![]() ![]() A firm’s sales potential is the maximum total revenue it hopes to generate from a product or the number of units of it the company can hope to sell. Once the firm has an idea of the market potential, the company’s sales potential can be estimated. (The time period of interest might be the coming year, quarter, month, or some other time period.) Some marketing research companies, such as Nielsen, Gartner, and others, estimate the market potential for various products and then sell that research to companies that produce those products. Thus, a sales forecast is actually a composite of a number of estimates and has to be dynamic as those other estimates change.Ī common first step is to determine market potential, or total industry-wide sales expected in a particular product category for the time period of interest. As factors change, the forecast has to change as well. Each of these factors has to be taken into account in order to determine how much the company is likely to sell. The process can be complex, because how much the company can sell will depend on many factors such as how much the product will cost, how competitors will react, and so forth. The firm has to do more than just forecast the company’s sales. Sony’s inability to deliver the e-Reader in sufficient numbers made Amazon’s Kindle more readily accepted in the market other features then gave the Kindle an advantage that Sony is finding difficult to overcome. ![]() But if the company isn’t ready to deliver the amount of the product the market demands, then other competitors can steal sales the firm might otherwise have captured. When a company introduces a new product, it launches marketing and sales campaigns to create demand for it. Underestimating demand can be just as devastating. Employees had to be terminated in many areas of the firm to trim costs. Because the sales of the product didn’t meet projections, Data Impact lacked the cash available to pay its vendors, utility providers, and others. Data Impact, a software developer, recently overestimated the demand for one of its new products. If executives overestimate the demand for a product, the company could end up spending money on manufacturing, distribution, and servicing activities it won’t need. In this module, we explore forecasting in more detail, as there are many choices that can be made in developing a forecast.Īccuracy is important when it comes to forecasts. The rest of the company must then be geared up (or down) to meet that demand. An important component in this implementation is the sales forecast, which is the estimate of how much the company will actually sell. When the strategy is implemented, the rest of the company must be poised to deal with the consequences. Creating marketing strategy is not a single event, nor is the implementation of marketing strategy something only the marketing department has to worry about. One of these functional areas is marketing. Īs discussed in the previous chapter, functional strategies need to be aligned and supportive to the higher level corporate strategy of the organization. In some cases, the data used to predict the variable of interest is itself forecasted. In any case, the data must be up to date in order for the forecast to be as accurate as possible. Risk and uncertainty are central to forecasting and prediction it is generally considered good practice to indicate the degree of uncertainty attached to specific forecasts. Usage can differ between areas of application: for example, in hydrology, the terms “forecast” and “forecasting” are sometimes reserved for estimates of values at certain specific future times, while the term “prediction” is used for more general estimates, such as the number of times floods will occur over a long period. Both might refer to formal statistical methods employing time series, cross-sectional or longitudinal data, or alternatively to less formal judgmental methods. A commonplace example might be estimation of some variable of interest at some specified future date. Prediction is a similar, but more general term. This is most commonly by analysis of trends. Forecasting is the process of making predictions of the future based on past and present data. ![]()
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