Marketing Management

2nd Edition
Michael R. Czinkota and Masaaki Kotabe

Chapter 6:

Estimating Market Demand

2000 South-Western College Publishing

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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
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Forecasts vs. Budgets

Forecasting:

Predicting what will happen in the future Planning the allocation of tasks and budgets to accomplish goals set by the organization.

Budgeting:

2000 South-Western College Publishing

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Time Spans for Forecasts

Shortterm
Tactical Monthly or quarterly

Mediumterm
Longterm

Annually

Every 5 years Strategic

2000 South-Western College Publishing

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Short-Term Forecasting

Production scheduling

Information transmission
Control

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Medium-Term Forecasting

Input to annual marketing plan

Input to annual budget

2000 South-Western College Publishing

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Long-Term Forecasting

Strategic direction

Resource planning
Communication

2000 South-Western College Publishing

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Forecasts into Budgets

Set high for optimistic targets OR Set low to ensure achieving targets Set high to ensure inventory OR Set low to to avoid excess costs

Sales force targets Manufacturing forecasts

Profit forecasts

Set low to be conservative

2000 South-Western College Publishing

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Macro and Micro-Forecasts

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

2000 South-Western College Publishing

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Derived Forecasts

World & national economies Market forecasts

Based on economic cycles Made by governments or OECD

Based on historical trends OR Based on customer behavior

Product forecasts

Based on sales by product

2000 South-Western College Publishing

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Forecasting Techniques:
Qualitative Forecasting

Individual or expert opinion

Sales force Customer contact

Expert panel method Technological forecasting

Envelope curve extrapolation

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Forecasting Techniques:
Qualitative Forecasting (cont.)

Delphi method

Role playing Analogy Probabilities Pay-offs

Decision tree

Scenario

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Forecasting Techniques:
Quantitative Forecasting

Sales trend forecasting Mathematical models

Period actual & percent changes Exponential smoothing Advance time-series analyses & models

2000 South-Western College Publishing

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Forecasting Techniques:
Quantitative Forecasting (cont.)

Mathematical models (cont.)

Multiple regression analysis Econometric models Leading indicators Game theory

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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

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Factors Limiting Forecasting

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

2000 South-Western College Publishing

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