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7/29/2019 Sanya Fair

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METHODS USED IN SALES FORECASTING

A great variety of methods are available for forecasting market demand and sales of a

company.

1. JURY METHOD/EXECUTIVE OPINION METHODIt is one of the most commonly employed methods for sales forecasting. It is also known as

executive opinion method.

Judgement is the base of this method

This is true for both top jury method and the percolated jury method. the difference is that

in the former, the participants are limited to the top executives and in the latter,a large no. of

marketing/sales executive participate. In both the participants exercise their judgement andgive their opinions.

The final forecast is arrives at by averaging these opinions.

Evidently, for the forecasts to be reliable, the executives participating must have a versatile

experience with sound knowledge of the business. They must also be informed about the

overall economic environment and the conditions prevailing in the industry.

They must also know the strengths and weaknesses of the firm.

MERITS OF JURY METHOD

The method gives due weight to the experience and the judgement of the people who know

the market and the firm.

Its a simple and easy method

Results could be derived in a shorter time

When a firm lacks the expertise required for using sophisticated analytical methods for

forecasting, or when adequate past statistics on sales and market are not available,the jury

method is perhaps the only method which comes handy.

DEMERITS OF JURY METHOD

Forecasts arrived by this method are based on opinions and not facts.

The method disperses the responsibility of forecasts on a no. of people.

Forecasts made cannot be readily amenable for breaking down into territory-wise and month-

wise forecasts; separate exercises are required for such purpose.


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2. SURVEY OF EXPERTS OPINIONYet another judgement based opinion method

Here, experts in the concerned field, inside or outside the organisation, are approached for

their estimates.

It is used more for developing total industry forecasts rather than the company sales forecasts.

3. THE DELPHI METHODIts a kind of survey of experts opinion

Its used for more broadbased, futuristic estimates, rather than sales forecasts.

In this method, a panel of experts in the field is interrogated by a sequence of questionnaires.

Any information that is available with any one member of the panel is passed on to the others

as well, enabling all the members to have access to all the information available.

This technique eliminated the bandwagon effect of majority opinion.

The panel members are asked to react to a checklist of questions that are significant to the

forecast that is attempted. Their opinions and reactions are analysed and where there is a

sharp difference on the issue, interchanges are permitted and the final forecasts are presented.

4. SALES FORCE COMPOSITE METHODHere, the sales are forecasted by the sales force

This is also a judgement based method

Each salesman develops the forecast for his respective territory; the territory wise forecasts

are consolidated at branch/area/region level; the aggregate of all these forecasts is taken as

the corporate forecast.

Its a grassroots method; the forecast originates at the grass rootin micro level salesterritories ;the judgement of the people at the grass root levelpeople who are closest to the

marketplace forms the basis of the forecast.

MERITS

It utilizes salesmens intimate knowledge of their respective territories for arriving at the

sales forecast

The responsibility of sales forecast and the responsibility of achieving the sales as per the

forecast are entrusted with the same set of people viz. salesmen


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The forecasts made by this method have greater stability and reliability because of the

largeness of the sample

The forecasts derived by this method can easily and meaningfully be broken down

-territorywise ,salesmen wise,product wise ,customertype wise and month wisesince it isdeveloped on this basis to start with.

The coordination at the level of the field sales manager becomes more meaningful when

forecasts are made by the salesforce and integrated by the field sales managers.

DEMERITS

Salesmen are not experts in forecasting. They cannot use the sophisticated tools and

techniques of sales forecasting.

They do not have required data to make fact based forecasting.

They could be over-pessimistic or over-optimistic about their future estimates based onn the

prevailing conditions in their respective territories

They might be unaware of the broad changes taking place in the economy and the given

industry

5. USER EXPECTATION METHOD/END-USE METHOD/SURVEY OFBUYERS INTENTION

Here, the various users of the product under forecasting are listed first; then their individual

likely demand for the product is ascertained; and from the data, the demand forecast for the

product is consolidated. This method is alternatively known as survey of buyers intentions

The survey of the buyers will give an idea of the total likely consumption of the product,the

buying plan of the users and the likely market share for the company doing the survey.

The user survey could be made eighter on a sampling basis or on a census basis,depending on

the size of the user group covered(census survey will naturally provide a more reliable

forecast.).

MERITS

Main merit is that the forecast comes straight from the customer himself.

It gives a ready mde forecast- userwise and industry userwise

This method is particularly suited for industrial/intermediate products.


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DEMERITS

The respondents themselves may not be quite clear about their consumption pattern or buying

plans or may be unwilling to frankly discuss their plans.

6. MARKET SHARE METHODTheplanned market share of the firm is the key factor in this method.

The firm first finds out the industry forecast, applies the market share factor and deduces the

company forecast.

