Forecasting and demand measurement PGP GIM

Forecasting and demand measurement PGP GIM - Transcript

Forecasting

Market Demand
Market demand for a product is the total volume that would be bought by a defined customer group in a defined geographical area in a defined time period in a defined marketing environment under a defined marketing program Market demand is not a fixed number but rather a function of the stated conditions
For this reason it can be called the market demand function Base sales called market minimum The distance between the market minimum and the market potential shows the marketing sensitivity of demand Organizations selling in a non expansible market must accept the market s size and direct efforts to winning a larger market share for its products

Market Demand Functions

Market Penetration Index
The comparison of the current level of market demand to the potential demand level is called the market penetration index
A low market penetration index indicates substantial growth potential for the firm A high market penetration index suggests that there will be increased costs in attracting the few remaining prospects Generally price competition increases and margins fall when the market penetration index is high

Share penetration index
A company should also compare its current market share to its potential market share called share penetration index
A low share penetration index indicates that the company can greatly expand its share

A firm should calculate the share penetration increases that would occur with investments to see which investments would produce the greatest improvement in share penetration

Market Forecast
Only one level of industry marketing expenditure will actually occur The market demand corresponding to this level is called the market forecast

Company Demand
Company demand is the company s estimated share of market demand at alternative levels of company marketing effort in a given time period The company s share of market demand depends on how its products prices communications services and so on are perceived relative to competitors All things equal the company s market share would depend on the size and effectiveness of its market expenditures relative to competitors

Company Sales Forecast
The company sales forecast is the expected level of company sales based on a chosen marketing plan and an assumed marketing environment The company sales forecast does not establish a basis for deciding what to spend on marketing On the contrary the sales forecast is a result of an assumed marketing expenditure level A sales quota is the sales goal set for a product line company division or sales representative A sales budget is a conservative estimate of the expected volume of sales and is used primarily for making current purchasing production and cash flow decisions The sales budget is based on the sales forecast and is generally set slightly lower than the sales forecast





Estimating Current Demand
Total Market Potential Total market potential is the maximum amount of sales that might be available to all the firms in an industry during a given period under a given level of industry marketing effort and environmental conditions A common way to estimate total market potential is Estimate the potential number of buyers X The average quantity purchased by a buyer X The price paid

Market Buildup Method
The market buildup method calls for identifying all the potential buyers in each market and estimating their potential purchases This method produces accurate results if we have a list of all potential buyers and a good estimate of what each will buy

Multiple Factor Index Method
The method most commonly used in consumer markets is a straightforward index method A single factor is rarely a complete indicator of sales opportunities thus it makes sense to develop a multiple factor index with each factor assigned a weight Many companies compute other area indexes as a guide to allocating marketing resources The brand development index BDI that is an index of brand sales to category sales After the company decides on the city by city allocation of its budget it can refine each city allocation down to census tracts or zip 4 code centers Census tracts are small locally defined statistical areas in metropolitan areas and some other countries Data on population size median family income and other demographic information is available for these

Estimating Future Demand Forecasting Sales

FIGURE 5 4 THE MORE POPULAR OF MANY FORECASTING METHODS

S u r v e y M e th o d s

M a t h e m a t ic a l M e t h o d s

E x e c u t iv e O p in io n

U s e r s E x p e c t a t io n B u ild t o O rd er

T e s t M a r k e t N a iv e M o v in g A verag e

R e g r e s s io n T re n d E x p o n e n t ia l S m o o t h in g

S a le s F o r c e C o m p o s it e




Executive Opinion Executive forecasting is done in two
ways By one seasoned individual usually in a small company By a group of individuals sometimes called a jury of executive opinion

Delphi Method Administering a series of questionnaires to
panels of experts



Sales Force Composite Obtaining the opinions of sales
personnel concerning future sales

User s Expectations Consumer and industrial companies
often poll their actual or potential customers orders are placed



Build to Order Companies build final products only after firm

MATHEMATICAL FORECASTING METHODS
Test market is a popular method of measuring consumer acceptance of new products Time Series Projections Time series methods use chronologically ordered raw data


Classical approach to time series analysis
The trend component The seasonal component The cyclical component The erratic component

Na ve Method
Next Year s Sales This Year s Sales X This Year s Sales Last Year s Sales

Moving Average Method
TABLE EXAMPLE OF MOVING AVERAGE FORECAST

PERIOD 1 2 3 4 5 6

SALES VOLUME 200 250 300 350 450

SALES FOR THREE YEAR PERIOD

THREE YEAR MOVING AVERAGE

750 900 1100 3 300 366 6

Period 6 Forecast 366 6

Exponential Smoothing
Exponential smoothing is similar to the movingaverage forecasting method It allows consideration of all past data but less weight is placed on data as it ages
Next Year s Sales a This Year s Sales 1 a This Year s Forecast

Regression Analysis
FIGURE REGRESSION ANALYSIS

L in e a r R e la tio n s h ip

C u r v ilin e a r R e la tio n s h ip

S a le s

0

P o p u la tio n A

S a le s 0

P o p u la tio n B

TABLE GUIDE TO FORECASTING

FORCASTING METHOD
Executive Opinion Delphi Method Sales Force Composite User s Expectations Test Markets Na ve Method Moving Average Exponential Smoothing

TIME SPAN
Short to medium Medium to long Short to medium Short to medium Medium Present to medium Short to long Short to medium

MATHEMATICAL SOPHISTICATION

COMPUTER NEED
Not essential Not essential Not essential Not essential Needed Not essential Helpful Helpful Limited

ACCURACY

Minimal Minimal Minimal Minimal Needed Minimal Minimal Minimal

Limited good in dynamic conditions Accurate under dynamic conditions Limited Accurate Limited Accurate under stable conditions Accurate under stable conditions

Regression Analysis

Short to Medium

Needed

Essential

Accurate if variable relationships stable

Concept Application
Bell Canada is a telecommunication service company The company decided to diversify into businesses that have potential for future growth It has identified segments such as medicine education etc that offered potential for future growth The group wanted to forecast the potential in these fields However it did not have statistical data on which to base the forecast Which method should the group adopt for forecasting sales potential