Sanya Fair
Transcript of Sanya Fair
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METHODS USED IN SALES FORECASTING
A great variety of methods are available for forecasting market demand and sales of a
company.
1. JURY METHOD/EXECUTIVE OPINION METHODIt is one of the most commonly employed methods for sales forecasting. It is also known as
executive opinion method.
Judgement is the base of this method
This is true for both top jury method and the percolated jury method. the difference is that
in the former, the participants are limited to the top executives and in the latter,a large no. of
marketing/sales executive participate. In both the participants exercise their judgement andgive their opinions.
The final forecast is arrives at by averaging these opinions.
Evidently, for the forecasts to be reliable, the executives participating must have a versatile
experience with sound knowledge of the business. They must also be informed about the
overall economic environment and the conditions prevailing in the industry.
They must also know the strengths and weaknesses of the firm.
MERITS OF JURY METHOD
The method gives due weight to the experience and the judgement of the people who know
the market and the firm.
Its a simple and easy method
Results could be derived in a shorter time
When a firm lacks the expertise required for using sophisticated analytical methods for
forecasting, or when adequate past statistics on sales and market are not available,the jury
method is perhaps the only method which comes handy.
DEMERITS OF JURY METHOD
Forecasts arrived by this method are based on opinions and not facts.
The method disperses the responsibility of forecasts on a no. of people.
Forecasts made cannot be readily amenable for breaking down into territory-wise and month-
wise forecasts; separate exercises are required for such purpose.
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2. SURVEY OF EXPERTS OPINIONYet another judgement based opinion method
Here, experts in the concerned field, inside or outside the organisation, are approached for
their estimates.
It is used more for developing total industry forecasts rather than the company sales forecasts.
3. THE DELPHI METHODIts a kind of survey of experts opinion
Its used for more broadbased, futuristic estimates, rather than sales forecasts.
In this method, a panel of experts in the field is interrogated by a sequence of questionnaires.
Any information that is available with any one member of the panel is passed on to the others
as well, enabling all the members to have access to all the information available.
This technique eliminated the bandwagon effect of majority opinion.
The panel members are asked to react to a checklist of questions that are significant to the
forecast that is attempted. Their opinions and reactions are analysed and where there is a
sharp difference on the issue, interchanges are permitted and the final forecasts are presented.
4. SALES FORCE COMPOSITE METHODHere, the sales are forecasted by the sales force
This is also a judgement based method
Each salesman develops the forecast for his respective territory; the territory wise forecasts
are consolidated at branch/area/region level; the aggregate of all these forecasts is taken as
the corporate forecast.
Its a grassroots method; the forecast originates at the grass rootin micro level salesterritories ;the judgement of the people at the grass root levelpeople who are closest to the
marketplace forms the basis of the forecast.
MERITS
It utilizes salesmens intimate knowledge of their respective territories for arriving at the
sales forecast
The responsibility of sales forecast and the responsibility of achieving the sales as per the
forecast are entrusted with the same set of people viz. salesmen
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The forecasts made by this method have greater stability and reliability because of the
largeness of the sample
The forecasts derived by this method can easily and meaningfully be broken down
-territorywise ,salesmen wise,product wise ,customertype wise and month wisesince it isdeveloped on this basis to start with.
The coordination at the level of the field sales manager becomes more meaningful when
forecasts are made by the salesforce and integrated by the field sales managers.
DEMERITS
Salesmen are not experts in forecasting. They cannot use the sophisticated tools and
techniques of sales forecasting.
They do not have required data to make fact based forecasting.
They could be over-pessimistic or over-optimistic about their future estimates based onn the
prevailing conditions in their respective territories
They might be unaware of the broad changes taking place in the economy and the given
industry
5. USER EXPECTATION METHOD/END-USE METHOD/SURVEY OFBUYERS INTENTION
Here, the various users of the product under forecasting are listed first; then their individual
likely demand for the product is ascertained; and from the data, the demand forecast for the
product is consolidated. This method is alternatively known as survey of buyers intentions
The survey of the buyers will give an idea of the total likely consumption of the product,the
buying plan of the users and the likely market share for the company doing the survey.
The user survey could be made eighter on a sampling basis or on a census basis,depending on
the size of the user group covered(census survey will naturally provide a more reliable
forecast.).
MERITS
Main merit is that the forecast comes straight from the customer himself.
It gives a ready mde forecast- userwise and industry userwise
This method is particularly suited for industrial/intermediate products.
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DEMERITS
The respondents themselves may not be quite clear about their consumption pattern or buying
plans or may be unwilling to frankly discuss their plans.
6. MARKET SHARE METHODTheplanned market share of the firm is the key factor in this method.
The firm first finds out the industry forecast, applies the market share factor and deduces the
company forecast.
