Estimating Potentials and Forecasting Sales

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Presentation transcript:

Estimating Potentials and Forecasting Sales CHAPTER 7 Estimating Potentials and Forecasting Sales

FORECAST A forecast is a prediction of a future state

IMPORTANCE OF FORECASTS Determining sales force size Designing territories Establishing quotas and budgets Determining compensation Evaluating performance

MARKET POTENTIAL Best possible level of industry sales for a product in a specific market over a stated time period

BUYING POWER INDEX (BPI) A composite measure of regional buying power Composed of area’s percentage of US disposable income US retail sales US population

SALES POTENTIAL The best possible share of the market potential that a firm can achieve

SALES FORECAST Level of sales that a firm expects to make

FORECASTING METHODS

TOP-DOWN FORECASTING Use annual Survey of Buying Power (Sales and Marketing Management) Example- To get state-by-state sales forecast 6% of U.S. retail sales come from New York Shoe mfg. takes U.S. sales forecast and multiplies by .06 for New York state forecast

DETERMINING MARKET AND SALES FORECASTS Market factor methods Regression analysis Surveys of buyer intentions Test markets Executive opinion Delphi Technique Sales Force Composite Projection of Trends Capacity Based Forecasts

MARKET FACTOR METHOD Market factors are elements that cause demand for a product or are related to the demand of the good

MARKET FACTOR FORECASTING--EXAMPLE A manufacturer of baby playpens estimated that the firm sold 16 playpens for every 1000 births. Using births as a market factor, compute a sales forecast Estimated births, 1999: 4,000,000 Rate of sales: 16 per 1,000 Sales forecast: 64,000

MARKET FACTOR--ADVANTAGES High validity Simplicity Inexpensive

REGRESSION ANALYSIS We predict how one variables (sales) is affected by change in other variables (advertising expenditures, number of sales calls, etc.) Territory Sales = a + b1 (factor) + b2 (factor) + b3 (factor) a = constant; b’s = regression coefficients

REGRESSION ANALYSIS Use of multiple factors provides a high degree of reliability Many do not understand the concept

SURVEYS OF BUYERS INTENTIONS Contact customers and question them High cost Time consuming Socially acceptable answers

TEST MARKETS Accurate Considerable time and effort

EXECUTIVE OPINION Simple Quick Unscientific Managers somewhat removed from market

DELPHI TECHNIQUE Consensus approach

SALES FORCE COMPOSITE Ask the sales reps Sales people are poor forecasters

PROJECTION OF TRENDS Use sales data for the past 10 years Exponential smoothing

PROJECTION OF TRENDS Trend Component Cyclical Component General trend due to long-term factors (e.g., demographic population shifts, lifestyle changes, technological advances etc.) Cyclical Component Patterns lasting more than a year due to cyclical changes in the economy (e.g., recession, inflation)

PROJECTION OF TRENDS Seasonal Component Irregular Component (Residual) Trends within one-year period from seasonal change (e.g., lower swimming pool sales in fall and winter) Irregular Component (Residual) Random deviations due to unanticipated, nonrecurring factors

CAPACITY BASED FORECASTS Production capacity becomes limitation

GUIDELINES FOR FORECASTING Minimize the number of market factors Use logic Use more than one method Recognize limitations Use max/min analysis Understand mathematics and statistics

SALES QUOTAS a performance goal assigned to a marketing unit for a specific period of time is related to the sales forecast

SALES QUOTAS--PURPOSES Furnish goals and incentives Control activities of sales personnel Evaluate productivity Compensation Control selling expenses Evaluate sales contest results

SALES QUOTAS--TYPES Sales volume Gross margin or net profit Expense Activity Combination

FROM THE TEXT... Read all of Chapter 7 except: Chain Ratio Method (page 325) SIC Method (pages 327 - 328) Scrappage Method (pages 328 - 329) Naïve approach / MAPE (pages 335 -336)