1. Estimating Potentials and Forecasting Sales
CHAPTER 7
Estimating Potentials and Forecasting Sales

2. FORECAST
A forecast is a prediction of a future state

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

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

5. 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

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

7. SALES FORECAST
Level of sales that a firm expects to make

8. FORECASTING METHODS

9. 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

10. 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

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

12. 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: per 1,000
Sales forecast: ,000

13. MARKET FACTOR--ADVANTAGES
High validity
Simplicity
Inexpensive

14. 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

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

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

17. TEST MARKETS
Accurate
Considerable time and effort

18. EXECUTIVE OPINION Simple Quick Unscientific
Managers somewhat removed from market

19. DELPHI TECHNIQUE
Consensus approach

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

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

22. 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)

23. 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

24. CAPACITY BASED FORECASTS
Production capacity becomes limitation

25. 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

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

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

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

29. FROM THE TEXT... Read all of Chapter 7 except:
Chain Ratio Method (page 325)
SIC Method (pages )
Scrappage Method (pages )
Naïve approach / MAPE (pages )