Market Potential and Sales

Forecasting
1.Terms used in sales forecasting
Potential
The maximum sales attainable under a given set of conditions within a
specified period of time.
Forecast
The amount of sales expected to be achieved under a set of conditions
within a specified period of time
Market potential is the entire size of the market for a product at a specific
time or it is the estimated sales of a given product/service for the entire
industry in a given market for a specific period of time.
Market demand-that portion of market potential that is achievable under
the existing conditions.
Company demand-that portion of company potenrtial that is achievable
under the existing conditions.
Sales forecasting-
Process of predicting future sales for a particular period of time. Ex- a year
etc.



Forecast are used in several ways-
-To answer what if questions
-To help set budgets
-Basis for a monitoring system
-To aid in production planning




Deriving potential estimates

Types of sales forecast



Factors influencing sales forecasting:
1. Business Conditions
2. Changes within the firm
3. Internal conditions of business Enterprise
4. Taste of consumers
5. Period
Type of forecasting depends on-
(1) The degree of accuracy required
(2) The availability of data and information
(3) The time horizon that the sales forecast is intended to
cover.
(4) The position of the products in its life cycle.


Forecasting approaches


Process

Types of sales forecasting

1. Qualitative
2. Quantitative
Qualitative forecasting techniques are subjective,
based on the opinion and judgment of
consumers, experts; they are appropriate when
past data are not available.
Quantitative forecasting models are used to
forecast future data as a function of past data;
they are appropriate when past data are
available.
Methods of Qualitative forecasting
1.Executive opinion method
High-ranking executives estimate probable sales
2.Delphi Method
This is a version of the jury of executive
opinion method in which those giving opinions
are selected for their expertise.
3.Sales force composite combines the individual
forecasts of salespeople. It is also known as the
grass-roots approach


4.Survey of buyer intentions
It is also called users expectations method It samples opinions among
groups of present and potential customers concerning their purchase
intentions.
5.Test marketing
-Full blown test markets


High Trial
Low purchase rate
High Trial
High Purchase rate
Low Trial
Low Purchase rate
Low Trial
High Purchase rate
-Controlled test marketing
-Simulated test marketing

Quantative Methods
1.Regression analysis statistically relates sales to
one or more explanatory (independent)variables.
2.Naive method
Next Years Sales = This Years Sales X This Years
Sales divided by Last Years Sales
3.Trend projections A quantitative sales
forecasting method that estimates future sales
through statistical analyses of historical sales
patterns.
5. Exponential smoothing
It is similar to the moving-average forecasting
method.The forecaster is allowed to vary the
weights assigned to past data points.The method
is used to forecast only one period in thefuture
Exponential smoothing techniques vary in terms
of howthey address trend, seasonality, cyclical
and irregular influences
Next Years Sales = a (This Years Sales) +(1 a)
(This Years Forecast)
6.Market
3. Moving average takes an average of a
specified number of past observations to
make a forecast.As new observations become
available, they are used in the forecast and
the oldest observationsare dropped.


3. Moving average takes an average of a
specified number of past observations to
make a forecast





4.Last year sales method
Next Years Sales = This Years Sales X This Years
Sales divided by Last Years Sales
5. Exponential smoothing

7. Life cycle analysis bases the forecast upon
whether the product is judged to be in
theintroduction, growth, maturity or decline
stage of its life cycle


Improving Forecasting accuracy
-Use multiple methods
-Identify suitable method
-Develop a few factors