Sales Forecasting Flashcards
What are the four quantitative sales forecasting techniques?
- Three-point moving average
- Scatter graph and line of best fit
- Extrapolation to predict future developments
- Correlation
Define ‘time series analysis’.
When a firm uses historical data to predict future sales. Quantitative sales forecasting techniques use time series analysis to predict the future sales of a business.
What is the ‘three-point moving average’.
A technique that smooths out the data by using three monthly averages of data.
Define a ‘scatter graph’.
A graph with a number of points but no line connecting them.
Define a ‘line of best fit’.
A line drawn through the scatter points to work out whether there is a trend present.
What is ‘extrapolation’?
Used to predict future sales based upon a past trend.
What is ‘correlation’?
Used to see if there is a relationship between two different variables.
Why are quantitative sales forecasting techniques useful for a business?
- Useful for managers to see past patterns to see if there is a trend. This can help with decision-making e.g. future human resource (staffing) requirements. This can have a positive knock-on effect on shareholders as costs are managed more efficiently.
- Employees can be given sales targets, which could act as a motivational incentive if targets are met (Vroom Theory).
- These techniques are more useful when predicting the immediate future, less so the long-term future.
- Useful for businesses in stable, slow-moving industries, e.g. those producing bread or beans, where the future will not be too different from the past.
Why are quantitative sales forecasting techniques not useful for a business?
- The future is unpredictable, it is very hard to predict the future using past data.
- There might be changes in the economy (e.g. a rise in unemployment). This will not be represented in past sales data.
- Competitors may react in an unexpected way, e.g. by reducing prices by 20%. This can make forecasting based upon the past wrong as there has been a change in the competitive environment.
- These techniques are not useful when making long-term forecasts and in fast-changing markets, e.g. the smartphone market.
What are the three qualitative sales forecasting techniques?
- Intuition
- Brainstorming
- Delphi Method
What is ‘intuition’?
Intuition is making an educated guess on the future sales of a business.
Why is ‘intuition’ useful?
Useful for very experienced managers and businesses that operate in a more stable market.
Why is ‘intuition’ not useful?
Small businesses may be unable to afford to carry out extensive market research or may not have past data to base future sales on.
What is ‘brainstorming’?
Where a small group of people meet together and focus on a central problem to come up with ideas and future predictions for sales.
What is a disadvantage of ‘brainstorming’?
The quality of this technique depends upon the skills and experience of the people involved in the brainstorm.
