By N2H

Forecasting future demands

October 24, 2007

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Forecasting future demands

There are several techniques available for sales forecasts. They can be divided into two: these are qualitative and quantitative.

Qualitative: This technique is based on judgment or opinion while quantitative is based on statistical analysis of historical data.

Qualitative techniques are:

Jury of Executive opinion

This technique seeks the outlook of the organization’s executive. This strategy provides insights from people working in the variety of areas of finance, marketing, production. The marketer can average the estimates to arrive at a single forecast.

This method is quick and it’s useful for a new or innovative products. The drawback is that data must be broken down by product, region. It also consumes time of executives.

Delphi technique

In this approach, the marketing department sends out a survey to experts outside and inside the organization asking them to provide a forecast.

The results are averaged and sent to the experts along with another questionnaire asking then to review the results and provide another forecast. This process is repeated until the experts reach a concensus.

The advantage of this method is that estimates are likely to succumb to group pressure. The disadvantage is that it is time consuming and expensive.

Survey of buyer intentions.

One can forecast by asking the customers, by conducting a survey of the buying intentions of a sample of the target market. This approach assumes the actual buying patterns will match the stated plans of the survey sample. The advantage of this method is that it provides detailed information.

It also provides buyers thinking and can be used for new products. The disadvantage is that its time consuming and expensive.

Quantitative Methods

Some of the techniques used in quantitative methods are:

Trend Analysis

This is the use of past data to predict future outcomes. It assumes that demand favours a pattern over time. The analyst looks for pattern in data, then uses it to predict future demand. Trend analysis is quick, cheap and effective when demand and environmental factors are stable. The limitation is that it does not consider changes in environment and is not useful for new or innovative products.

Exponential Smoothing.

This is a form of time series analysis that gives more weight to more recent data and less to older data by assigning a weight to each year’s data. It is also quick, inexpensive. Its limitation is the same as trend analysis.

Market Test

This involves offering the product in a few test market, assuming the response will be similar when the product is offered to the total target market.

The benefits of this method is that it provides more realistic information because based on actual purchases rather than intent to buy. It permits assessment of effects of marketing plan. Its limitation is that it is time consuming, expensive, alerts competition to orgs plan.

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