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7/29/2019 Product research, FORECASTING MARKET DEMAND
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FORECASTING MARKET DEMAND&
Product Market Strategies
Pranav Shandil
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FORECASTINGMARKET DEMAND
A marketing decision support system (MDSS) is an
ongoing, future-oriented structure designed to generate,process, store, and later retrieve information to aiddecision making in an organizations marketing program.It involves problem-solving technology composed of
people, knowledge, software, and hardware wired intothe sales management process.
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USES OF SALES FORECASTS
A sales forecast is the estimated dollar or unit sales for a
specific future time period based on a proposed marketingplan and an assumed market environment.
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1. A sales forecast becomes a basis for setting and
maintaining a production schedulemanufacturing.2. It determines the quantity and timing of needs for labor,
equipment, tools, parts, and raw materialspurchasing,
personnel.
3. It influences the amount of borrowed capital needed tofinance the production and the necessary cash flow to
operate the businesscontroller.
4. It provides a basis for sales quota assignments to various
segments of the sales forcesales management.
5. It is the overall base that determines the companys
business and marketing plans, which are further broken
down into specific goalsmarketing officer.
A sales forecast is important for at least five reas
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Marketing Plan
Sales Forecasts Sales Force Budget
FIGURE 5.1 PLANNING/FORECASTING/BUDGETING SEQUENCE
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THE
FORECASTING
PROCESS
The forecasting process refers to a series of
procedures used to forecast.
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A market factor is an item orelement that (1) exists in a market,(2) may be measured
quantitatively, and (3) is related tothe demand for a product orservice.
A market index is simply a marketfactor expressed as a percentage
relative to some base figure.
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BASIC STEPS IN BREAKDOWN METHOD OF FORECASTING SALES
General Environment Forecast
Industry Sales Forecast
Company Sales Potential
Company Sales Forecast
Product Lines
Individual Products fo
Customers-Territories-Regions-Divisions-U.S.A.-World
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Company sales potential is the
maximum estimated or potentialsales the company may reach in adefined time period under givenconditions.
The companys share of theestimated sales for an entire industry
is referred to as market share.
Industry sales forecast, or market
potential, is the estimated sales forall sellers.
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SALES FORECASTINGMETHODS
Survey methods are qualitative and includeexecutive opinion, sales force composite,and customers intention surveys.
Mathematical methods are test markets,market factors, nave models, trend analysis,and correlation analysis.
Two categories of sales forecasting methods ex
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SurveyMethods
Executive
Opinion
Users
Expectation
Sales Force
Composite
Build-to-
Order
Mathematical Methos
Test Market Regression
Naive Tre
Moving
Average
Exponential
Smoothing
FIGURE 5.4 THE MORE POPULAR OF MANY FORECASTING METHODS
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SURVEY FORECASTING METHODS
Four basic survey methods are
Executive Opinion Sales Force CompositeUsers Expectations Build-to-Order
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Executive Opinion
1. By one seasoned individual (usually
in a small company).
2. By a group of individuals, sometimescalled a jury of executive opinion.
Executive forecasting is done in twoways:
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1. Key executives submit the independent
estimates without discussion, and these are
averaged into one forecast by the chiefexecutive.
2. The group meets, each person presents
separate estimates, differences areresolved, and a consensus is reached.
The group approach uses two methods
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Delphi Method
Administering a series ofquestionnaires to panels ofexperts.
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Sales Force Composite
Obtaining the opinions of salespersonnel concerning futuresales.
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Users Expectations
Consumer and industrialcompanies often poll their actualor potential customers.
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Build-to-Order
Companies build final products only afterfirm orders are placed.
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MATHEMATICAL FORECASTINGMETHODS
Test markets are a popular method of
measuring consumer acceptance of new
products.
FIGURE 5 5 CITIES COMMONLY USED AS TEST MARKETS RESIDENTS ARE MOST
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Charlotte, NC
Erie, PA
Syracuse, NY
Toledo, OH
Lexington, KYKnoxville, TN
Chattanooga, TN
Portland, ME
Charleston, SCSavannah, GA
Jacksonville, FLBaton Rouge, LA
Little Rock, AR
Omaha, NE
Oklahoma City, OK
Corpus Christi, TX
Beaumont, TX
Spokane, WA
Eugene, OR
Bakersfield, CA
Salt Lake City, UT
Madison, WI
Tucson, AZ Lubbock, TX
Fresno, CA
Peoria, IL
Johnstown, PA
FIGURE 5.5 CITIES COMMONLY USED AS TEST MARKETSRESIDENTS ARE MOST
LIKELY TO SEE NEW PRODUCTS.
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Time Series Projections
Time series methods use chronologicallyordered raw data.
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The trend component.
The seasonal component.
The cyclical component.
The erratic component.
Classical approach to time series analysis:
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Nave Method
Next Years Sales = This Years Sales X This Years SalesLast YearsSales
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Moving Average
Moving averages are used to allowfor marketplace factors changingat different rates and at different
times.
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PERIOD
SALESVOLUME
SALES FORTHREE-YEARPERIOD
THREE-YEARMOVING AVERAGE
1 200
2 250
3 300 7504 350 900 300
5 450 1100 ( 3) = 366.6
6 ?
Period 6 Forecast = 366.6
TABLE 5.1 EXAMPLE OF MOVING-AVERAGE FORECAST
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Exponential Smoothing
Exponential smoothing is similar to the
moving-average forecasting method. Itallows consideration of all past data, but
less weight is placed on data as it ages.