The market share factor is developed on the basis of past trend, companys present
competitive position, its plans for the future, brand preference, etc.
Such conversion of industry forecast into company sales forecast requires a considerable
expertise.
7. SUBSTITUTION/DISPLACEMENT METHODThis method is normally used to estimate demand of new-products.Here, the demand for
existing product is forecasted.Based on that, an idea of the demand for the new product
is gained.
8. TEST MARKETING METHODThis method is used while the launch of new product
In this method, new product is launched and marketed in a few selected TEST cities/
towns/ territories.
The result from these test markets are used to make decisions regarding the launch of product
and sales forecast
For example: if company plans to launch their new product, first they will choose a
territory/region to act as their test market. The results shown by the respective demend will
provide them with data which will help them to decide whether the product should be
launched on the long scale or not.
9. ANALYTICAL AND STATISTICAL METHODSFollowing are few of the analytical/statistical tools:
SIMPLE-PROJECTION METHOD.
EXTRAPOLATION.
MOVING AVERAGES.
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EXPONENTIAL SMOOTHING.
TIME-SERIES ANALYSIS.
REGRESSION ANALYSIS.
The most commonly used is the simple projection method.
SIMPLE PROJECTION: this is the one in which the current years forecast is arrives at by
simply adding an assumed growth rate to the last years sales; some firms go by the industry
growth rate; some others take the growth rate achieved by the best firm in the industry.
The following formula is used by some firms:
Its only when the year by year sales are stable and show an increasing trend,will this formula
provide a reasonably reliable estimate.
MERITS AND DEMERITS
It provides a rough and ready forecast
However, sometimes the forecast arrives at by this method can be wide off mark
This method assumes that
(i) Past sales is the only factor influencing the future sales
(ii) Sales will always be growing, year by year.
This method doesnt provide for the changes that may take place in the market.
SELECTION OF APPROPRIATE FORECASTING METHOD
The forecaster must carefully choose a method of forecasting from a wide variety of methods
available. Each product has certain peculiarities from the standpoint of sales forecasting.
The forecaster must take into account the peculiarities and choose the relevant method
The method should also deliver the forecasts without taking much time and must generate the
forecasts in such a manner that they are readily discernible to the people handling the
forecasts.
Other factors which are needed to be considered:
Period range of forecast
Cost involved Availability of qualified personnel
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HOW COULD THE FORECAST BE IMPROVED?
FORECASTS CAN BE IMPROVED BY OPTING FOR A COMBINATION OF
METHODS
The forecasts can improve by opting for a combination of methods since no method is perfect
or foolproof. Using more than one method would give better insight into the situation.
Crosschecking between one method and the other would minimize the risk involved in the
forecast enabling the forecaster to arrive at a more accurate and reliable forecast.
Wholly depending on a single method or one particular category of methods have certain
pitfalls. For example: of the firm completely depends on jury method, it exposes itself to onetype of bias. For, the method relies heavily on the judgement of the persons who are not
experts in forecasting. Itll be advantageous to supplement this method with one of the
statistical methods.
The different methods of forecasting are not mutually competitive, nor mutually exclusive.
Quite often they supplement one another and can easily be used in conjunction.
The forecaster can chose one method from the statistical/analytical group and one from the
non statistical group and compare the forecasts.
He could also use different methods from the same group and compare the positions.
COMPETITION ANALYSIS
Acc to MR MICHEAL PORTER:
competitive advantage is a function of either providing comparable buyer value more
efficiently than competitors(LOW COST) and performing activities at comparable but in
unique ways that create more buyer value than competitors and hence , command a
premium price (DIFFERENTIATION)
COMPETITIONANALYSISin marketing is an assessment of the strengths and weaknesses
of current and potential competitors. This analysis provides both an offensive and defensive
strategic context to identify opportunities and threats. Profiling coalesces all of the relevant
sources of competitor analysis into one framework in the support of efficient and effective
strategy formulation, implementation, monitoring and adjustment.
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Competitor analysis is an essential component of corporate strategy. It is argued that most
firms do not conduct this type of analysis systematically enough. Instead, many enterprises
operate on what is called informal impressions, conjectures, and intuition gained through the
tidbits of information about competitors every manager continually receives. As a result,
traditional environmental scanning places many firms at risk of dangerous competitive blind
spots due to a lack of robust competitor analysis.
COMPETITOR ARRAY
One common and useful technique is constructing a competitor array. The steps include:
Define your industry - scope and nature of the industry
Determine who your competitors are
Determine who your customers are and what benefits they expect
Determine what the key success factors are in your industry
Rank the key success factors by giving each one a weighting - The sum of all the
weightings must add up to one.
Rate each competitor on each of the key success factors
Multiply each cell in the matrix by the factor weighting.
