Sales forecasting

Question 1

How do businesses anticipate the future

Answer 1

They use sales forecasting techniques

Question 2

What is sales forecasting

Answer 2

Methods to predict future demand by anticipating what consumes will do in given circumstances

Question 3

If a business has used sales forecasting to predict sales what else can it predict

Answer 3

HRM needs, finance needs, estimate quantity and cost of raw materials and determine production levels

Question 4

What is extrapolation

Answer 4

Using past experience or past business data to forecast sales

Question 5

What are the 2 categories that sales forecasting fall into

Answer 5

Quantitative and qualitative techniques

Question 6

Name 2 quantitative techniques of sales forecasting

Answer 6

Time series analysis
Use of market research data

Question 7

Name 2 qualititive sales forecasting techniques

Answer 7

Delphi technique
Brainstorming
Intuition
Expert opinion

Question 8

When are quantitative methods of sales forecasting used

Answer 8

When historical date is available

Question 9

What is time series analysis

Answer 9

It uses evidence from past sales records to predict future sales patterns

Question 10

What are the methods of time series analysis

Answer 10

1 seasonal analysis - measured on a monthly or weekly basis to examine seasonal demand eg sales of ice cream lighter on cold days
2 trend analysis - focus on long term date, collected over a number of years to determine a general trend of sales
3 cycle analysis - long term figures used but to examine the relationship between demand level and economic activity
4 random factor analysis - used to attempt to explain unusual or extreme sales figures

Question 11

What is trend analysis and extrapolation

Answer 11

1 Extrapolation involves taking the past and extending it into the future - if sales have grown steadily in the past at around 5% a year it may be reasonable to extrapolate from this that sales will continue to grow by 5% a year
2 we can also use probability to predict the future. If sales show a general trend of increase but fluctuated we can allow for this.

Question 12

On an extrapolated sales graph how are future sales usually displayed

Answer 12

As a dotted line

Question 13

What are moving averages

Answer 13

Used to identify trends from past sales figures which even out major fluctuations

It smooths out seasonal variations if plotted on a graph and helps to plot predicted trends

Question 14

How is a 3 month moving average calculated

Answer 14

Take 3 adjacent figures eg fis for Jan Feb March and add them and divide by 3 - this becomes the moving average fig for feb as it is mid point for the 3 months

Question 15

What is a correlation

Answer 15

It measures the relationship between to variables eg is there a link between a businesses advertising expenditure and amount of sales achieved

There can be a strong correlation, a non existing correlation or a negative correlation

Question 16

What is a strong correlation
A non existent correlation and a negative correlation

Answer 16

1 strong - as one variable increases so does the other

2 non existent correlation - no pattern

3a negative correlation - as one variable increases the other decreases

Question 17

What is the usefulness of time series analysis for a business

Answer 17

1 help the business plan ahead
2 helps financial planning including cash flow management
3 production planning to determine the right levels of supplies are ordered and the production process is efficient to meet either higher levels or lower levels of production
4 human resource planing, getting the right number and type of staff in the jobs that are needed. This may mean recruiting, retaining or making staff redundant
5 useful in identifying seasonal variations
6 reduce the amount of unexpected surprises that could affect business performance

Question 18

what are the pitfalls of series analysis

Answer 18

1 it is not always easy to predict the future
2 historical data is not always a good indication of what will happen in the future
3 even complicated sales forecasting methods can get it wrong and non are 100% accurate all of the time
4 it is less useful for long term forecasts

Question 19

List market research data that can be used in sales forecasts

Answer 19

1 survey of consumer intentions
2 direct sales information
Test marketing

Question 20

How do surveys and consumer intentions help with predictions

Answer 20

By asking people directly what they intend to do in the future - some large market research companies ask the questions and sell the feedback

Question 21

How does direct sales information help with predictions

Answer 21

Sales teams interact closely with customers, the sales staff can notice developing trends and have the experience to spot market changes and shifts in customer attitudes. Management then request this information in the form of statistical predictions for future sales

Question 22

What is test marketing and how does it help with predictions

Answer 22

It involves testing consumer response to a product before its full release. A product can be released in a geographical area to a small section of a target market. I the response is negative then changes can be made before full release

Question 23

When are qualitative methods of sales forecasting used

Answer 23

When historical data is not available to carry out quantitive methods and they will instead use opinion to predict and are subjective

Question 24

What is the Delphi method

Answer 24

A forecasting technique developed in the 50s based on researching the views of an expert panal

Question 25

Describe the Delphi method

Answer 25

1 a questionnaire is developed focusing on the issue in question 2 a panel of experts is selected to receive and answer the questionnaire independently 3 responses to the questionnaires are summarized and another questionnaire is devoleped based on the findings of the first questionnaire this is sent to the same panel of experts 4 the panel independently rate and priorities ideas included in the 2nd questionnaire, allowing the group of experts to arrive at a consensus forcast on the subject being discussed

Question 26

What are the advantages of the Delphi model

Answer 26

1 it is flexible enough to be used in a variety of situations and can be applied to a range of complex problems 2 provides a structured way for a group of people to make decisions 3 participants have time to think through their ideas leading to a better quality response 4 creates a record of the expert groups and ideas which can be used when needed

Question 27

What are the disadvantages of the Delphi model

Answer 27

1 the methods will more than likely require a substantial period of time to complete as the process is time consuming to coordinate and manage 2 it assumes that experts are willing to come to a consensus and allow their options to be altered by the views of other experts 3 monetary payments to the experts may lead to bias in the results of the study

Question 28

What is brainstorming how can it be used to predict outcomes

Answer 28

A subjective technique for generating new ideas and promoting creative thinking Predictions are made based on the groups thoughts and feelings

Question 29

What are the external factors (that business has no control over) that affect quantitive and qualititive data

Answer 29

1 economic factors eg unemployment levels, inflation rates, interest and exchange rates 2 consumer factors - their tastes and fashions 3 competitive factors - a business can not control the actions of their competitors 4