b2b-session-10-demand analysis and forecasting techniques

7/30/2019 B2B-Session-10-Demand Analysis and Forecasting Techniques

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Organizational Demand

Analysis


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Estimating Demand

Estimating demand within selected markets is vital tomarketing management!

Forecasting demand represents probable sales. It takesinto account:

Potential business

Marketing efforts

Virtually all business decisions are predicated on theforecast, both formal and informal.


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Relationship between Potential Demandand the Forecast


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Business Plan Prerequisites4

Before anyone can formulate a business plan, theyneed to formulate a marketing plan.

Before they can formulate a marketing plan, theyneed to estimate demand (potential market fortheir firms product).

Without a plan, it is very difficult to allocate

scarce resources to segments, products,territories, etc. effectively or efficiently.


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Affected Stakeholders

Demand analysis (or lack thereof) affects threebroad stakeholder groups:

1. Engineering Design and Implementation teams

2. Marketing and Commercial Development teams

3. External Stakeholders, including:

a. Investors

b. Government regulators

c. Equipment suppliersd. Distribution partners


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Application of Demand

The application of demand rests in the planning andcontrol of marketing strategy by market segments.

Once demand is estimated by segment, the managercan allocate resources on the basis of potential salesvolume.

Spending money on promotion has little benefit ifthe market opportunity is minimal or thecompetition is fierce.


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Estimates of Probable Demand

Estimates of probable demand should only bemade after a firm has decided on its marketingstrategy.

Only after a marketing strategy has been

developed can expected sales be forecasted!

Many firms use the forecast to determine thelevel of marketing expenditures.This is a mistake!

Marketing strategy determines sales (notvice versa).


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Supply Chain Links

Sales forecasts are critical to a smoothoperation throughout the supply chain.

Timely forecasts allow supply chainmembers to effectively coordinate theirefforts and share in the benefits.


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Sales Forecast Data

Sales Forecast Data is used to:

Distribute inventory within the supply chain

Manage stock at each level

Schedule resources at all levels

Provide material, components and service to a manufacturer

Accurate forecasts go hand-in-hand with goodbusiness practices throughout the supply chain


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Methods of Forecasting Demand

1. Qualitative

Executive Judgment

Sales Force Composite

Delphi Method2. Quantitative

Time Series

Regression (causal)

3. Collaborative Planning Forecasting and Replenishment

4. Combining Techniques


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Qualitative Method: Executive Judgment

Executive Judgment:

This method is very popular because it is:

1. Easy to understand

2. Easy to apply

Executives from various departments (Sales,Marketing, Accounting, Finance, Procurement) are

brought together and apply their collectiveknowledge to the forecast.


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Executive Judgment: Benefits

Executive judgments are often used in conjunctionwith quantitative approaches to forecasting

Tend to be fairly accurate when:

1. Forecasts are made frequently & repetitively2. The environment is stable

3. The link between decision, action and feedback is short


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Executive Judgment: Limitations

Does not offer systematic analysis of cause &effect relationships

No formula for estimating derived demand

New executives may have trouble making areasonable forecast

The forecast is only as good as executives

collective knowledge and experience Difficult to compare against alternative

techniques


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Qualitative Method: Sales Force Composite

Rationale is that the sales force knows theircustomers, markets and competition, thus they canestimate their market fairly accurately.

Having the sales force involved in the forecastingprocess helps them understand how the forecast isderived and boosts their incentives to achievedesired sales levels.

The composite forecast is attained by getting inputfrom all their salespeople.


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Sales Force Composite: Benefits

More successful if the dyadic (buyer/seller)relationship is close

Inexpensive

Facilitates salespeople to review their account interms of future sales

However, few companies rely solely on their salesforce estimates

They are reviewed by top management and arecompared to quantitative methods


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Sales Force Composite: Limitations

Limitations are similar to the executive judgmentapproach

Not a systematic analysis of cause & effect

Its still only judgment/opinion Some salespeople overestimate their forecast

to look good Some salespeople underestimate to lower

their quota or increase commissions Generally, short term estimates are accurate,

but long-term estimates are lacking


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Qualitative Method: Delphi Method

1. It starts with a moderator (analyst) who attains aforecast opinion from a panel of anonymous experts.

2. These estimates (along with reasons) are passedaround to the entire group and new estimates areevoked.

3. Rounds continue until a consensus is reached.

4. A panel may consist from 6 to 100s depending uponthe purpose, and numerous rounds are conducteduntil a consensus is attained.


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Delphi Method

It is generally applied to long term forecasting ofdemand.

Its good for new products or for situations that arenot well suited for quantitative analysis.

Finally, like other qualitative approaches, the Delphimethod is difficult to accurately measure.


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Typically, qualitative estimates are merged with quantitative ones.

Summary of Qualitative Forecasting Techniques


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Combination Approach to Forecasting Research suggests that forecasting can be

improved by combining several forecastingmethods.

Experts suggest that management should use acomposite forecasting model to include both

Qualitative and Quantitative factors.

Furthermore, rather than searching for a one bestmethod, they should consider the broader range offactors that affect sales, and integrate them into acomposite forecasting approach.

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