The market share factor is developed on the basis of past trend, companys present

competitive position, its plans for the future, brand preference, etc.

Such conversion of industry forecast into company sales forecast requires a considerable

expertise.

7. SUBSTITUTION/DISPLACEMENT METHODThis method is normally used to estimate demand of new-products.Here, the demand for

existing product is forecasted.Based on that, an idea of the demand for the new product

is gained.

8. TEST MARKETING METHODThis method is used while the launch of new product

In this method, new product is launched and marketed in a few selected TEST cities/

towns/ territories.

The result from these test markets are used to make decisions regarding the launch of product

and sales forecast

For example: if company plans to launch their new product, first they will choose a

territory/region to act as their test market. The results shown by the respective demend will

provide them with data which will help them to decide whether the product should be

launched on the long scale or not.

9. ANALYTICAL AND STATISTICAL METHODSFollowing are few of the analytical/statistical tools:

SIMPLE-PROJECTION METHOD.

EXTRAPOLATION.

MOVING AVERAGES.


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EXPONENTIAL SMOOTHING.

TIME-SERIES ANALYSIS.

REGRESSION ANALYSIS.

The most commonly used is the simple projection method.

SIMPLE PROJECTION: this is the one in which the current years forecast is arrives at by

simply adding an assumed growth rate to the last years sales; some firms go by the industry

growth rate; some others take the growth rate achieved by the best firm in the industry.

The following formula is used by some firms:

Its only when the year by year sales are stable and show an increasing trend,will this formula

provide a reasonably reliable estimate.

MERITS AND DEMERITS

It provides a rough and ready forecast

However, sometimes the forecast arrives at by this method can be wide off mark

This method assumes that

(i) Past sales is the only factor influencing the future sales

(ii) Sales will always be growing, year by year.

This method doesnt provide for the changes that may take place in the market.

SELECTION OF APPROPRIATE FORECASTING METHOD

The forecaster must carefully choose a method of forecasting from a wide variety of methods

available. Each product has certain peculiarities from the standpoint of sales forecasting.

The forecaster must take into account the peculiarities and choose the relevant method

The method should also deliver the forecasts without taking much time and must generate the

forecasts in such a manner that they are readily discernible to the people handling the

forecasts.

Other factors which are needed to be considered:

Period range of forecast

Cost involved Availability of qualified personnel


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HOW COULD THE FORECAST BE IMPROVED?

FORECASTS CAN BE IMPROVED BY OPTING FOR A COMBINATION OF

METHODS

The forecasts can improve by opting for a combination of methods since no method is perfect

or foolproof. Using more than one method would give better insight into the situation.

Crosschecking between one method and the other would minimize the risk involved in the

forecast enabling the forecaster to arrive at a more accurate and reliable forecast.

Wholly depending on a single method or one particular category of methods have certain

pitfalls. For example: of the firm completely depends on jury method, it exposes itself to onetype of bias. For, the method relies heavily on the judgement of the persons who are not

experts in forecasting. Itll be advantageous to supplement this method with one of the

statistical methods.

The different methods of forecasting are not mutually competitive, nor mutually exclusive.

Quite often they supplement one another and can easily be used in conjunction.

The forecaster can chose one method from the statistical/analytical group and one from the

non statistical group and compare the forecasts.

He could also use different methods from the same group and compare the positions.

COMPETITION ANALYSIS

Acc to MR MICHEAL PORTER:

competitive advantage is a function of either providing comparable buyer value more

efficiently than competitors(LOW COST) and performing activities at comparable but in

unique ways that create more buyer value than competitors and hence , command a

premium price (DIFFERENTIATION)

COMPETITIONANALYSISin marketing is an assessment of the strengths and weaknesses

of current and potential competitors. This analysis provides both an offensive and defensive

strategic context to identify opportunities and threats. Profiling coalesces all of the relevant

sources of competitor analysis into one framework in the support of efficient and effective

strategy formulation, implementation, monitoring and adjustment.


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Competitor analysis is an essential component of corporate strategy. It is argued that most

firms do not conduct this type of analysis systematically enough. Instead, many enterprises

operate on what is called informal impressions, conjectures, and intuition gained through the

tidbits of information about competitors every manager continually receives. As a result,

traditional environmental scanning places many firms at risk of dangerous competitive blind

spots due to a lack of robust competitor analysis.

COMPETITOR ARRAY

One common and useful technique is constructing a competitor array. The steps include:

Define your industry - scope and nature of the industry

Determine who your competitors are

Determine who your customers are and what benefits they expect

Determine what the key success factors are in your industry

Rank the key success factors by giving each one a weighting - The sum of all the

weightings must add up to one.

Rate each competitor on each of the key success factors

Multiply each cell in the matrix by the factor weighting.

