Bivariate Analysis: Relationships Among Variables

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SALES FORECASTING
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Forecasting Advantages

• Provides a basis for planning, budgeting,
  evaluating and adjusting sales efforts,
  distribution, inventory, production and other
  marketing activities.
• Performs a control function by establishing an
  evaluation standard. (ex. A benchmark with
  competition)
• Serendipity effect Can reveals new market
  opportunities that are discovered by the sales
  forecast process.

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Types of Sales Forecasting
Executive Judgement
Market Tests
Surveys
TYPES OF SALES FORECASTS
Correlation and Regression Analysis
Time Series Analysis
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Forecasting TechniquesQualitative Forecasting

• Individual or expert opinion
• Sales force, customers
• Expert panel method (1 in usage)
• Technological forecasting
• Envelope curve extrapolation

• Decision tree
• Probabilities
• Pay-offs
• Scenario

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Forecasting TechniquesQualitative Forecasting
(cont.)

• Delphi method
• Role playing
• Analogy

Limiting Factors

• Errors biases affect forecasts
• Lack of knowledge of managers
• Hockey stick effect

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Reaction to Paradigm Shifts (Forecasting Consumer
Demand)

• Who in hell wants to hear actors talk?
  Harry Warner
• Radio has no future. Lord Kelvin
• There is not the slightest indication that
  (nuclear) energy will ever be obtainable.
  (1900/-)
• Albert Einstein
• I think there is a world market for about five
  computers. TJ. Watson, IBM Chairman, circa
  1940s
• There is no reason for any individual to have a
  computer in their home. Ken Olsen, President,
  DEC

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Forecasting TechniquesQuantitative Forecasting

• Sales trend forecasting (Surveys Test
  Markets)
• Mathematical models
• Periodic actual percent changes
• Exponential smoothing
• Advance time-series analyses models
• Regression analysis
• Game Theory

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Sales ForecastsU.S. light vehicle sales, in
million of units
Pent Up Demand
Catch Up Demand
Actual retail sales Trend line
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(No Transcript)
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Data Source Leading Indicators

• . are events that are statistically related to
  and precede sales (causal factors, maybe?)
• Examples Population Characteristics
• Consumer Price Index (food, retail,
• wholesale) or Producer Price Index
• Consumer Income, savings, bankruptcies
• Corporate profits, revenue,
• Labor statistics (wages, employment)

Secondary data
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Consumer Confidence
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AMERICAN CUSTOMER SATISFACTION INDEXTracking
Satisfaction (ACSI INDEX)
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Buying Power Index (BPI) 1994Source Sales and
Marketing Management
Estimating Demand Income

• (BPI) Rank
• L.A.-Long Beach 3.4658
  1
• Allentown-Bethlehem-Easton .2463
  81
• Scranton-Wilkes-Barre-Hazleton .2341
  84
• State College .0459 262
• Williamsport .0441 269

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Sales ForecastingThe Top-Down Approach
World Economic Forecast
National Economic Forecasting
State and Local Economic Forecast
Industry Forecast
Company Forecast
Product Forecast
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Market Potential/Forecast (Macro)Product
Class/Brand (Sales) Forecast
Sales Potential Sales Forecast Sales
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Sales Demand
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1
0 3
6
Level Planned
Marketing Resources
Effort (000)
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Examples of derived forecasts
Macro Forecast predict what large-scale forces
will result in macro changes in the environment -
Based on economic cycles, governments or OECD
World national economies
Market forecasts
Micro Forecast builds on the predictions of
individual or group consumer behavior - Based on
historical trends
Product forecasts
Based on sales by product
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Macro Population TrendsWorld Population Growth
Billions of people
1930 2 billion
1820 1 billion
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Youre on Candid Cellphone!
World National Economies
Source WSJ 30 Sept 03, B1
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Macro Social Trends

• Marital Status (HW Households)
• Thenandnow
• 1950 1990 2000 2010
• 79 56 55 52

Working Women ( of women 16 in labor Force)
1950 1990 2000 2010 34 57
63 ?
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Macro Market Forecast Social Concerns (2002)
and Marketing, an example
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Macro Market Forecast Changing Purchasing Habits
of American Households
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Medical
20
15
Food
Percent
10
Recreation
5
Clothing
0
1970 1980 1990
2004
Year
SOURCE Vision for the New Millennium . .
.(Atlanta Kurt Salmon Associates, 1997). Used
with permission
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Micro Product analysis of Nursing Homes Adapt,
adapt, adapt.
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Estimating Demand Demographic Economic Data
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U.S. Age Groups
77M born 1980 - 1999
76M born 1945 - 1964 Baby Boomers
Millions
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Target Audience Segmentation
Seniors Pre-1946
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Product UsageAlcohol (Beer/Liquor) Consumption

• Various Groups of Drinkers Population
• Total Adults 41.3
  187.7
• Females 32.6
  97.6
• Males 50.7
  90
• 18-24 47.7 23.9
• Northwest Region 42.9 38.6
• Mid-West Region 43.1
  45.0
• Southern Region 38.9
  65.2
• Western Region 41.6 38.8

American Demographics Magazine, Jan. 97 by
Shannon Dortch
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Estimating DemandConsumer Expenditure Survey
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Market Forecast The Number of people per fast
food restaurant
2000
Fast Food
1500
Number
1000
500
0
1980 1985 1990 1995
2002 Year
SOURCE. . Wall Street Journal,
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Marketing a Commodity

• Changes in potato buying habits
• Potato consumption decreased from 1960 -
  81 Lbs. 1997 - 51 Lbs.

• Appearance of the potatoes
• Price
• Size of potatoes
• Region of potato harvest
• Product inspection certification on the bag
• Prior experience with the product
• A money back guarantee if not satisfied

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Consumer Profiling Matching the Marketing Mix to
the Target Market

• A consumer profile
• Married Women aged 21-29 with children

The right Product? Price? Promotion? Place?
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Marketing Management

• Estimating Market Demand (Recap)

Forecasting Predicting what will happen in the
future is the basis of Budgeting Planning the
allocation of tasks and budgets to accomplish
goals set by the organization.
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Top-Down Marketing Plan

• Corporate Objectives
• (profit, growth, ROI, or image)

Situation Analysis
SWOT

• Sales Objectives
• Quantitative goals to be achieved in a specified
  period of time

• Target Market/ 4Ps - Positioning

Short-term actions who, when where
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Statistical Sales Forecasting
Identify causal factors
Obtain historical data series on each causal
factor and sales
Correlate one or more factors with sales
Do Factors satisfactory predict past sales?
NO
YES
NO try again
Can data be obtained on factors at reasonable
cost,timelines, consistently
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Perspective Relationship Marketing Planning

• Lost Customers are Hard to Re-acquire
• Defensive Marketing is Cheaper than Offensive
  Marketing (ex., seeking new customers
• Repeat Purchasers Account for 90 of Sales
• Current Consumers are the life blood of the
  company, NOT sales
• Share of Customer vs. Share of Market
• Lifetime Customer Value (LCV)

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Any Questions
Response Elasticity

• ... Associates a percentage change in a marketing
  mix stimulus with a percentage change in quantity
  demanded