disadvantages Forecasters’ inability to process large amounts of complex information. Forecaster’s overconfident in their ability to forecast accurately. Political factors within organizations, as well as political factors between organizations. Forecasters may be influenced by initial forecasts (e.g., those generated by quantitative methods) when making qualitative forecasts. Qualitative forecasting techniques are expensive and time intensive
CONCLUSIONQualitative techniques are recommended forthose situations where managers or sales forceare particularly aimed at predicting salesrevenues. These techniques are often utilizedwhen markets have been disturbed by strikes,wars, natural disasters, recessions or inflation.Under these conditions historical data areuseless and judgmental procedures thataccount for the factors causing market stocksare usually more accurate.