1. 1 Sales Forecasting MKT 311 Instructor: Dr. James E. Cox, Ph.D

2. 2 An Illustration – The Edsel (Ford Motor Co.)  Incorrectly forecasted the potential market Why was the error so large?  Did not consider what the customer wanted (mid 50’s)  Only considered what the manufacturers in Detroit had concluded in terms of what the customers wanted i.e. The carmakers did not conduct research on customer wants but on customer preferences among the kinds of things the manufacturers had already decided to offer.  Oriented more towards validating its own preconceived ideas.

3. 3 An Illustration – The Edsel (Ford Motor Co.) The final decision was based on consensus hunches of corporate committees The decision by Ford to market a medium-priced car was founded upon analyses that appear from what was happening in the 1950’s to have been correct. ─Trends of automobile purchases that consumers were increasingly upgrading car purchases from low priced to medium priced cars as soon as the economic situation would permit.

4. 4 However - the findings and related assumptions in the trend extrapolations were not closely related. It was clear → The price-upgrading trends had changed → Market segment definitions had changed → Medium price market no longer growing Further - the projections for total automobile sales (which were based on extrapolations of the significant growth and sales of 1955) did not give economic factors. e.g. what impact on different price segments should a recession occur when a new product is being introduced. Also - There was some indication that the industry’s market forecast were biased  in order to have them conform to management’s hopes.

5. 5 Lessons: Ford Edsel 1.Objectives takes into consideration all relevant factors and reflects the best understanding of the system to which the forecast relates. 2.A forecast should (if possible) include an estimate of the accuracy and/or of possible outcomes. 3.Management should understand the way(s) in which the forecast has been derived and its implications assumed. 4.Management should use the forecast (both the forecast and its range of possible error) in the decision making process for which it has been prepared.