Final Reportn Forecasting and Demand Measurement

8/3/2019 Final Reportn Forecasting and Demand Measurement

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Forecasting andForecasting andDemand MeasurementDemand MeasurementForecasting andForecasting andDemand MeasurementDemand Measurement

Sheila Marie A.Sheila Marie A. DacutDacut


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Wrong Sales Forecast Excessive Inventories or Inadequate

Inventory.

Sales Forecasts are based onestimates of Demand.


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Why Study Demand? Finance -The cash that is required for

operations and investments.

Operations To establish capacity andoutput levels. Purchasing To get the right amount of

supplies.

HR To get the right number of workers Marketing- To prepare Sales Forecasts


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Demand Levels

Time Level Product Level Space Level

Short Run All Sales World

Medium Run Industry Sales India

Long Run Company Sales Region

Product LineSales

Territory

Product Form

Sales

Customer


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Measuring Current Market Demand Marketers will want to estimate three

different aspects of current market

demand

o Total market demand

o Area market demand

o Actual sales and market shares


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Market Demand Market Demand for a product is the total

volume that would be bought by a

defined customer group in a defined geographical area in a

defined time period in a

defined marketing environment under a defined marketing program.


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Estimating Total market demand Q = n x q x p

Where,Q = total market demand

n = number of buyers in the market

q = quantity purchased by an average

buyer per yearp = price of an average unit


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Estimating Area Market Demand Companies face the problem of selecting the best

sales territories and allocating their marketingbudget optimally among these territories.

Two major methods are available

o Market buildup method used primarily bybusiness goods firms

o Market-factor index method used primarily byconsumer goods firms.


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Market-Buildup Method

Calls for identifying all the

potential buyers in each marketand estimating their potentialpurchases.


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Market-Factor Index Method

Identifies market factors thatcorrelate with market potential and

combines them into weighted index.


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Common Sales Forecasting Techniques

Based On: Methods

What people say Surveys of buyers intentions

Composite sales force opinions

Expert opinion

What people do Test markets

What people have done Time-series analysis

Leading indicators

Statistical demand analysis


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Survey Methods

Executive

Opinion

Users

Expectation

Sales Force

Composite

Build-to-

Order

Mathematical Methods

Test Market Regression

Naive Trend

Moving

Average

Exponential

Smoothing

THE MORE POPULAR OF MANY FORECASTING METHODS


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Survey Methods

Executive Opinion: Executive forecasting is done in twoways:

By one seasoned individual (usually in a small company).

By a group of individuals, sometimes called a jury ofexecutive opinion.

Delphi Method: Administering a series of questionnairesto panels of experts.

Sales Force Composite: Obtaining the opinions of salespersonnel concerning future sales.

UsersExpectations: Consumer and industrial companies

often poll their actual or potential customers.

Build-to-Order: Companies build final products only afterfirm orders are placed.


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MATHEMATICAL FORECASTING METHODS

Test market is a popular method of measuring consumer

acceptance of new products. Time Series Projections: Time series methods use

chronologically ordered raw data.

Classical approach to time series analysis:

The trend component. The seasonal component.

The cyclical component.

The erratic component.

Nave Method:Next Years Sales = This Years Sales XThis Years Sales

Last Years Sales


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PERIOD

SALES

VOLUME

SALES FOR

THREE-YEAR

PERIOD

THREE-YEAR

MOVINGAVERAGE

1 200

2 250

3 300 750

4 350 900 300

5 450 1100 / 3 = 366.6

6 ?

Period 6 Forecast = 366.6

TABLE : EXAMPLE OF MOVING-AVERAGE FORECAST

Moving Average Method


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Exponential Smoothing

Exponential smoothing is similar to themoving-average forecasting method. It

allows considerationof all past data, but

less weight is placedondata as it ages.


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Linear Relationship

Population

(A)

S

ales

0

Curvilinear Relationship

Population

(B)

S

ales

0

FIGURE: REGRESSION ANALYSIS

Regression Analysis


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TABLE: GUIDE TO FORECASTING

FORCASTING

METHOD TIME SPAN

MATHEMATICAL

SOPHISTICATION

COMPUTER

NEED ACCURACY

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

conditionsUsers Expectations Short to

medium

Minimal Not

essential

Limited

Test Markets Medium Needed Needed Accurate

Nave Method Present to

medium

Minimal Not

essential

Limited

Moving Average Short to long Minimal Helpful Accurate under stableconditions

Exponential

Smoothing

Short to

medium

Minimal Helpful Accurate under stable

conditions

Regression

Analysis

Short to

Medium

Needed Essential Accurate if variable

relationships stable


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Survey of Buyers Intentions One way to forecast what buyers will do is to ask them

directly.

Surveys are especially valuable if the buyers haveclearly formed intentions, will carry them out, and candescribe them to interviewers.


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Leading Indicators Many companies try to forecast their sales by

finding one or more leading indicators othertime series that change in the same direction by

in advance of company sales.

For example, a plumbing supply company mightfind that its sales lag behind the housing starts

index by about four months. The housing starts index would then be a useful

leading indicator.


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Statistical Demand Analysis A set of statistical procedures used to discover the

most important real factors affecting sales andtheir relative influence.

The most commonly analyzed factors are prices,income, population, and promotion.


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Composite of Salesforce Opinions The company typically asks its salespeople to estimate

sales by product for their individual territories.

It then adds up the individual estimates to arrive atan overall sales forecast.

Salespeople are biased observers. They mayunderstate demand so that the company will set a lowsales quota.

After participating in the forecasting process, thesalespeople may have greater confidence in theirquotas and more incentive to achieve them.


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Expert Opinion Experts include dealers, distributors, suppliers,

marketing consultants, and trade associations.

Dealer estimates are subject to the same strengthsand weaknesses as salesforce estimates.

Delphi method Experts may be asked to supply theirestimates individually, with the company analystcombining them into single estimate.

Finally, they may supply individual estimates andassumptions that are reviewed by a company analyst,revised, and followed by further rounds of estimation.


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Test Marketing Where buyers do not plan their purchases

carefully or where experts are not availableor reliable, the company may want toconduct a direct test market.

A direct test market is especially useful in

forecasting new-product sales orestablished product sales in a newdistribution channel or territory.


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Time-Series Analysis Breaking down past sales into its trend, cycle, season, and erratic

components, then combining these components to produce a salesforecast.

Trend is the long-term, underlying pattern of growth or declinein sales resulting from basic changes in population, capitalformation, and technology.

Cycle captures the medium-term, wavelike movement of salesresulting from changes in general economic and competitive

activity. Season refers to a consistent pattern of sales movements within

the year.

Erratic events include fads, strikes, snow storms, earthquakes,

riots, fires, and other disturbances.

Final Reportn Forecasting and Demand Measurement

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