OTHER METHOD OF COMPETITION ANALYSIS: PORTERS FIVE FORCES MODEL

The Porter's Five Forces tool is a simple but powerful tool for understanding where power

lies in a business situation. This is useful, because it helps you understand both the strength of

your current competitive position, and the strength of a position you're considering moving

into.With a clear understanding of where power lies, you can take fair advantage of a situation of

strength, improve a situation of weakness, and avoid taking wrong steps. This makes it an

important part of your planning toolkit.

Conventionally, the tool is used to identify whether new products, services or businesses have

the potential to be profitable. However it can be very illuminating when used to understand

the balance of power in other situations.

Understanding the Tool:Five Force Analysis assumes that there are five important forces that determine competitive

power in a business situation. These are:

1. Supplier Power: Here you assess how easy it is for suppliers to drive up prices. This isdriven by the number of suppliers of each key input, the uniqueness of their product or

service, their strength and control over you, the cost of switching from one to another,

and so on. The fewer the supplier choices you have, and the more you need suppliers'

help, the more powerful your suppliers are.

2. Buyer Power: Here you ask yourself how easy it is for buyers to drive prices down.Again, this is driven by the number of buyers, the importance of each individual buyer to

your business, the cost to them of switching from your products and services to those of

someone else, and so on. If you deal with few, powerful buyers, then they are often ableto dictate terms to you.


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3. Competitive Rivalry: What is important here is the number and capability of yourcompetitors. If you have many competitors, and they offer equally attractive products and

services, then you'll most likely have little power in the situation, because suppliers and

buyers will go elsewhere if they don't get a good deal from you. On the other hand, if no-

one else can do what you do, then you can often have tremendous strength.

4. Threat of Substitution: This is affected by the ability of your customers to find adifferent way of doing what you dofor example, if you supply a unique software

product that automates an important process, people may substitute by doing the process

manually or by outsourcing it. If substitution is easy and substitution is viable, then this

weakens your power.

5. Threat of New Entry: Power is also affected by the ability of people to enter yourmarket. If it costs little in time or money to enter your market and compete effectively, if

there are few economies of scale in place, or if you have little protection for your key

technologies, then new competitors can quickly enter your market and weaken yourposition. If you have strong and durable barriers to entry, then you can preserve a

favourable position and take fair advantage of it.

These forces can be neatly brought together in a diagram like the one in below:

Figure 1 - Porter's Five Forces


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Example:

Martin Johnson is deciding whether to switch career and become a farmerhe's always loved

the countryside, and wants to switch to a career where he's his own boss. He creates the

following Five Forces Analysis as he thinks the situation through:

Figure 2 - Porter's Five Forces Example - Buying a Farm

This worries him:

The threat of new entry is quite high: if anyone looks as if they're making a sustained

profit, new competitors can come into the industry easily, reducing profits.

Competitive rivalry is extremely high: if someone raises prices, they'll be quickly

undercut. Intense competition puts strong downward pressure on prices.

Buyer Power is strong, again implying strong downward pressure on prices. There is some threat of substitution.


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Unless he is able to find some way of changing this situation, this looks like a very tough

industry to survive in. Maybe he'll need to specialize in a sector of the market that's protected

from some of these forces, or find a related business that's in a stronger position.

TYPES OF COMPETITION

1. BRAND COMPETITION(inter and intra)Firms marketing differentiated products frequently develop and

compete on the basis of brands or labels. Coca Cola vs. Pepsi-Cola,Levi vs. Lee jeans, Kelloggs Corn Flakes vs. Nabiscos Bran Flakes

are a few examples of inter-brand competition. Each of these brands

may be preferred by different buyers willing to pay a higher price or

make more frequent purchases of one branded product over another.

Intra-brand competition is competition among retailers or distributors

of the same brand. Intra-brand competition may be on price or non-

price terms. As an example, a pair of Levi jeans may be sold at a

lower price in a discount or specialty store as compared to a

department store but without the amenities in services that a

department store provides. The amenities in services constitute intra-brand non-price competition. Some manufacturers seek to maintain

uniform retail prices for their products and prevent intra-brand price

competition through business practices such as resale price

maintenance (RPM), in order to stimulate intra-brand non-price

competition if it will increase sales of their product.

.

2. PRODUCT COMPETITION.Competition between two products of same type produces by two different

manufacturers is known as product type completion.

3. PRICE COMPETITIONIntense competition in which competitors cut retail prices to gain business

4. GENERIC/SUBSTITUTION COMPETITION


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Competition among products that are different, but solve the same problem orprovide the

same benefit orutility, such as audio cassettes and CDs, adhesive tape and glue-sticks,

carpets and tiles.

In the recent times, substitute competition has become an increasingly bitter battleground,

with products being able to replace others as technology and tastes have changed.

