Perreault−McCarthy: Basic
Marketing: A
Global−Managerial
Approach, 14/e- Developing Innovative
Marketing Plans
Text © The McGraw−Hill
Companies, 2002616 Chapter 21
extension estimates will be wrong whenever big changes occur. For this reason—
although they may extend past behavior for one estimate—most managers look for
another way to help them forecast sharp market changes.When we try to predict what will happen in the future, instead of just extend-
ing the past, we have to use other methods and add more judgment. Some of these
methods (to be discussed later) include juries of executive opinion, salespeople’s esti-
mates, surveys, panels, and market tests.Predicting future
behavior takes
judgment
Forecasting Company and Product Sales by Extending Past Behavior
At the very least, a marketing manager ought to know what the firm’s present
markets look like and what it has sold to them in the past. A detailed sales analy-
sis for products and geographic areas helps to project future results.
Just extending past sales into the future may not seem like much of a forecast-
ing method. But it’s better than just assuming that next year’s total sales will be the
same as this year’s.A simple extension of past sales gives one forecast. But it’s usually desirable to
tie future sales to something more than the passage of time.
The factor method tries to do this. The factor methodtries to forecast sales by
finding a relation between the company’s sales and some other factor (or factors).
The basic formula is: something (past sales, industry sales, etc.) timessome factor
equalssales forecast. A factoris a variable that shows the relation of some other
variable to the item being forecast. For instance, in our example above, both the
birthrate and the number of working mothers are factors related to sales of dispos-
able diapers.The following example—about a bread producer—shows how firms can make
forecasts for many geographic market segments using the factor method and avail-
able data. This general approach can be useful for any firm—producer, wholesaler,
or retailer.
Analysis of past sales relationships showed that the bread manufacturer regularly
sold one-tenth of 1 percent (0.001) of the total retail food sales in its various tar-
get markets. This is a single factor. By using this single factor, a manager could
estimate the producer’s sales in a new market for the coming period by multiplying
a forecast of expected retail food sales by 0.001.
Sales & Marketing Managementmagazine makes retail food sales estimates each
year. Exhibit 21-5 shows the kind of geographically detailed data available.
Let’s carry this bread example further—using the data in Exhibit 21-5 for the
Denver, Colorado, metro area. Denver’s food sales were $3,591,232,000 for the pre-
vious year. By simply accepting last year’s food sales as an estimate of next year’s
sales and multiplying the food sales estimate for Denver by the 0.001 factor (the
firm’s usual share of food purchases in such markets), the manager would have an
estimate of next year’s bread sales in Denver. That is, last year’s food sales estimate
($3,591,232,000) times 0.001 equals this year’s bread sales estimate of $3,591,232.The factor method is not limited to just one factor; several factors can be used
together. For example, Sales & Marketing Managementregularly gives a “buying
power index” (BPI) as a measure of the potential in different geographic areas. See
Exhibit 21-5. This index considers (1) the population in a market, (2) the retail
sales in that market, and (3) income in that market. The BPI for the Denver,Past sales can be
extended
Factor method includes
more than time
A bread producer
example
Factor method can use
several factors