MKT 363 Ch 12

factors influencing sales forecast

- marketing plans (internal marketing policies) - conditions within the industry (other company changes) - market conditions (states of the market) - general business conditions (states of the economy)

market -factor derivation

method for determining the size of a potential market begins with a market factor

TRUE

once the company has determined the total sales potential, the sales manager usually wants to divide the potential among the various territorial divisions

administrative budget

A budget that reflects the expected administrative costs, including administrative labor - supplies: rent, heat, power, light, office equipment, and general overhea

buying power index

A weighted combination of population, income, and retail sales, expressed as a percentage of the national potential, to identify a given market's ability to buy.

sales forecasting methods

-Survey Methods 1) executive opinion 2) sales force composite 3) buyer's intentions -Mathematical Methods (most used) 1) moving average models 2) exponential smoothing models 3) regression models -Operational Methods 1) test markets 2) "must do" calculations 3) capacity based calculations executives and managers => executive opinion, sales force composite customers => survey of buyer intentions historical data => moving average models, exponential smoothing, regression analysis company operations => "must do approach", capacity-based approach, test markets

guiding principles for forecasting

-understand math and statistics -minimize the number of market factors -fit the method to the product/market -use more than one method -recognize situation limits -use minimum/maximum technique

budget steps for new item

1) surveying each of the activities the unit must perform 2) determining how many people will be required to accomplish the job 3) figuring what materials and supplies will be needed for those people to do their job

TRUE

a company must establish its marketing goals and strategies (core of a marketing plan) before it makes a sales forecast => sales forecast becomes the key factor in all operational planning throughout the company and is the basis of sound budgeting financial planning for working capital, plant utilization, production resources and facilities, labor needs, raw material purchasing, and sales force planning are based on anticipated sales

delphi technique

a decision-making method in which members of a panel of experts (managers) asked to make a prediction on some matter and the resulting set of forecasts is fed back to the whole panel - the experts are then asked to make another prediction on the same matter with the knowledge of the forecasts of the others on the panel - repeated until they come at the same consensus

Executive Opinion

a forecasting method in which the opinions, experience, and technical knowledge of one or more managers are summarized to arrive at a single forecast (oldest and simplest technique known) - views that may or may not be supported by facts popular for small to medium sized companies might cause too much management time due to differing forecasts to be reconciled

market index

a market factor expressed as a percentage, or in some other quantitative form, relative to some base figure (can be based on 2 or more market factors)

multiple regression analysis

a statistical technique which analyzes the linear relationship between a dependent variable and multiple independent variables by estimating coefficients for the equation for a straight line

market factor

an item or element in a market that 1) causes the demand for a product or service 2) is otherwise related to that demand ex: birthrate is a market factor for # of play pens market factor x % of market covered = market potential x potential market share = sales potential advantages: 1) validity of the method is high 2) simple, little statistical analysis, and inexpensive to use

selling-expense budget

anticipates the various expenditures for personal-selling activities - salaries, commissions, and expenses of the sales force - not a difficult budget to develop - sales force expansions should be included in this budget

sales force composite

based on collecting an estimate from each salesperson of the products and/or services they expect to sell in the forecast period - can be made in consultation with the customer or sales executive or just based on intuition and experience - individual forecasts are then aggregated to yield an overall forecast for the firm - but salespeople are often bad forecasters - takes a lot of time from management and the reps

"must do" forecasts

based on the sales volume needed to generate sufficient cash to cover fixed and variable costs - similar to a break even point

North American Industry Classification System (NAICS)

businesses are divided into numerically ordered categories - assigned a 4 digit number based on its main line of business ex: pharma and med segment of the industry: 3254 pharma preparations companies numbered 325411 - how many firms in each category, their sales volume, where they are located, how many employees they have, etc.

