Methods of Estimating Sales Potential21/08/2020
Jury of Executive Opinion:
This method of sales forecasting is the oldest. One or more of the executives, who are experienced and have good knowledge of the market factors make out the expected sales. The executives are responsible while forecasting sales figures through estimates and experiences. All the factors-internal and external are taken into account. This is a type of committee approach. This method is simple as experiences and judgement are pooled together in taking a sales forecast figure. If there are many executives, their estimates are averaged in drawing the sales forecast.
(a) This method is simple and quick.
(b) Detailed data are not needed.
(c) There is economy.
(a) It is not based on factual data.
(b) It is difficult to draw a final decision.
(c) More or less, the method rests on guess-work, and may lead to wrong forecasts.
(d) It is difficult to break down the forecasts into products, markets, etc.
Sales Force Opinion:
Under this method, salesmen, or intermediaries are required to make out an estimate sales in their respective territories for a given period. Salesmen are in close touch with the consumers and possess good knowledge about the future demand trend. Thus all the sales force estimates are processed, integrated, modified, and a sales volume estimate formed for the whole market, for the given period.
(a) Specialized knowledge is utilized.
(b) Salesmen are confident and responsible to meet the quota fixed.
(c) This method facilitates to break down in terms of products, territories, customers, salesmen etc.
(a) Success depends upon the competency of salesmen.
(b) A broad outlook is absent.
(c) The estimation may be unattainable or may to too low for the forecasts as the salesmen may be optimistic or pessimistic.
Test Marketing Result:
Under the market test method, products are introduced in a limited geographical area and the result is studied. Taking this result as a base, sales forecast is made. This test is conducted as a sample on pre-test basis in order to understand the market response.
(a) The system is reliable as forecast is based on actual result.
(b) Management can understand the defects and take steps to rectify.
(c) It is good for introducing new products, in a new territory etc.
(a) All the markets are not homogeneous. But study is made on the basis of a part of a market.
(b) It is a time-consuming process.
(c) It is costly.
Consumers’ Buying Plan:
Consumers, as a source of information, are approached to know their likely purchases during the period under a given set of conditions. This method is suitable when there are few customers. This type of forecasting is generally adopted for industrial goods. It is suitable for industries, which produce costly goods to a limited number of buyers- wholesalers, retailers, potential consumers etc. A survey is conducted on face to face basis or survey method. It is because changes are constant while buyer behaviour and buying decisions change frequently.
(a) First hand information is possible.
(b) User’s intention is known.
(a) Customer’s expectation cannot be measured exactly.
(b) It is difficult to identify actual buyers.
(c) It is good when users are few, but not practicable when consumers are many.
(d) Long run forecasting is not possible.
(e) The system is costly.
(f) Buyers may change their buying decisions.
Market Factor Analysis:
A company’s sales may depend on the behaviour of certain market factors. The principal factors which affect the sales may be determined. By studying the behaviours of the factors, forecasting should be made. Correlation is the statistical analysis which analyses the degree of extent to which two variables fluctuate with reference to each other.
The word ‘relationship’ is of importance and indicates that there is some connection between the variables under observation. In the same way, regression analysis is a statistical device, which helps us to estimate or predict the unknown values of one variable from the known values of another variable.
For instance, you publish a text book on “Banking”, affiliated to different universities. The permitted intake capacity of each and the medium through which the students are taught are known. Is it a compulsory or an optional subject? By getting all these details and also by considering the sales activities of promotional work, you may be able to declare the probable copies to be printed.
The key to the successful use of this method lies in the selection of the appropriate market factors. Minimizing the number of market factors is also important. Thus the demand decision makers have to consider price, competitions, advertising, disposal income, buying habits, consumption habits, consumer price index, change in population etc.
(a) It is a sound method.
(b) Market factor is analysed in detail.
(a) It is costly.
(b) It is time-consuming.
(c) It is a short run process.
Many types of consultancy agencies have entered into the field of sales. The consultancy agency has specialized experts in the respective field. This includes dealers, trade associations etc. They may conduct market researches and possess ready-made statistical data. Firms may make use of the opinions of such experts. These opinions may be carefully analysed by the company and a sound forecasting is made.
(a) Forecasting is quick and inexpensive.
(b) It will be more accurate.
(c) Specialized knowledge is utilized.
(a) It may not be reliable.
(b) The success of forecasting depends upon the competency of experts.
(c) A broad outlook may be lacking.
Econometric Model Building:
This is a mathematical approach of study and is an ideal way to forecast sales. This method is more useful for marketing durable goods. It is in the form of equations, which represent a set of relationships among different demand determining market factors. By analyzing the market factors (independent variable) and sales (dependent variable), sales are forecast. This system does not entirely depend upon correlation analysis. It has great scope, but adoption of this method depends upon availability of complete information. The market factors which are more accurate, quick and less costly may be selected for a sound forecasting.
Past Sales (Historical method):
Personal judgement of sales forecasting can be beneficially supplemented by the use of statistical and quantitative methods. Past sales are a good basis and on this basis future sales can be formulated and forecast. According to Kirkpatrick, today’s sales activity flows into tomorrow’s sales activities; that is last year’s sales extend into this year’s sales. This approach is adding or deducting a set of percentage to the sales of previous year(s). For new industries and for new products, this method is not suitable.
(a) Simple Sales Percentage:
Under this method, sales forecast is made by adding simply a flat percentage of sales so as to forecast sales as given below:
Next year sales = Present year sales + This year sales/Last year sales
or = Present year sales + 10 or 5% of present sale
(b) Time Series Analysis:
A time series analysis is a statistical method of studying historical data. It involves the isolation of long time trend, cyclical changes, seasonal variations and irregular fluctuations. Past sales figures are taken as a base, analysed and adjusted to future trends. The past records and reports enable us to interpret the information and forecast future trends and trade cycle too.
(a) No guess-work creeps in.
(b) The method is simple and inexpensive.
(c) This is an objective method.
(a) ‘Market is dynamic’ is not considered.
(b) No provision is made for upswings and downswings in sales activities.
Statistical methods are considered to be superior techniques of sales forecasting, because their reliability is higher than that of other techniques.
(i) Trend Method
(ii) Graphical Method
(iii) Time-series Method:
(a) Freehand method
(b) Semi-average method
(c) Moving average method
(d) Method of least square
(iv) Correlation method
(v) Regression method.
The above statistical methods can easily be studies with the help of any statistics book.
Apart from the above, the following factors may also be considered:
- Availability of raw materials
- Plant capacity
- Government policies
- Buying habits of consumers
- Fashion changes
- Distribution system
- Financial capacity
- Market competition
- National income movement
- Sales promotions.