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8/3/2019 Final Reportn Forecasting and Demand Measurement
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Forecasting andForecasting andDemand MeasurementDemand MeasurementForecasting andForecasting andDemand MeasurementDemand Measurement
Sheila Marie A.Sheila Marie A. DacutDacut
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Wrong Sales Forecast Excessive Inventories or Inadequate
Inventory.
Sales Forecasts are based onestimates of Demand.
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Why Study Demand? Finance -The cash that is required for
operations and investments.
Operations To establish capacity andoutput levels. Purchasing To get the right amount of
supplies.
HR To get the right number of workers Marketing- To prepare Sales Forecasts
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Demand Levels
Time Level Product Level Space Level
Short Run All Sales World
Medium Run Industry Sales India
Long Run Company Sales Region
Product LineSales
Territory
Product Form
Sales
Customer
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Measuring Current Market Demand Marketers will want to estimate three
different aspects of current market
demand
o Total market demand
o Area market demand
o Actual sales and market shares
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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.
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Estimating Total market demand Q = n x q x p
Where,Q = total market demand
n = number of buyers in the market
q = quantity purchased by an average
buyer per yearp = price of an average unit
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Estimating Area Market Demand Companies face the problem of selecting the best
sales territories and allocating their marketingbudget optimally among these territories.
Two major methods are available
o Market buildup method used primarily bybusiness goods firms
o Market-factor index method used primarily byconsumer goods firms.
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Market-Buildup Method
Calls for identifying all the
potential buyers in each marketand estimating their potentialpurchases.
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Market-Factor Index Method
Identifies market factors thatcorrelate with market potential and
combines them into weighted index.
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Common Sales Forecasting Techniques
Based On: Methods
What people say Surveys of buyers intentions
Composite sales force opinions
Expert opinion
What people do Test markets
What people have done Time-series analysis
Leading indicators
Statistical demand analysis
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Survey Methods
Executive
Opinion
Users
Expectation
Sales Force
Composite
Build-to-
Order
Mathematical Methods
Test Market Regression
Naive Trend
Moving
Average
Exponential
Smoothing
THE MORE POPULAR OF MANY FORECASTING METHODS
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Survey Methods
Executive Opinion: Executive forecasting is done in twoways:
By one seasoned individual (usually in a small company).
By a group of individuals, sometimes called a jury ofexecutive opinion.
Delphi Method: Administering a series of questionnairesto panels of experts.
Sales Force Composite: Obtaining the opinions of salespersonnel concerning future sales.
UsersExpectations: Consumer and industrial companies
often poll their actual or potential customers.
Build-to-Order: Companies build final products only afterfirm orders are placed.
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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.
Nave Method:Next Years Sales = This Years Sales XThis Years Sales
Last Years Sales
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PERIOD
SALES
VOLUME
SALES FOR
THREE-YEAR
PERIOD
THREE-YEAR
MOVINGAVERAGE
1 200
2 250
3 300 750
4 350 900 300
5 450 1100 / 3 = 366.6
6 ?
Period 6 Forecast = 366.6
TABLE : EXAMPLE OF MOVING-AVERAGE FORECAST
Moving Average Method
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Exponential Smoothing
Exponential smoothing is similar to themoving-average forecasting method. It
allows considerationof all past data, but
less weight is placedondata as it ages.
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Linear Relationship
Population
(A)
S
ales
0
Curvilinear Relationship
Population
(B)
S
ales
0
FIGURE: REGRESSION ANALYSIS
Regression Analysis
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TABLE: GUIDE TO FORECASTING
FORCASTING
METHOD TIME SPAN
MATHEMATICAL
SOPHISTICATION
COMPUTER
NEED ACCURACY
Executive Opinion Short to
medium
Minimal Not
essential
Limited
Delphi Method Medium to long Minimal Not
essential
Limited; good in dynamic
conditions
Sales Force
Composite
Short to
medium
Minimal Not
essential
Accurate under dynamic
conditionsUsers Expectations Short to
medium
Minimal Not
essential
Limited
Test Markets Medium Needed Needed Accurate
Nave Method Present to
medium
Minimal Not
essential
Limited
Moving Average Short to long Minimal Helpful Accurate under stableconditions
Exponential
Smoothing
Short to
medium
Minimal Helpful Accurate under stable
conditions
Regression
Analysis
Short to
Medium
Needed Essential Accurate if variable
relationships stable
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Survey of Buyers Intentions One way to forecast what buyers will do is to ask them
directly.
Surveys are especially valuable if the buyers haveclearly formed intentions, will carry them out, and candescribe them to interviewers.
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Leading Indicators Many companies try to forecast their sales by
finding one or more leading indicators othertime series that change in the same direction by
in advance of company sales.
For example, a plumbing supply company mightfind that its sales lag behind the housing starts
index by about four months. The housing starts index would then be a useful
leading indicator.
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Statistical Demand Analysis A set of statistical procedures used to discover the
most important real factors affecting sales andtheir relative influence.
The most commonly analyzed factors are prices,income, population, and promotion.
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Composite of Salesforce Opinions The company typically asks its salespeople to estimate
sales by product for their individual territories.
It then adds up the individual estimates to arrive atan overall sales forecast.
Salespeople are biased observers. They mayunderstate demand so that the company will set a lowsales quota.
After participating in the forecasting process, thesalespeople may have greater confidence in theirquotas and more incentive to achieve them.
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Expert Opinion Experts include dealers, distributors, suppliers,
marketing consultants, and trade associations.
Dealer estimates are subject to the same strengthsand weaknesses as salesforce estimates.
Delphi method Experts may be asked to supply theirestimates individually, with the company analystcombining them into single estimate.
Finally, they may supply individual estimates andassumptions that are reviewed by a company analyst,revised, and followed by further rounds of estimation.
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Test Marketing Where buyers do not plan their purchases
carefully or where experts are not availableor reliable, the company may want toconduct a direct test market.
A direct test market is especially useful in
forecasting new-product sales orestablished product sales in a newdistribution channel or territory.
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Time-Series Analysis Breaking down past sales into its trend, cycle, season, and erratic
components, then combining these components to produce a salesforecast.
Trend is the long-term, underlying pattern of growth or declinein sales resulting from basic changes in population, capitalformation, and technology.
Cycle captures the medium-term, wavelike movement of salesresulting from changes in general economic and competitive
activity. Season refers to a consistent pattern of sales movements within
the year.
Erratic events include fads, strikes, snow storms, earthquakes,
riots, fires, and other disturbances.