Sales Forcasting

Question 1

What is sales forecasting

Answer 1

predicting future demand by anticipating what consumers are likely to do in a given set of circumstances.

Question 2

Quantitative sales forecasting techniques

Answer 2

time series analysis
use of market research data

Question 3

Extrapolation

Answer 3

Using past experience or past business data to forecast future sales is called extrapolation. Extrapolation involves making statistical forecasts by using historical trends that are projected for a specified period of time into the future. It is only used for time-series forecasts.

Question 4

Qualitative sales forecasting methods

Answer 4

the Delphi technique
brainstorming
intuition
expert opinion

Question 5

These factors should be considered when carrying out sales forecasting. They include:

Answer 5

Economic factors
Consumer factors
Competition factors

Question 6

Economic factors

Answer 6

such as unemployment levels, inflation, interest rates, exchange rates, economic growth. For example, if there is an unexpected rise in inflation then this will affect consumer spending and will have an impact on sales forecasts. In this case it will lower the sales forecast. A change in any of these economic variables could reduce the accuracy of the sales forecast.

Question 7

Consumer factors

Answer 7

consumers’ tastes and fashions are constantly changing, and businesses try to anticipate these changes through market research. However, consumers are notoriously unpredictable, and their preferences can change quickly. Changes in consumer behaviour can be short term or long term. A long-term trend is easier to identify and to take into account when sales forecasting.

Question 8

Competition factors

Answer 8

a business cannot control the actions of their competitors. However, their actions will affect not only the present business performance but the future business performance too. Competitors will have their own strategies and plans for the future and any significant action by competitors could reduce the accuracy of sales forecasting.

Question 9

When to use quantitative forecasting methods

Answer 9

Quantitative forecasting methods are used when there is historical data available. A number of different models can be used to forecast future events. Quantitative methods rely heavily on data and are objective.

Question 10

Time series analysis

Answer 10

Time-series analysis uses evidence from past sales records to predict future sales patterns. There are several methods of time-series analysis that can be used:
Seasonal analysis
Trend analysis
Cycle analysis
Random factor analysis

Question 11

Seasonal analysis

Answer 11

sales are measured on a monthly or weekly basis to examine the seasonality of demand. For example, the sales of ice cream will be higher in the warmer seasons and lower in the colder seasons or according to daily weather changes.

Question 12

Trend analysis

Answer 12

this focuses on long-term data, which has been collected over a number of years. The objective is to determine the general tendency of sales - rising, falling or stagnant.

Question 13

Cycle analysis

Answer 13

as with trend analysis, long-term figures are used but now the objective is to examine the relationship between demand levels and economic activity. For example, by asking the question ‘what is the relationship between demand for the product or products and the stage in the economic or business cycle?’.

Question 14

Random factor analysis

Answer 14

this method of analysis attempts to explain how unusual or extreme sales figures occur. For example, if sales of ice cream double for a two-week period, then could this be explained by weather conditions, rather than an effective advertising campaign? Random factor analysis therefore attempts to provide explanations for unusual or abnormal sales activity.

Question 15

Market analysis

Answer 15

A detailed examination of features of a market such as market size and sales, to predict future trends

Question 16

What is moving averages

Answer 16

Technique for identifying the underlying trend, removing fluctuations in data

Question 17

Advantages of market analysis

Answer 17

Assess the opportunities there are in the market
Predict what is likely to happen in the future
Potential influences on the market demand

Question 18

Disadvantages of market analysis

Answer 18

Doesn’t take into account the external factors
Doesn’t consider market change
Doesn’t consider competition

Question 19

Test markets

Answer 19

a specific geographic region or demographic group that a company uses to trial a new product or marketing campaign before launching it on a wider scale, allowing them to gauge its potential success and identify any issues before a full market rollout

Question 20

Brainstorming

Answer 20

Brainstorming is a subjective technique for generating new, useful ideas and promoting creative thinking, usually between a group of people. It can be used to predict outcomes based on the group’s subjective thoughts and feelings.

Question 21

Intuition

Answer 21

With limited data available to collect and examine, business leaders and managers may instead use their ‘gut feeling’ or intuition. They may have experience of other existing markets and products that can be transferred to new markets and products.

Question 22

Expert opinion

Answer 22

Experts are useful for gaining specialised insights into likely future patterns and trends but should not be used on a ‘standalone basis’. Panels of experts are more reliable than consulting individual experts. The opinion of experts should also be combined with information gathered from other sources.

Question 23

Delphi technique

Answer 23

Members of a panel of experts respond to questions and to each other until reaching an agreement on an issue

Question 24

Advantages of Delphi technique

Answer 24

it is flexible enough to be used in a variety of situations and can be applied to a range of complex problems

it provides a structured way for a group of people to make decisions

participants have time to think through their ideas, leading to a better quality of response
it creates a record of the expert group’s responses and ideas which can be used when needed.

Anonymity: Experts can provide their opinions without fear of bias or social pressure. So unbiased

Efficiency: The Delphi technique can generate a consensus opinion without bringing everyone together.

Question 25

Disadvantages of Delphi

Answer 25

the method will more than likely require a substantial period of time to complete as the process is time consuming to coordinate and manage
it assumes that experts are willing to come to a consensus and allow their opinions to be altered by the views of other experts
monetary payments to the experts may lead to bias in the results of the study.