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Types of Forecast
The term forecast is ordinarily used to refer to a prediction for a future period. Although this usage is technically correct, it is too general for managerial value.
A useful way for viewing what is being forecast is presented in figure above.
Four different types of forecasts emerge from this classification scheme:
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Meaning of Sales Forecast The sales forecast is a prediction of expected sales for a specified period. It is an estimate for sales in rupee or units for a specified future period. In other words, it is basic tool for anticipating the nature of future sales or sales prediction. According to Cundiff and Still, is “an estimate of sales during a specified future period which period is tied to a proposed marketing plan and which assumes a particular set of uncontrollable and competitive forces”. According to Stuits, “A sales forecast is an estimate of the amount or unit for a specified future period under marketing plan or programme”. According to American marketing Association “forecasting is an estimate of sales in dollars or physical units for a specified future period under a proposed marketing plan or program and under an assumed set of economic and other forces outside the unit for which the forecast is made. The forecast may be for a specified item of merchandise or for an entire line.”
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Steps in sales Forecasting1. Forecasting of General Economic Conditions: General economic conditions within the boundaries of the nation, do effect the purchasing power of the individual customer. The standard yardstick for assessing general economic conditions will be: gross national product, per capita income, personal income, personal consumption expenditure, level of employment and the consumer price index.2. Forecast of Industry Sales: Though the industry forecast are available from
the trade associations and chambers of commerce, a SWOT analysis of the competition prevailing could throw much light on the competition within the industry.3. Preparing Forecast of Company Sales: The sales manager, while preparing the sales budgets of the company has to forecast the company and product sales for the coming year. The entire planning of the organization for production, manpower, financial arrangements, and revenue calculations will depend upon the accuracy of the sales manager's forecast.
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Choice Modeling
Discrete choice, volumetric choice, and conjoint models are analytical methods used to understand the behaviour of consumer purchasing behaviour. Our Advanced Analytics Consultants set up carefully controlled experiments in which consumers are simply asked to choose how many of each product to buy, given predetermined sets of realistic conditions.
Discrete Modeling
Discrete choice modeling is ideal for each product categories where only one purchase is made over a longer period of time. In these carefully controlled experiments, current and potential customers are asked which one product they would buy, given a realistic scenario including all of the products of services that compete with one another in the marketplace. In each scenario, the respondent is presented with a different set of marketing stimuli and asked which brand or product would be purchased. The type of decision that the respondents make in each scenario is designed to mimic the real market, and again each variables' importance is being determined implicitly.
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Methods of Sales ForecastingSurvey MethodThe survey method is based on the opinion of buyers and consumers. It is useful with respect to industrial products but not as far as consumer goods are concerned.Expert OpinionAccording to this method, a company invites the opinions of executives and consultants who are acknowledged experts in studying sales trends.Market Studies MethodThis method is commonly used by marketers for consumer goods. It is also known as the Market Test Method. A market test provides data about consumers and the marketing mix.Sales Force Opinion MethodThis method estimates the buyers intentions from experienced personnel in the sales force. They can easily forecast for their respective territories.
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Statistical Methods
Statistical methods are considered to be superior techniques of sales forecasting because their reliability is higher than that of other techniques. Some commonly used statistical methods are given below:
Commonly Used Statistical Methods
Trend Method
This method provides a rough trend of the forecast on the basis of past experience. It does not, however, take into account the changing environment. It is a simple method for business forecasting on the basis of past performance.
Graphical Method
According to this method, sales data are plotted on graph paper and a graph is drawn for a number of years. This is a simple and inexpensive method.
Time Series Method
This method is used for long periods duly taking into account cyclical changes, seasonal variations and irregular fluctuations.
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Time Series Method
“A time series may be defined as a collection of magnitudes belonging to different time periods, of some variable or composite variables, such as production of steel, per capita income, gross national product, price of tobacco, or index of industrial production.”
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Sales Volume Quotas
Sales volume quotas include sales in rupees or product unit objectives for a specific period of time.
Sales volume quotas are first set for the entire year. The yearly total volume quota is then set for shorter time periods, such as three months, six months and nine months. The sales force is assigned their yearly quotas. Sales targets are set for the year for sales force so their aim is to sell throughout the year to achieve the total sales objective. The sales volume quotas can be set in the following areas:
Sales ValumeQuotas
Product line Product range Sales divisionSales territories Sales districts Branch offices Sales force (Individual)
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Activity QuotasThese quotas set objectives for job-related duties useful for attaining salespeople’s performance targets. Activity quotas are required to make the sales force perform other activities which have long-term implications on the goodwill of the firm. A sales organisation must set a target level of performance for salespersons. Some common types of activity quotas prevalent in Indian companies are as follows
Activity quotas typically should not be a basis for rewards. Rather, their attachment helps the manager better understand why salespeople do or do not meet their sales volume quota.Quota CombinationsMany companies use a combination of these quotas. The two most commonly combined are sales volume and activity quotas. These quotas influence selling and non-selling activities.
Number of sales presentations madeNumber of service calls madeNumber of dealers visitedNumber of calls made for recoveryNumber of new accounts opened
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Sales Forecasting and Global Factors With globalization of trade, it has became difficult to forecast accurately, more particularly for the long-term. Technological changes, sudden appearance of a competitor from any part of the world, selling the goods at competitive prices or even resorting to dumping, are some of the problems faced in accurate forecasting. It requires a well planned effort to take into consideration the factors influencing the sales strategy, so that sales forecasting may be a realistic one, as far as possible. This situation has been drafted by Warren J Keegan as follows:
In terms of cultural sensitivity, consumer products are more sensitive than industrial products. Another rule of thumb is that food products, especially those served at home, frequently exhibit the highest degree of cultural sensitivity. What this means to managers is that some products of daily life use are likely to demand significant adaptation. Others require only partial adaptation and still others are best left unchanged. Cont….
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Companies differ in both their willingness and capability to identify and produce profitable product adaptations. Unfortunately, too many stage one and stage two companies are oblivious to the foregoing issues. One new-product expert has described three stages that a company must go through as follows
1. Cave dweller. The primary motivation behind launching new products internationally is to dispose of excess production or increase plant-capacity utilization.
2. Naive nationalist. The company recognizes growth opportunities outside the domestic market. It realizes that cultures and markets differ from country to
country and, as a result, it sees product adaptation as the only solution.
3. Globally sensitive. This company views regions or the entire world as a competitive marketplace. New-product opportunities are evaluated across countries, with some standardization planned as well as some differentiation to accommodate cultural variances. New-product planning processes and control systems are reasonably standardized.