exponential smoothing model

closely related to the moving average technique for sales forecasting - forecaster can allow sales in certain periods to influence the forecast more than sales in other periods sales(t+1) = (L)Actual sales(t) + (1-L)Forecasted sales(t) L is the smoothing constant smoothing constant with a high value allows more recent periods (actual sales in the present periods) to influence the sales forecast more than sales in earlier periods (forecasted sales in the present period) selecting of the constant is somewhat arbitrary

survey of buyer intentions

contacting potential customers and questioning them about whether or not they would purchase the product or service at the price asked

3 fundamental techniques for estimating market and sales potentials

market-factor derivation, surveys of buyer intentions, test markets

customer analysis

determine who will use the product and identify all possible characteristics of those users - market potential is based off of the users, not the buyers

sales forecast

estimate of sales (in dollars or units) that an individual firm expects to achieve during a specified forthcoming time period, in a stated market, and under a proposed marketing plan (sales can be forecast for the whole product line or an individual product in the line - sales can be forecast for a company's total market or for individual market segments) - less than the sales potential usually

capacity-based forecasts

if a firm's market is such that it an sell everything it can make or buy => capacity becomes its forecasts - projects based on each seat filled at their capacity

test marketing

involves introducing the product to a limited market that is similar to the current market to see how it will be accepted. - takes considerable time and money but is the most accurate - eliminates guessing of the other market estimates - results directly in a sales potential for products under consideration but requires a lot of effort and time before answers are known

budgeting by percentage of sales method

manger multiplies the sales forecast by various percentages for each category of expense - products of these calculations then become the dollar amounts budgeted for the respective categories - dependent on the firm having accurate sales forecasts

budgeting by the objective-and-task method

manger starts with the sales objectives, which are specified in the sales forecast, then the manager determines the task that must be accomplished in order to achieve the objectives and estimates the costs of performing those tasks - these costs will be reviewed in light of the company's overall profit objective - finally, manager finds a balance of the objectives and the means of obtaining them

flow of info from sales budget to other budgets

sales budget => - admin expense budget - sales department expense budgets (advertising, selling costs, admin) (cash budget) - production department budgets (profit and loss budget) all budgets are summarized in the profit and loss budgets and cash budgets all admin heads must sign off on all budgets

sales forecasting periods

sales forecasts are usually made for periods of 3 months, six months, or 1 year - usually coincides with the fiscal year bc it plans the expenditures - when forecasting period is short, forecasts are likely to be more accurate than when they're longer

budget

serves many purposes: planning, coordination, and evaluation planning: plan of action and standard of performance for various departments coordination: various departments can interact with budgetary needs evaluation: evaluates each department's performance

moving average technique

take an average of sales from several periods to construct the sales forecasts for the coming period - oldest sales period is then replaced with the newest average - less accurate for highly fluctuating sales, good for stable sales

TRUE

the determination of the sales forecasts and sales budgets should be an iterative process

sales potential

the maximum share of market potential that an individual firm can reasonably expect to achieve - must specify product, market, and time period (refers to individual firm[ex: budweiser beer]) - usually what can be achieved under ideal conditions

sales budget

the revenue or unit volume anticipated from sales of the firm's products - basis of all operating activities in the sales department and in the production and finance areas - if this one is in error, the rest will be in error as well - budgets for territories and classes of customers usually are of interest only to sales execs, other departments only need the sales budget for product divisions

TRUE

the sales executives are reponsible for formulating three basic budgets: sales budget, selling-expense budget, and sales department administrative budget

market potential

the total expected sales of a given product or service for the entire industry in a specific market over a stated period of time 1) item being marketed (product, service, idea, person, location) 2) sales for the entire industry in dollars or product units 3) a specific time period 4) specific market delineated either geographically, by type of customer, or both (refers to entire industry [ex: beer])

regression analysis

used to project sales trends into the future - analyst draws straight trend line that minimizes the distance of all the points from the line - using the least squares procedure to minimize errors between actual and predicted

difficulty of sales forecasting

when sales of a product fluctuate dramatically from period to period, accurate sales forecasts are difficult to develop - also hard to project for new products since historical sales is lacking