Management of Marketing

Paul Reynolds, Geoff Lancaster

• Publisher: Routledge
• Year: 2005
• ISBN:
  9781136386039
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

The text provides information on the core elements of the subject of marketing without the depth that often surrounds these to ensure that the basic concepts are easily identifiable and accessible. Students on MBA courses often do not have time to read a long text as they are studying many subjects, therefore they require a good, basic guide pitched at the appropriate level to be able to be absorbed quickly but still provide enough of a strategic element to stretch them.Written by a successful author team, Management of Marketing covers the key topics of the marketing component of an MBA course and provides a good balance of theory and application to ensure both aspects of the core concepts are covered.

Sales Forecasting

DOI: 10.4324/9780080455020-15

15.1 Introduction

The act of preparing for the future implies forecasting. In our personal lives, such predictions are usually made on an informal, subjective basis. If they turn out to be wrong we can usually adjust our personal circumstances. The same degree of flexibility does not generally exist in our working lives as decisions are usually of a more formal nature and of greater consequence.

The nature of managerial decision-making involves forecasting future conditions which might be for an important ‘one-off’ decision e.g. the company may be considering expanding by acquisition, diversifying into a totally new market or modernising its production processes. Such decisions tend to be long-term and strategic, rather than operational. In such situations, because of the importance of decisions being made, forecasting should receive careful consideration, meaning an investment of resources in the forecasting process (see Wright, 2004, p. 97).

Managerial decisions are not always strategic and much of a manager’s time is taken up with day-to-day operational issues, which although not of the same magnitude as strategic decisions, are nonetheless important to the manager because of the proportion of time they occupy. Management requires forecasting information to assist when making operational decisions, although the required time horizon for such forecasts is shorter than for strategic decisions. For example, for the marketing manager to set monthly sales targets, operational expense or advertising budgets, he or she may require regular short-term forecasts for each product, broken down according to product type, size, colour, sales-person’s territory, channel of distribution and even by individual customer.

Whatever type of decision is being made, forecasting is required. Forecasting is a key to success, but poor forecasting can lead to high inventories and associated stockholding costs which must be paid for out of working capital, or under-production and unrealised market potential.

The recognition of the importance of forecasting was first illustrated by the results of a major research exercise carried out in the USA by Ledbetter and Cox (1977, pp. 84–92). They found that forecasting techniques were used by 88% of the 500 largest industrial companies in the USA. It was also established that no other class of planning techniques was used as much as forecasting.

Although forecasting is important in most functional areas of a firm, the fore-casting of sales is particularly important. The sales forecast is the foundation on which company plans are constructed and for this to be sound, the forecast must be built on firm scientific foundations (see Hollensen, 2004, pp. 158–161).

The central issue facing businesses is not whether to forecast, but how to forecast. The forecaster can choose ‘subjective’ or ‘objective’ methods or a mixture of each.

15.2 Forecasting Terminology

Terminology used to describe forecasts make a distinction between ‘prediction’ and ‘forecasting’ using ‘forecast’ to refer to objective, quantitative techniques and ‘predict’ to denote subjective estimates.

The availability of appropriate data is of central importance to the development of a forecasting system. Depending on the degree of accuracy required, most forecasting techniques require considerable amounts of data to be collected and analysed in terms of usefulness and validity before it can be used in the forecasting process.

Selection of the most suitable forecasting method from the choice of techniques available depends on the availability of existing data and/or the company’s ability to acquire relevant data, for example, a technique requiring a long historical time series would be of little use, if data were only available for the past 2 years. If accuracy or validity of data were questionable, it would not be worthwhile or cost-effective to spend time and effort using a sophisticated technique known for its precision. The principle of ‘garbage in/garbage out’ applies and a forecast will only be as good as the data used in its compilation.

15.3 Data Collection

Once the company has decided how much time, energy and money is to be spent on data collection, it must determine where it will obtain data. The most promising sources depend on the specific situation. There are two main categories of existing data:

1. ‘Internal data’ generated within the organisation, for example, previous company plans, sales statistics and other internal records. For certain situations this may be sufficient.
2. ‘Secondary data from...

Table of contents

• Cover Page
• Half Title Page
• Title Page
• Copyright Page
• Contents
• Marketing Philosophy
• Marketing Environment
• Constituents of Marketing
• Buying Behaviour
• Segmentation, Targeting and Positioning
• Product Strategy
• Pricing
• Channels of Distribution
• Logistics
• Advertising, Sales Promotion and Public Relations
• Selling and Sales Management
• Direct Marketing
• Customer Relationship Management
• Marketing Information and Research
• Sales Forecasting
• Societal Marketing
• International Marketing
• Internet Technology and Marketing
• Marketing Strategy, Planning and Control
• Index