OTHER METHOD OF COMPETITION ANALYSIS: PORTERS FIVE FORCES MODEL
The Porter's Five Forces tool is a simple but powerful tool for understanding where power
lies in a business situation. This is useful, because it helps you understand both the strength of
your current competitive position, and the strength of a position you're considering moving
into.With a clear understanding of where power lies, you can take fair advantage of a situation of
strength, improve a situation of weakness, and avoid taking wrong steps. This makes it an
important part of your planning toolkit.
Conventionally, the tool is used to identify whether new products, services or businesses have
the potential to be profitable. However it can be very illuminating when used to understand
the balance of power in other situations.
Understanding the Tool:Five Force Analysis assumes that there are five important forces that determine competitive
power in a business situation. These are:
1. Supplier Power: Here you assess how easy it is for suppliers to drive up prices. This isdriven by the number of suppliers of each key input, the uniqueness of their product or
service, their strength and control over you, the cost of switching from one to another,
and so on. The fewer the supplier choices you have, and the more you need suppliers'
help, the more powerful your suppliers are.
2. Buyer Power: Here you ask yourself how easy it is for buyers to drive prices down.Again, this is driven by the number of buyers, the importance of each individual buyer to
your business, the cost to them of switching from your products and services to those of
someone else, and so on. If you deal with few, powerful buyers, then they are often ableto dictate terms to you.
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3. Competitive Rivalry: What is important here is the number and capability of yourcompetitors. If you have many competitors, and they offer equally attractive products and
services, then you'll most likely have little power in the situation, because suppliers and
buyers will go elsewhere if they don't get a good deal from you. On the other hand, if no-
one else can do what you do, then you can often have tremendous strength.
4. Threat of Substitution: This is affected by the ability of your customers to find adifferent way of doing what you dofor example, if you supply a unique software
product that automates an important process, people may substitute by doing the process
manually or by outsourcing it. If substitution is easy and substitution is viable, then this
weakens your power.
5. Threat of New Entry: Power is also affected by the ability of people to enter yourmarket. If it costs little in time or money to enter your market and compete effectively, if
there are few economies of scale in place, or if you have little protection for your key
technologies, then new competitors can quickly enter your market and weaken yourposition. If you have strong and durable barriers to entry, then you can preserve a
favourable position and take fair advantage of it.
These forces can be neatly brought together in a diagram like the one in below:
Figure 1 - Porter's Five Forces
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Example:
Martin Johnson is deciding whether to switch career and become a farmerhe's always loved
the countryside, and wants to switch to a career where he's his own boss. He creates the
following Five Forces Analysis as he thinks the situation through:
Figure 2 - Porter's Five Forces Example - Buying a Farm
This worries him:
The threat of new entry is quite high: if anyone looks as if they're making a sustained
profit, new competitors can come into the industry easily, reducing profits.
Competitive rivalry is extremely high: if someone raises prices, they'll be quickly
undercut. Intense competition puts strong downward pressure on prices.
Buyer Power is strong, again implying strong downward pressure on prices. There is some threat of substitution.
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Unless he is able to find some way of changing this situation, this looks like a very tough
industry to survive in. Maybe he'll need to specialize in a sector of the market that's protected
from some of these forces, or find a related business that's in a stronger position.
TYPES OF COMPETITION
1. BRAND COMPETITION(inter and intra)Firms marketing differentiated products frequently develop and
compete on the basis of brands or labels. Coca Cola vs. Pepsi-Cola,Levi vs. Lee jeans, Kelloggs Corn Flakes vs. Nabiscos Bran Flakes
are a few examples of inter-brand competition. Each of these brands
may be preferred by different buyers willing to pay a higher price or
make more frequent purchases of one branded product over another.
Intra-brand competition is competition among retailers or distributors
of the same brand. Intra-brand competition may be on price or non-
price terms. As an example, a pair of Levi jeans may be sold at a
lower price in a discount or specialty store as compared to a
department store but without the amenities in services that a
department store provides. The amenities in services constitute intra-brand non-price competition. Some manufacturers seek to maintain
uniform retail prices for their products and prevent intra-brand price
competition through business practices such as resale price
maintenance (RPM), in order to stimulate intra-brand non-price
competition if it will increase sales of their product.
.
2. PRODUCT COMPETITION.Competition between two products of same type produces by two different
manufacturers is known as product type completion.
3. PRICE COMPETITIONIntense competition in which competitors cut retail prices to gain business
4. GENERIC/SUBSTITUTION COMPETITION
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Competition among products that are different, but solve the same problem orprovide the
same benefit orutility, such as audio cassettes and CDs, adhesive tape and glue-sticks,
carpets and tiles.
In the recent times, substitute competition has become an increasingly bitter battleground,
with products being able to replace others as technology and tastes have changed.
