4.3 Sales forecasting

Question 1

sales forecasting

Answer 1

quantitative technique used to predice sales levels in future years

• either quantity of products or revenue

Question 2

what is sales forecasting used for

Answer 2

• change production based on forecast
• change departmental budgets
• evaluate staff performance

Question 3

three types of sales forecasting methods used

Answer 3

• causal models
• time series analysis
• qualitative techniques

Question 4

causal models

Answer 4

• quantitative representation of real-world business dynamics, showing causal relationship between an independent and a dependent variable

scatter diagram created with a line of best fit created
- extrapolation to make predictions

Question 5

time series analysis and moving averages

Answer 5

• statistical technique used by businesses to identify trends in historical data (ie sales revenue of previous data)
• assuming trends continue

graph time series data to see patterns
- time (independent) X sales (dependent)
- extrapolate line of best fit

Question 6

three types of variations

Answer 6

• seasonal
• cyclical
• random

Question 7

seasonal variations

Answer 7

• products have higher sales volume at certain times of the year

Question 8

cyclical variations

Answer 8

• sales affected by economic cycle

(usually sales increase when economy is growing and employment is high; and sales decrease during recessions)

Question 9

random variations

Answer 9

• market changes to sales data caused by unpredictable events
  (ie natural disasters, sporting events, political unrest)
  unpredictable

Question 10

qualitative analysis: market research

Answer 10

• businesses can’t only rely on past quantitative data to make marketing mix decisions and sale forecasts
• identify and forecast buying preferences and behaviours of consumers

Question 11

advantages of sales forecasting

Answer 11

• based on past data: validates results
• effective future planning: (ie new equipment, staff and inventories to meet demand)
• increase budgets to increase sales
• better ability to decide: (if forecast very negative, company withdraws product from market before it becomes a drain on resources)

Question 12

limitations of sales forecasting

Answer 12

• not enough data: (for new companies)
• changing markets: rapid changing markets may make sales forecasts invalid
• flexibility: they are a guide, and managers need to remain flexible, not follow them blindly
• use of different methods to predict: (also use other ways of predicting future sales), be mindful of market research results and product life cycle analysis