Sales Forecasting

Good Forecasting!

TATA unveils Nano for $2500!

New Yamaha SZ

TATA Infinitis Croma Mega Electronic Stores

Bharti Outsources!
Bharti Airtel. Indias largest Telecom operator has selected IBM, Tech Mahindra and Spanco to handle customer care services for its Africa assets. This is a significant step as outsourcing customer services is the first of its kind in Africa where the back office processing industry is still in the early stages of evolution.

MD, GM India says..

When you compete against Tatas, you dont take chances. We are aiming for a very high level of localization for our LCVs.

What to find out?

What does the customer need? Who is the target audience and how much can you find out about them? What is the competition? Are there any gaps in the market? Would the product be acceptable in the market?

 Forecasting is the art and science of Predicting future events. Institute of business forecasting.

Sales Forecasting

Sales Forecasting is projecting sales in advance or estimating future demand for the company over a period of time.

Forecasting
The process of predicting the values of a certain quantity, Q, over a certain time horizon, T, based on past trends and/or a number of relevant factors. Some forecasted quantities in manufacturing
demand equipment and employee availability technological forecasts economic forecasts (e.g., inflation rates, exchange rates, housing starts, etc.)

The time horizon depends on

the nature of the forecasted quantity the intended use of the forecast

The Process
What is the Marketing Problem? What is the Research Problem? Developing the Research Plan Research Approach Research Instruments Collecting the Information Analysing the information Presentation of findings

Data sources
Reference Library Directories of Products/Companies Stock Exchanges Industry/Trade Journals Trade fairs and Exhibitions Company Annual Reports Internet

Testing Product Acceptability

If your product is a knock - down kit , give it to the factory peon to assemble it. Post the item back to yourself and assess the damage the transporter does to it. Try various types of packaging and choose a suitable cost effective option. Try a number of product names and determine which is more acceptable.

Sales Forecasting - Why is it necessary?

To raise the necessary cash for investment and operations to establish capacity and output levels to acquire and stock the right amount of supplies to hire the required number of people

Market
A set of all actual and potential buyers of a product or service

Potential Market
A set of consumers who profess a sufficient level of interest in a product or service

Available Market
A set of consumers who have interest , income and access to a particular product or service

Qualified Available Market

A set of consumers who have interest, income, access and qualifications for the particular product or service

Target Market
Part of the qualified available market the company decides to pursue

Penetrated Market
A set of consumers who are buying the companys product or service

Market Demand
Total volume that would be bought by a defined customer group geographical area time period marketing environment marketing programme

Market Potential
Boom period Recession

Market Minimum

The market potential of the product with minimum marketing effort of the industry

Sensitivity of Demand

Market Potential - Market Minimum

Market Forecast
Market demand corresponding to the industry marketing expenditure This would be lower than the market potential

Company Demand
Estimated share of market demand at alternative levels of company marketing effort in a given time period

Company Sales Forecast

Expected level of company sales based on a chosen marketing plan and an assumed marketing environment.

Sales Target
Sales goal for a product line,company division or a sales rep.It is a benchmark to evaluate achievements against goals set.

Sales Budget
Conservative estimate of the expected volume of sales and is used for purchasing.production and cash flow decisions

Principles of Forecasting
Forecasts are almost always wrong. Every forecast should include an estimate of the forecast error. The greater the degree of aggregation, the more accurate the forecast. Long-term forecasts are usually less accurate than short-term forecasts.

TYPES OF SALES FORECASTING

Two types ----- Passive forecast & Active forecast When the firm does not take up any follow up action is passive forecast where as in active forecast the firm is very active about the market environment.

Forecasting Horizons
Long Term 5+ years into the future R&D, plant location, product planning Principally judgement-based Medium Term 1 season to 2 years Aggregate planning, capacity planning, sales forecasts Mixture of quantitative methods and judgement Short Term 1 day to 1 year, less than 1 season Demand forecasting, staffing levels, purchasing, inventory levels Quantitative methods

Short Term Forecasting: Needs and Uses

Scheduling existing resources
How many employees do we need and when? How much product should we make in anticipation of demand?

