QUALITATIVE TECHNIQUES OF

SALES FO

RECASTING

FORECASTING

FORECASTING IMPLIES PREDICTING THE FUTURE AFTER STUDYING AND ANALYSING THE PAST AND PRESENT DATA.

Sales Forecasting

MEANING

Prediction of the future sales of a particular product over a specific period of time based on past performance of the product, inflation rates, unemployment, consumer spending patterns, market trends, and interest rates.

Sales forecasting, though crucial, is one of the grey areas of marketing management.

A sales forecast predicts the value of sales over a period of time. It becomes the basis of marketing mix and sales planning.

A short-term sales forecast (say for a period of one year) when linked to the sales budget helps in the preparation of an overall budget for the firm as a whole.

A long-term sales forecast (say for a period of 5 years or so) on the other hand, focuses on capital budgeting needs and process of the firm.

Two types of approaches:

Breakdown Approach

Market Build-up Approach

Reasons for undertaking sales forecasts

Businesses are forced to look well ahead in order to plan their investments, launch new products, decide when to close or withdraw products and so on.

- Employment levels required - Promotional mix - Investment in production capacity

QUALITATIVE TECHNIQUES

Qualitative techniques are a valuable resource for any forecaster. The value of experience and the

ability to analyze complex situations as input to sales forecasts should never be discounted.

Qualitative Forecasts consider the range of factors which influence the demand.

These factors are then ranked in order of importance and each of them in turn is analyzed to reveal future trends.

Qualitative methods of forecasting are:

1.Consumer expectations

2.Sales force composite

3.Jury of executive opinion

4.Delphi technique

Qualitative techniquesConsumer Expectations

Consumers are frequently interviewed with the help of questionnaires concerning their buying habits, motives and intentions. The consumer feedback is used to estimate the expected consumption or purchases of the product.

AdvantagesForecast estimates straight from

buyers. Information about projected product

can be detailed. Insights give assistance in planning

the market strategy.Practical for forecasting new-

products.

Disadvantages Company has to choose potential

customers carefully and the number of customers has to be small.

Works well with business to business goods, but not with consumer goods.

Depends on how precisely the users make

their evaluations. Takes a lot of money, time and labour.

Delphi technique

Delphi is based on iterative approach and it uses anonymous repeated feedback. The people involved in the feedback give their own forecast about the subject and the feedbacks are gathered into a summary.

 STEP 1 – Various Experts are asked to answer independently

STEP 2 – A summary of all the answers is then prepared. No expert knows, how any other expert answered the questions.

STEP 3 – Copies of summary for modification if necessary

STEP 4 – Another summary is made of these modifications, and copies again are distributed to the experts. This time,however, expert opinions that deviate significantly from the norm must be justified in writing.

STEP 5– The forecast is generated from all of the opinions and justifications that arise from step 4.

Advantages

The effects of group dynamics is reduced. Statistical information can be used.

Disadvantages Can take a long time and is money consuming

Sales Force Polling

Some companies use as a forecast source salespeople who have continual contacts with customers. They believe that the salespeople who are closest to the ultimate customers may have significant insights regarding the state of the future market. Forecasts based on sales force polling may be averaged to develop a future forecast. Or they may be used to modify other quantitative and/or qualitative forecasts that have been generated internally in the company.

Advantages It is simple to use and understand. It uses the specialized knowledge of those closest to the action. It can place responsibility for attaining the forecast in the

hands of those who most affect the actual results. The information can be broken down easily by territory,

product, customer, or salesperson.

Disadvantages Salespeople’s being overly optimistic or pessimistic regarding

their predictions and inaccuracies due to broader economic events that are largely beyond their control.

Executive Opinions

The subjective views of executives or experts from sales, production, finance, purchasing, and administration are averaged to generate a forecast about future sales. Usually this method is used in conjunction with some quantitative method, such as trend extrapolation. The management team modifies the resulting forecast based on their expectations.

Advantages

The forecasting is done quickly and easily, in

the absence of adequate data.

Disadvantages

Strong leadership fosters group pressure for unanimous opinion.

Advantages of qualitative technique

Qualitative forecasting techniques have the

ability to predict changes in sales patterns.

Qualitative forecasting techniques allow decisionmakers to incorporate rich data sources consisting of their intuition, experience, and expert judgment.

Disadvantages Forecasters’ inability to process large amounts of complex

information. Forecaster’s overconfident in their ability to forecast

accurately. Political factors within organizations, as well as political

factors between organizations. Forecasters may be influenced by initial forecasts (e.g., those

generated by quantitative methods) when making qualitative forecasts.

Qualitative forecasting techniques are expensive and time intensive

CONCLUSION

Qualitative techniques are recommended for those situations where managers or sales force are particularly aimed at predicting sales revenues. These techniques are often utilized when markets have been disturbed by strikes, wars, natural disasters, recessions or inflation. Under these conditions historical data are useless and judgmental procedures that account for the factors causing market stocks are usually more accurate.