COMPETITIVE ADVANTAGE
DEFINITION:An advantage that a firm has over its competitors, allowing it to generate
greater sales or margins and/or retain more customers than its competition. There can be
many types of competitive advantages including the firm's cost structure, product
offerings, distribution network and customer support.
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TYPES OF COMPETITIVE ADVANTAGE
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SIGNIFICANCE OF COMPETITIVE ADVANTAGE
Almost all businesses have to face stiff competition with their business rivals in virtually any
market today. Having an advantage over them is not enough to guarantee a position on thecompetitive ground.
An ongoing analytical survey of the market and its volatility is required to keep one updated
and informed of the need for improving the quality of product and ensuring the superiority of
service.
Competitive advantage management is a set of methods and strategies that work to not
only position a company or business but also make it stand out in the market. Understanding
the competitive advantage of a company over its rival companies is the key to creating a
dominant position in the market. The business plan that has been sketched as an outline of thefuture progress of business should incorporate competitive advantage management. Without
it, your business plan is incomplete and will be ineffective as well.
Cost leadershipIn most markets, most competition is based around price. However, cost
leadership is very difficult to sustain, unless a proprietary technology is developed or
suppliers are monopolized. Using competitive advantage management as the focal point of a
business plan, developing a unique selling proposition that eliminates the need for competing
on the basis of cost leadership. By creating a unique value proposition, a huge response from
a mass of customers can be elicited.
Promotion of the businessA focus on the management of competitive advantages will
help to promote product and service by implementing effective marketing strategies.
Promotion of product and service plays an instrumental part in the marketing of a business.
Continual assessmentOne of the requirements of competitive advantage management,
continual assessment of the product and service strategies, will help in sustaining edge over
competitors. Assessing the quality perceptions of the product keeps one aware of ones image
in the market and the market value of the product.
Image enhancementManaging competitive advantages over the rivals works for the
enhancement of ones image in the market. Product positioning, quality checking and
effective marketing are the means of gaining competitive advantages over others. It helps set
the company or business on the road to sustainable success.
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SOURCES OF COMPETITIVE ADVANTAGE
HOW TO GAIN COMPETITIVE ADVANTAGE
Gaining a Competitive Edge
Analyze your target market and identify your competition:
The target market is a specific group of consumers at which a company aims its products
and services (Entrepreneur). A target market is distinguished by socioeconomic,
demographic, and common characteristics or needs that make them the best audience to focus
on selling to. To uncover your target market, answer the following simple questions: What
am I selling? Who will most likely buy or consume my product or service? Before you cancrush your competition, you need to know who they are. Find out which businesses are going
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after your same target market. How do they differentiate themselves from other companies in
the industry? Where are they located? To find this information, business directories can be
used to search free company profiles. Information included in the company profiles are
company overview, contact information, location, key facts, employees, and company
payment rating.
Evaluating Your Competitive Advantage
Learn from your competition and your customers:
Dont be afraid of your competition, but ratheruse them as a learning tool and assess their
business model. Learn your competitors strengths and weaknesses imitate their strengths,
and use their weaknesses to your advantage. Use companies that specialize in business
information, such as Cortera, to construct and analyze a competitive landscape of the targetmarket. The business information you learn from your rivals will help you develop the
competitive edge you need to surpass them in your industry. Intimate customer knowledge is
equally important as competitor knowledge. Gaining in-depth insights about your customer
portfolio will allow you to maximize revenue potential, increase customer retention, and
boost prospective customers. You can use a mix of many tools and methods to measure
consumer insight and both your position in the market and the positions of your competitors.
Along with traditional company information resources, consider social media analysis tools
that allow consumer insight mining on a large scale
Create a barrier:
Take advantage of barriers to entry into the market, using them to dissuade competitors from
challenging your marketing share. In some cases, an established companys ability to
manipulate hurdles to enter and compete in its market becomes an effective tool against new
competition, further entrenching the business and preserving its profit potential for the
foreseeable future
Maintaining a Competitive Edge
Stay on the cutting edge:
Once youve gained a competitive advantage, your work is far from complete. To be
successful, you will need to continuously maintain your competitive advantage. After all,
your competitors are not going to sit back and allow you to steal their market share. You can
maintain your competitive advantage by predicting future trends in your industry, constantly
researching and monitoring your competitors, and adapting to your customers wants and
needs. Sometimes you may need to take chances to keep ahead of the pack and differentiate
your business, but with big risk often comes big rewardJust remember to do your research
before diving head first into new ideas
Keeping Up With Changes
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Use Business Information Resources:
The information revolution is heretake advantage of it! It creates a competitive advantage
by providing companies with new ways to outperform their rivals. Knowledge is power, and
business information companies provide just that. Reliable business information companies
include Cortera, Hoovers, Manta, Portfolio.com and Goliath