Sales forecasting

Question 1

What is a sales forecast?

Answer 1

the total sales of a product that a firm expects to sell during a specified time period under specified environmental conditions and its own marketing efforts

Question 2

What is sales forecasting?

Answer 2

the process that enables businesses to estimate their own future sales. This helps it to plan finance, workers and raw materials needed in the future and can help form a cash flow forecast.

Question 3

What factors effect sales forecasting?

Answer 3

Economic factors - such as unemployment levels, inflation, interest rates, exchange rates, economic growth.
Consumer factors - consumers’ tastes and fashions are constantly changing, and businesses try to anticipate these changes through market research. However, consumers are notoriously unpredictable.
Competition factors - 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.

Question 4

When are quantitative methods used?

Answer 4

When historical data is available to use for objective and numerical methods.

Question 5

What is extrapolation?

Answer 5

uses trends established from historical data to forecast the future

Question 6

When are qualitative methods used?

Answer 6

Historical data is not available so opinions and views are used.

Question 7

What is time series analysis?

Answer 7

Using historical sales data to discover patterns of sales

Question 8

Seasonal analysis:

Answer 8

an analysis of daily, weekly, or monthly sales figures to evaluate the degree to which seasonal factors influence sales

Question 9

Cycle analysis:

Answer 9

An analysis of sales figures for a three- to five-year period to ascertain whether sales fluctuate in a consistent, periodic manner, in relation to economic activity.R

Question 10

Trend analysis:

Answer 10

an analysis that focuses on aggregate sales data over a period of many years to determine general trends in annual sales.

Question 11

Random factor analysis:

Answer 11

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 12

Advantages of time series analysis?

Answer 12

-Historical data can be reliable, particularly if collected over a long period of time.
-Specific to the business.
-Seasonal fluctuations can be measured and compared overtime to reveal patterns which act as a good basis for future predictions.
-Helps to plan raw materials, finances, workforce.

Question 13

Disadvantages of time series analysis?

Answer 13

-Can be unreliable if there are significant fluctuations in the historical data.
-The process assumes the past trends will continue but this is unlikely in a competitive industry.
-Process ignores qualitative factors such as changes in tastes, fashions or external shocks.

Question 14

What is correlation?

Answer 14

Shows a relationship between two variables that can be positive, negative or no correlation. This link is shown on a scattergram. A line of best fit can be drawn which can be used to extrapolate.

Question 15

How do you calculate a three point moving average?

Answer 15

Averages using first three points, then the next three points, and so on.

Question 16

What qualitative methods are used?

Answer 16

intuition, brainstorming, expert opinion, the delphi technique.

Question 17

Intuition:

Answer 17

It is difficult to predict the future if products are new to the market.
-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.
Intuition is sometimes referred to as Genius Forecasting - which combines intuition, insight, and luck.

Question 18

Advantages/disadvantages of intuition?

Answer 18

-The use of intuition is cheap, and fast. But gut feeling and experience should not be the only guide. Even if experienced managers ‘feel it in their bones’, there is no excuse not to carry out some further forecasting techniques.

Question 19

Brainstorming:

Answer 19

-Brainstorming is a subjective technique for generating new, useful ideas and promoting creative thinking, usually between a group of people.
-The basis of the brainstorm is ‘The Problem Statement’, which is the focus of discussion.
-All ideas are welcome and there are no wrong answers as no judgements should be made of ideas.
-Will work best if members are creative in their contributions and attempt to contribute a high quantity of ideas in a short amount of time.
-Most effective with groups of 6-12 people and works best with a varied group.

Question 20

Expert opinion:

Answer 20

-There is a huge variety of expert opinion available on individual markets, and more general business issues.
-There are consultants who specialise and many types of economists.
-Experts are useful for gaining specialised insights but should only be used.
-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 21

What is the delphi technique?

Answer 21

Forecasting technique that progressively collects information from a group without physically assembling the contributors.
A panel of experts answer questions on a range of issues. Their reactions are revised, summarised and analysed until they can reach an agreement, and this forecast can be fed back to the business with confidence.

Question 22

Advantages of the delphi technique?

Answer 22

• open-ended questions
• greater pool of expertise can be used cheaply
• few geographical limitations - can use overseas people and they can answer at their convenience
• participants don’t need to be in the same place at the same time
• helps maintain confidentiality as participants don’t see each other
  -flexible enough to be applied to various situations
• the record of the expert’s response can be used whenever needed.

Question 23

Disadvantages of the delphi technique?

Answer 23

• Time and costs
• Results cannot be validated statistically
• Selection of experts can skew the results
• Potentially insufficient attention given to developing criteria due to having too narrow a scope of experts

Question 24

Advantages of qualitative methods?

Answer 24

managers can use experience and expertise that historical data may not take into account, useful when little data is available, beneficial when the market is changing and very dynamic

Question 25

Disadvantages of qualitative methods?

Answer 25

ignores data which can be an accurate template for sales forecasting, bias can exist in opinions, can be inaccurate and uncertain as it is not based on previous data.