1. Sales Forecasting Professor Lawrence Feick University of Pittsburgh

2. Forecasting Forecasting is difficult, especially about the future. Victor Borge I know of no way of judging of the future but by the past. Patrick Henry Forecasting is like trying to drive a car blindfolded and following directions given by a person who is looking out the back window. Anonymous

3. Outline Sales forecasting: what and why? Tools for sales forecasting –judgmental methods –market methods –quantitative methods

4. Sales forecasting: what and why? Estimating future sales Important for planning about: –production –marketing and sales –financing –human resources –support –etc.

5. Tools for sales forecasting Judgmental methods –expert opinion: executives, analysts, sales force Market methods –customer opinion (surveys) –customer behavior (test markets) Quantitative –trend projection –explanatory models

6. Judgmental methods for forecasting Rely on knowledgeable individuals to provide estimate Often uses firm’s executives and salespeople or industry analysts Opinions combined with Delphi or other techniques

7. Judgmental methods for forecasting Rely on knowledgeable individuals to provide estimate Often uses firm’s executives and salespeople or industry analysts Opinions combined with Delphi or other techniques

8. Market methods for forecasting Surveys of customers/potential customers –interest in product concept –intention to buy Test markets –marketing of product in limited geographic area

9. Quantitative methods for forecasting: trend projection Use sales history and time period to predict future sales Example model F t+1 = S t + b(S t - S t-1 ) + c (S t-1 - S t-2 ) +...

10. Trend projection: Example 1

11. Trend projection: Example 2

12. Trend projection: issues Change in trend: weight more recent sales more heavily to account for recent history (e.g., exponential smoothing) Systematic variation: build seasonal variation or business cycle variation into model

13. Quantitative forecasting: explanatory models Develop a model with predictors of sales Find past relationship of sales to predictors, usually using multiple regression Use expected future values of predictors to compute expected sales Example: forecasting year-to-year Pirates attendance

14. Pirates forecasting: year to year Example predictors of attendance: –winning percentage during the year –winning percentage in previous year –number of all stars on team –others? Use regression to estimate historical relationship of predictors to attendance

15. Questions Predictors in forecasting Pirates attendance game-to-game? Predictors in forecasting sales of Coke month-to-month?

16. Explanatory models: issues Choice of predictors: –must make sense given the time period being forecast (day, month, quarter, year) –must be strongly related to product sales to have reliable forecasts Future values of predictors: –results depend on good estimates of future values of predictor variables

17. Summary Judgmental methods Market methods Quantitative methods

18. The bottom line Forecasting is a critical tool Forecasting is an art and science Most companies use multiple techniques