The main merit of this method is that the forecasts come straight from the horse’s mouth – the customer himself. Moreover, it gives a ready made forecast user industry wise. No additional effort is needed to break down the forecast user wise or user industry wise. And, the method is particularly suited for industrial / intermediate products.
The demerit of this method is that in some cases the respondents themselves may not be quite clear of their consumption pattern or buying plans; or they may be unwilling to discuss their plans frankly.
The Method is more suited for Industrial Products: The user expectation method or survey of buyers’ intention is particularly suited for forecasting the sales of industrial goods raw material and intermediary products. And, there are several reasons for this. For example, unlike consumer goods, the users of industrial goods are limited in number making it possible to exhaustively survey them. Again, the sales made to individual buyers are substantial in the case of industrial goods. In the case of consumer goods, several thousands of buyers make up the total sale, each accounting for a very small quantity. Industrial consumers are generally clustered in industrial belts unlike general consumers who are scattered. Industrial selling usually takes place direct from the manufacturers to the users, avoiding distribution channels. The buyer behavior in this case is also more rational and predictable as the buyers are professional people and the purchase is for use by industrial units. And finally applying user survey to sales forecasting and is inexpensive in such cases. In user survey, the decision making persons in the user companies as well as persons with good knowledge of the product are contacted. For example, the production people, the materials and corporate planning executives of the user company are contacted to know how much of the products their firm is likely to consume and how much of it are likely to buy from the company doing the survey.
Market Share Method: Sales forecast can be developed by yet another method – the market share method. The planned market share of the firm is the key factor in this method. The firm first works out the industry forecast, applies the market factor and deduces the company forecast. The market share factor is developed based on past trend, company’s present competitive position, its plans for the future, brand preference, etc. Such conversion of industry forecast into company sale forecast requires considerable expertise. Through a detailed marketing audit, the firm must correctly appraise its market standing, brand image, market share and strengths and weaknesses as compared with those of it’s the competitors in the industry. It must also correctly assess, through reliable marketing intelligence, its competitor’s plans, policies and activities. Only then, the market factor and therefore the sales forecast arrived at by this method will have a good degree of reliability. Retail audit will also be of considerable help in employing the market share method; it will help assess the industry position as well as the individual firm’s market share.
Analytical and Statistical Methods: As mentioned earlier, besides judgment methods, a wide variety of analytical and statistical methods are available for forecasting a firm’s sales. The firm can choose the most appropriate one depending on its forecasting needs.
The methods are given below:
Analytical and Statistical Methods
1. Simple projection method.
2. Extrapolation method
3. Moving averages method
4. Exponential smoothing
5. Time series analysis
6. Regression analysis
7. Complex econometric models.