Aid to marketing planning - Marketing Management

Forecasting can be described as the act of giving advance warning in time for beneficial action to be taken. The value and importance of advance information is a cornerstone of planning activity. Modern businesses are aware of sales forecasting and its overall purpose, but many managers do not pay due regard to its importance. Only in recent years has the value of forecasting become clear. This has resulted in the development of sophisticated forecasting techniques that can be applied directly to businesses.

To predict the future we must examine the past to observe trends over periods of time and establish the degree of probability with which these trends are likely to repeat themselves in the future. Forecasts cannot be totally exact; management must be aware of this, and decide on the degree of inexactitude that can be tolerated when planning the future.

Incorrect forecasting (or no forecasting) is at the base of many business failures. In a productionoriented environment goods might be sold on company reputation alone and forecasting is less important. In a more competitive environment sentiment does not apply, and firms that do not attempt to make an accurate forecast on which to base their future production and subsequent corporate planning find it difficult to survive.

When attempting to forecast we must ultimately forecast for a specific market segment at which the marketing effort is aimed. However, one can attempt a macro-forecast for, say, the world market for a particular commodity that the company produces, in the knowledge that the company’s marketing effort will only include a portion of this. The skill lies in determining what percentage of that total potential market is likely to accrue to the company, given its anticipated marketing effort. It is here that management planning must determine the resources that must be apportioned to individual parts of the business to achieve the forecasted sales that the company anticipates. Forecasting occurs at different levels: internationally, nationally, by industry, etc., until we ultimately reach a specific product forecast. Normally a company does not have to produce general international or national forecasts on such matters as economic growth or inflation. These are provided by government and other agencies.

Company forecasters take this information and adjust their individual forecasts in the light of these macro-level predictions. In some industries, forecasts for the industry are sometimes supplied in general terms by an agency such as a Manufacturers’ Association. As Shahabuddin1 shows, industries such as the automobile industry are particularly well supplied with this type of information for forecasting. Forecasts for the industry are termed market forecasts, as opposed to a sales forecast that pertains to an individual company. The method where company forecasts are derived from macro-data is termed top-down forecasting. Conversely, a company can forecast from its own data by extrapolating company sales. This is termed bottom-up forecasting.

Management planners are thus only interested in a forecast when it relates to the individual firm and specific products or services, because it is from there that they can prepare plans and budgets. It is this pragmatic level of forecasting in which we are interested; what makes the situation better is that management can now place more confidence in forecasts, because more sophisticated techniques are now available.

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