COMPETITIVE ADVANTAGE

DEFINITION:An advantage that a firm has over its competitors, allowing it to generate

greater sales or margins and/or retain more customers than its competition. There can be

many types of competitive advantages including the firm's cost structure, product

offerings, distribution network and customer support.
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TYPES OF COMPETITIVE ADVANTAGE


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SIGNIFICANCE OF COMPETITIVE ADVANTAGE

Almost all businesses have to face stiff competition with their business rivals in virtually any

market today. Having an advantage over them is not enough to guarantee a position on thecompetitive ground.

An ongoing analytical survey of the market and its volatility is required to keep one updated

and informed of the need for improving the quality of product and ensuring the superiority of

service.

Competitive advantage management is a set of methods and strategies that work to not

only position a company or business but also make it stand out in the market. Understanding

the competitive advantage of a company over its rival companies is the key to creating a

dominant position in the market. The business plan that has been sketched as an outline of thefuture progress of business should incorporate competitive advantage management. Without

it, your business plan is incomplete and will be ineffective as well.

Cost leadershipIn most markets, most competition is based around price. However, cost

leadership is very difficult to sustain, unless a proprietary technology is developed or

suppliers are monopolized. Using competitive advantage management as the focal point of a

business plan, developing a unique selling proposition that eliminates the need for competing

on the basis of cost leadership. By creating a unique value proposition, a huge response from

a mass of customers can be elicited.

Promotion of the businessA focus on the management of competitive advantages will

help to promote product and service by implementing effective marketing strategies.

Promotion of product and service plays an instrumental part in the marketing of a business.

Continual assessmentOne of the requirements of competitive advantage management,

continual assessment of the product and service strategies, will help in sustaining edge over

competitors. Assessing the quality perceptions of the product keeps one aware of ones image

in the market and the market value of the product.

Image enhancementManaging competitive advantages over the rivals works for the

enhancement of ones image in the market. Product positioning, quality checking and

effective marketing are the means of gaining competitive advantages over others. It helps set

the company or business on the road to sustainable success.


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SOURCES OF COMPETITIVE ADVANTAGE

HOW TO GAIN COMPETITIVE ADVANTAGE

Gaining a Competitive Edge

Analyze your target market and identify your competition:

The target market is a specific group of consumers at which a company aims its products

and services (Entrepreneur). A target market is distinguished by socioeconomic,

demographic, and common characteristics or needs that make them the best audience to focus

on selling to. To uncover your target market, answer the following simple questions: What

am I selling? Who will most likely buy or consume my product or service? Before you cancrush your competition, you need to know who they are. Find out which businesses are going


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after your same target market. How do they differentiate themselves from other companies in

the industry? Where are they located? To find this information, business directories can be

used to search free company profiles. Information included in the company profiles are

company overview, contact information, location, key facts, employees, and company

payment rating.

Evaluating Your Competitive Advantage

Learn from your competition and your customers:

Dont be afraid of your competition, but ratheruse them as a learning tool and assess their

business model. Learn your competitors strengths and weaknesses imitate their strengths,

and use their weaknesses to your advantage. Use companies that specialize in business

information, such as Cortera, to construct and analyze a competitive landscape of the targetmarket. The business information you learn from your rivals will help you develop the

competitive edge you need to surpass them in your industry. Intimate customer knowledge is

equally important as competitor knowledge. Gaining in-depth insights about your customer

portfolio will allow you to maximize revenue potential, increase customer retention, and

boost prospective customers. You can use a mix of many tools and methods to measure

consumer insight and both your position in the market and the positions of your competitors.

Along with traditional company information resources, consider social media analysis tools

that allow consumer insight mining on a large scale

Create a barrier:

Take advantage of barriers to entry into the market, using them to dissuade competitors from

challenging your marketing share. In some cases, an established companys ability to

manipulate hurdles to enter and compete in its market becomes an effective tool against new

competition, further entrenching the business and preserving its profit potential for the

foreseeable future

Maintaining a Competitive Edge

Stay on the cutting edge:

Once youve gained a competitive advantage, your work is far from complete. To be

successful, you will need to continuously maintain your competitive advantage. After all,

your competitors are not going to sit back and allow you to steal their market share. You can

maintain your competitive advantage by predicting future trends in your industry, constantly

researching and monitoring your competitors, and adapting to your customers wants and

needs. Sometimes you may need to take chances to keep ahead of the pack and differentiate

your business, but with big risk often comes big rewardJust remember to do your research

before diving head first into new ideas

Keeping Up With Changes


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Use Business Information Resources:

The information revolution is heretake advantage of it! It creates a competitive advantage

by providing companies with new ways to outperform their rivals. Knowledge is power, and

business information companies provide just that. Reliable business information companies

include Cortera, Hoovers, Manta, Portfolio.com and Goliath

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