Page 114 - Marketing Management

COLLECTING INFORMATION AND FORECASTING DEMAND | CHAPTER 3 91

into a test market to measure buyer response. To use the final basis—what people have done—firms
analyze records of past buying behavior or use time-series analysis or statistical demand analysis.

SURVEY OF BUYERS’ INTENTIONS Forecasting is the art of anticipating what buyers are
likely to do under a given set of conditions. For major consumer durables such as appliances,
research organizations conduct periodic surveys of consumer buying intentions, ask questions like
Do you intend to buy an automobile within the next six months? and put the answers on a purchase
probability scale:

0.00 0.20 0.40 0.60 0.80 1.00
No Slight Fair Good High Certain
chance possibility possibility possibility possibility

Surveys also inquire into consumers’ present and future personal finances and expectations about
the economy. They combine bits of information into a consumer confidence measure (Conference
Board) or a consumer sentiment measure (Survey Research Center of the University of Michigan).
For business buying, research firms can carry out buyer-intention surveys for plant, equipment,
and materials, usually falling within a 10 percent margin of error. These surveys are useful in esti-
mating demand for industrial products, consumer durables, product purchases where advanced
planning is required, and new products. Their value increases to the extent that buyers are few, the
cost of reaching them is low, and they have clear intentions they willingly disclose and implement.
COMPOSITE OF SALES FORCE OPINIONS When buyer interviewing is impractical, the
company may ask its sales representatives to estimate their future sales. Few companies use these
estimates without making some adjustments, however. Sales representatives might be pessimistic
or optimistic, they might not know how their company’s marketing plans will influence future sales
in their territory, and they might deliberately underestimate demand so the company will set a low
sales quota. To encourage better estimating, the company could offer incentives or assistance, such
as information about marketing plans or past forecasts compared to actual sales.
Sales force forecasts yield a number of benefits. Sales reps might have better insight into devel-
oping trends than any other group, and forecasting might give them greater confidence in their
sales quotas and more incentive to achieve them. A “grassroots” forecasting procedure provides
detailed estimates broken down by product, territory, customer, and sales rep.

EXPERT OPINION Companies can also obtain forecasts from experts, including dealers,
distributors, suppliers, marketing consultants, and trade associations. Dealer estimates are subject
to the same strengths and weaknesses as sales force estimates. Many companies buy economic and
industry forecasts from well-known economic-forecasting firms that have more data available and
more forecasting expertise.
Occasionally, companies will invite a group of experts to prepare a forecast. The experts
exchange views and produce an estimate as a group (group-discussion method) or individually, in
which case another analyst might combine them into a single estimate (pooling of individual esti-
mates). Further rounds of estimating and refining follow (the Delphi method). 58

PAST-SALES ANALYSIS Firms can develop sales forecasts on the basis of past sales. Time-
series analysis breaks past time series into four components (trend, cycle, seasonal, and erratic) and
projects them into the future. Exponential smoothing projects the next period’s sales by combining an
average of past sales and the most recent sales, giving more weight to the latter. Statistical demand
analysis measures the impact of a set of causal factors (such as income, marketing expenditures, and
price) on the sales level. Finally, econometric analysis builds sets of equations that describe a system
and statistically derives the different parameters that make up the equations statistically.
MARKET-TEST METHOD When buyers don’t plan their purchases carefully, or experts
are unavailable or unreliable, a direct-market test can help forecast new-product sales or
established product sales in a new distribution channel or territory. (We discuss market testing in
detail in Chapter 20.)