Forecasting Flashcards
What is the first step in forecasting? How is this done? (2 approaches)
Estimate market potential
Two broad approaches - Top Down & Bottom Up
Define the Top down approach
Central person takes responsibility for forecasting and prepares an overall forecast perhaps using: aggregate data/current sales trends
Define the Bottom up approach
common in decentralised firms
each part of firm prepares its own sales forecast
The parts are then aggregated to create a forecast for the organisation as a whole
GAP Inc. Example
Who comprises GAP? (3)
What forecasting method is used?
Gap, Banana republic and old navy
Both bottom up and top down are implemented
Bottom up - group merchandisers and store operations
Top down - HQ prepares using: - macroeconomic data
- corporate growth objectives
Then all 3 are combined and average is determined
6 evidence based methods for estimating market potential and forecasting sales (SOSAMM)
Statistical and other Quantitative methods
Observation
Survey of Focus groups
Analogy
Market Tests
Mathematics entailed in forecasting (chain ratio/use of indices)
Statistical and other quantitative methods
Definition
3 points
1 other form
Uses past history and stats techniques such as multiple regression or time series analysis to forecast the future based on an extrapolation of the past.
Not helpful for new product launches as there is no history.
Useful for established firms
Assumes future will look same as past (Century Link ex.)
Conjoint analysis
Observation (4)
Directly observe or gather existing data
Attractive because it is based on consumer actions
Data from internet can be cheaper
Not possible if product does not already exist
Surveys or Focus Groups
Concept Test (ask whether they would purchase) - creates a survey of buyers intentions
Ask about current buyer behaviour
Survey of Salesforce opinion
Limitations of surveys or focus groups (5)
What people say is not always what they do
Therefore buyer intention is heavily discounted (i.e Nestle)
People surveyed may not be knowledgable but will always provide their opinion when asked
Product concept may be different to launched product
Based on opinions not facts.
Analogy
Used when statistical or observational methods are not possible
Product compared with similar historical data that are available - E.G apple looked at walkman sales for iPod
Limitations of Analogy (3)
New product is never the same as that from which the analogy was drawn
Different pricings?
Market and competition may have change
Market Tests (4)
New products
Experimental test markets
competitors can mislead other by heavily discounting
Competitors can purchase info from supermarkets without cost of experiment
Mathematics Entailed in Forecasting
Chain Ratio calculation
Use of Indices
What is BPI?
Buying Power Index (BPI)
What is CDI?
Category development indices - ratio of consumption in a certain category