Next Years Sales = a(This Years Sales) + (1-a) (This YearsForecast)
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Trend ProjectionsLeast Squares
Eyeball fitting is simply a plot of thedata with a line drawn throughthem that the forecaster feels mostaccurately fits the linear trend of
the data.
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600
500
400
300
200
100
01984
Time
1985 1986 1987 1988 1989 1990
Observed Sales Forecast Sales
Sales
Trend
Line
FIGURE 5.6 A TREND FORECAST OF SALES
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Regression Analysis
Regression analysis is a statistical method used toincorporate independent factors that are thought toinfluence sales into the forecasting procedure.
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Linear Relationship
Population
(A)
Sales
0
Curvilinear Relationship
Population
(B)
Sales
0
FIGURE 5.7 REGRESSION ANALYSIS
FIGURE 5.8 QUESTIONS TO ANSWER TO IMPROVE CHANCES OF HITTING THE
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Have You Developeda Good
Sales Forecasting
Process?
Market Decision Support System
Breakdown
Use Multiple
Forecasting
Methods
Buildup
FIGURE 5.8 QUESTIONS TO ANSWER TO IMPROVE CHANCES OF HITTING THE
FORECASTING BULLS-EYE
Hav
eYouC
onsid
ered
theB
asicsto
Incre
asing
Accur
acy
andS
electi
ngYou
r
Forec
astin
gMethod
?
Whic
hFor
ecast(s
)
Meth
odSh
ould
YouU
se?
CouldOutside
SourcesH
elp?
CouldtheCom
puter
a
ndSoftwareHelp?
90%
80%
70%60%
140%130%
120%
110%F
O
R
E
C
A
S
T
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TABLE 5.2 GUIDE TO FORECASTING
FORCASTING
METHOD TIME SPANMATHEMATICAL
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 conditions
Users 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 stable conditions
Exponential Smoothing Short to medium Minimal Helpful Accurate under stable conditions
Least Squares Short to long Needed Desirable Varies widely
Regression Analysis Short to Medium Needed Essential Accurate if variable relationships
stable
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THE
SALES
MANGAGERS
BUDGET
The sales force budget is the amount of money availableor assigned for a definite period, usually one year.
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Planning
Coordination
Control
BUDGET PURPOSES
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TABLE 5.3 SALES FORCE OPERATING COSTS
1. Base salaries 4. Special incentives
a. Management 5. Office expenses
b. Salespeople 6. Product samples
2. Commissions 7. Selling aids
3. Other compensation 8. Transportation expenses
a. Social Security 9. Entertainment
b. Retirement plan 10. Travel
c. Stock options
d. Hospitalization
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BUDGETS SHOULDBE FLEXIBLE
Sales, costs, prices, or the competitionsmarketing efforts are some factors that may behigher or lower than expected.
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THE BOTTOM LINE
Because of the growing trend in business to centralize datacollections, the job of forecasting has become an integral part of afirms marketing decision support system (MDSS).
A sales forecast is the estimated dollar or unit sales for a specificfuture period based on a proposed marketing plan and an
assumed market environment.Firms know sales forecasting is never 100 percent correct.
Two categories of sales forecasting methods are survey methodsand mathematical methods.
Because the sales forecast has a major impact on the company,the top executives give final approval.
To create a sales forecast, sales managers should know how touse a computer.
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Marketing Strategy
Marketing strategy is the link betweencorporate goals and operational tactics
There are two primary considerations inmarketing strategy
Where are we?
Where do we want to go?
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Portfolio Assessment Tool
Boston Consulting Group matrix
Brands or products are classified according
to whether each has a strong or weakmarket share and slow or growing market
Dog: low share, low growth
Star: high share, high growth
Cash cow: high share, low growthQuestion mark: low share, high growth
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BCG Matrix
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BCG Portfolio Analysis Stars: optimize or hold
Dogs: minimize or divest
Cash cows: milk
Question marks: unknown
New technologies, uncertain markets, etc.
If stars and cash cows are sufficientlyprofitable, companies can carry dogsand question marks
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Discussion Questions Using the BCG Matrix
Where would you likely categorize the
market leader in the typewriter market?
10 years ago, where would you have likelycategorized a small player in the cellphone business?
Where would you categorize the marketleader in cell phones today?
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Corporate IdentityWhat is the companys typical philosophy
toward the marketplace
Offensive
Defensive
Leader
Follower
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Corporate Identity Leader has several meanings
Largest market share
1st to market
First to market may or may not be beneficialbecause adoption can be slow
Quick to innovate and improve, etc.
Quick followers can learn from leadersmistakes
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Corporate IdentityA company may be a leader for some of
its brands/products and not others
A company may be offensive anddefensive to vary its portfolio
A companys products life cycles mayinfluence its identity
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Marketing Metrics Profitability
Sales
ShareAverage prices
Levels of awareness
Penetration in trial
Customer satisfaction Employee satisfaction, etc.
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Example: Metrics
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Goals Lets make more money
Lets delight our customers
Lets redefine our position
Goals about broader concerns
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GoalsGoals can be complex, numerous,
interconnected and overwhelming
Focus on most important goals first
Consider the time frame and the financialsupport need to achieve the goals
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Basic StrategiesDo nothing
Let the brand sink or swim on its own
Do nothing differently
Maintain business as usual
Take action Do something different
Marketers have control over STP and 4Ps