Acquiring additional resources

When are we going to run out of capacity? How many more people will we need? How large will our back-orders be?

Determining what resources are needed

What kind of machines will we require? Which services are growing in demand? declining? What kind of people should we be hiring?

Forecasting Future Sales

Sales forecasting is based on:
extrapolating to the future past trends observed in the company sales; understanding the impact of various factors on the company future sales:
market data strategic plans of the company technology trends social/economic/political factors environmental factors etc

Remark: The longer the forecasting horizon, the more crucial the impact of the factors listed above.

Selecting a Forecasting Method

It should be based on the following considerations: Forecasting horizon (validity of extrapolating past data) Availability and quality of data Lead Times (time pressures) Cost of forecasting (understanding the value of forecasting accuracy) Forecasting flexibility (amenability of the model to revision; quite often, a trade-off between filtering out noise and the ability of the model to respond to abrupt and/or drastic changes)

Basically 2 types..
Qualitative and Quantitative methods Survey methods and Statistical methods

Forecasting Techniques
Survey Methods: 1. Opinion Polling method 2. Delphi method 3. Exponential Smoothing method

Forecasting Techniques
Statistical Techniques: 1. Time series method 2. Economic Indicators method
Leading indicators, Lagging indicators & Coincident indicators

3. Econometric method
Correlation method & Regression method

4. Simultaneous equation method 5. Barometric method 6. Input Output method

Forecasting Techniques and Routes

Techniques Routes

Quantitative

Qualitative

Top-down route Bottom-up route

Simple regressions Multiple regressions Time trends Moving averages

Delphi method Nominal group technique Jury of executive opinion Scenario projection
44

Forecasting Routes

Where local events affect the future behaviour of local variables.

Bottom-Up
45

Forecasting Routes
Top-Down
where international and national events affect the future behaviour of local variables.

46

Other methods
Market built - up method Industry sales and market shares

Apple.
1.The iPod 2. i Pod Shuffle 3. i Pod Mini 4. Vidpod 5. I Pod Nano And finally 6. I Phone!

Estimating Future Demand

Survey of buyers intentions Composite of sales force opinions Expert opinion Past sales analysis Market test method

Basic Forecasting Approach

Understand the forecasting objective. What decisions will be made from the forecasts? What parties in the supply chain will be affected by the decision. Integrate demand planning and forecasting. All planning activities within the supply chain that will use the forecast or influence demand should be linked. Identify factors that influence the demand forecast. Is demand growing or declining? Is there are relationship (complementary or substitution) between products?

Why do firms introduce new products?

1. For filling the strategic planning gap 2. Reflect the value game the firm wishes to play 3. For making new products 4. For meeting changes in consumer expectations 5. For combating environmental threats

Marketing role?
Recalling the value delivery crisis!

The Bottom- line.

Breakthrough products with radically new functions, serving newly created needs, is the trend of the times!

Forecasting Demand for New Products Methods 1.Evolutionary approach 2.Substitute approach 3.Growth curve approach 4.Opinion polling approach 5.Sales experience approach 6.Vicarious(indirect observation) approach 7.Controlled experiments (consumer clinics) approach and 8.Consultancy approach

Criteria for Good Forecasting

1.Good projection of sales 2.Plausibility (belief) 3.Economy 4.Cost-benefit analysis 5.Flexibility 6.Time period 7.Minimising the probability of error (though not completely eliminating) and 8.Sensitivity analysis (for long term projects)

Forecasting: Summary
Sophisticated forecasting is essential for capital budgeting decisions Quantitative forecasting uses historical data to establish relationships and trends which can be projected into the future Qualitative forecasting uses experience and judgment to establish future behaviours Forecasts can be made by either thetop down or bottom up routes.

Back to the Future!

56