Marketing Management 2nd Edition Michael R. Czinkota and Masaaki Kotabe Chapter 6: Estimating Market Demand

Chapter Outline Forecasts vs. Budgets Time Spans for Forecasts Short-Term Forecasting Medium-Term Forecasting Long-Term Forecasting Forecasts Into Budgets Micro and Macro-Forecasts Derived Forecasts Forecasting Techniques Alternatives to Forecasting Factors Limiting Forecasting

Forecasts vs. Budgets Forecasting: Budgeting: Predicting what will happen in the future Budgeting: Planning the allocation of tasks and budgets to accomplish goals set by the organization.

Time Spans for Forecasts Short- term Tactical Monthly or quarterly Medium- term Annually Long- term Every 5 years Strategic

Short-Term Forecasting Production scheduling Information transmission Control 1st Quarter

Medium-Term Forecasting Input to annual marketing plan Input to annual budget Fiscal year 2000

Long-Term Forecasting Strategic direction Resource planning Communication 5-year Strategic Plan

Forecasts into Budgets Sales force targets Set high for optimistic targets OR Set low to ensure achieving targets Manufacturing forecasts Set high to ensure inventory OR Set low to to avoid excess costs Profit forecasts Set low to be conservative

Macro and Micro-Forecasts Macro Forecast: Predict what large-scale forces will result in macro changes in the environment. Micro Forecast: Build on the predictions of individual or group customer behavior.

Derived Forecasts World & national economies Market forecasts Product Based on economic cycles Made by governments or OECD Market forecasts Based on historical trends OR Based on customer behavior Product forecasts Based on sales by product

Forecasting Techniques: Qualitative Forecasting Individual or expert opinion Sales force Customer contact Expert panel method Technological forecasting Envelope curve extrapolation

Forecasting Techniques: Qualitative Forecasting (cont.) Delphi method Role playing Analogy Decision tree Probabilities Pay-offs Scenario

Forecasting Techniques: Quantitative Forecasting Sales trend forecasting Mathematical models Period actual & percent changes Exponential smoothing Advance time-series analyses & models

Forecasting Techniques: Quantitative Forecasting (cont.) Mathematical models (cont.) Multiple regression analysis Econometric models Leading indicators Game theory

Alternatives to Forecasting Insurance Example: cover future changes in exchange rates by hedging Portfolios Speak risk by entering many different markets or offering a variety of products Flexibility Coping rapidly with unexpected changes

Factors Limiting Forecasting Errors & biases that may affect forecasts: Hockey stick effect Lack of knowledge of managers