A major reason for forecasting is to provide a basis for medium and long-range plans. Businesses must plan in order to achieve goals established on the basis of such forecasts, and these plans will affect various functional aspects of the business. At the base of such plans is long-term profitability, for without this the company may not be able to meet its future commitments in achieving the planned-for sales. Company planners will have to assess whether or not such potential sales can be achieved within the confines of the business as it stands and, if not, what resources will be needed in order to achieve these sales.
Medium-term forecasts are also used for business planning, but less so for strategic reasons. They are of particular importance for costing, and through the sales budget, for marketing management in controlling the marketing function while it goes about achieving the forecasted sales. With a reasonably accurate sales forecast such plans will be more realistic, and when they are put into action they have a better opportunity to work.
Management decisions within a manufacturing concern, together with such external changes as new technology, fashion and the cost of raw materials, affect the accurate prediction of future sales. It is the accuracy of this prediction that can single out the successful firm from the unsuccessful. In the current competitive climate there is little margin for error, and efficiency of operation is a major factor for success.
Consequently, prediction of a change in demand is essential for continued prosperity. If a company is able to forecast a change in demand and the extent of that change, it can plan ahead to operate in the most efficient and profitable manner.
Managers are surrounded by a multitude of factors that can affect the future operation of the business. By using the best available forecasting method they can assess their present position and provide more accurate predictions for the future. Whatever circumstances surround the situation in which the manager makes a forecast there is one clearly defined objective, which is to profit eventually from this prediction in terms of revenue or knowledge.
Companies prepare for change by planning. This requires forecasts to be made, followed by an assessment of how these planning goals are to be reached. In practice, the sales forecast acts as the planning base upon which all internal forecasting and budgeting takes place. The effect of considering expected levels of sales in making such decisions is to reduce uncertainty and lower costs.
Forecasting is thus central to the planning process and should not be used as a substitute for effective decision making, or management will simply tend to react to short-term fluctuations as they affect sales instead of developing long-term strategies. The company should first work out its selling plan, because this is really what is going to determine the level of sales. For example, a price reduction can be expected to influence a company’s share of the total market, and such considerations should be noted by the sales forecaster. Consequently, the forecaster predicts what will happen for a set of decisions in a given set of circumstances, whereas planning states that by taking certain actions, the decision maker can alter subsequent events relating to a particular situation. Thus, if a forecast is made which predicts a fall in demand, management can prepare a plan to prevent sales from falling. The future is not immutable; if it was, there would be little strategic point in forecasting or planning. The objective of the sales forecast is to predict a company’s sales for some period in advance, and this can be done in one of two ways.
For many companies, the latter course is the most logical, because a company’s future strategy will affect its market share and this strategy is directly linked to what is happening in the marketplace. Consideration must also be given to what competitors are doing, and in many cases sales action by one manufacturer will merely cancel out similar action by another.
It has been said that forecasting is often a fruitless adventure, but difficulties when forecasting should not be used as an excuse for inactivity. Forecasting is not a ‘crystal ball’ that enables the manager to foresee the future more clearly. It is an aid to more informed and better decision making.
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Marketing Management Tutorial
Development Of A Strategic Approach To Marketing: Its Culture; Internal Macro- And External Micro-environmental Issues
Markets And Customers: Consumer And Organizational Buyer Behaviour And Marketing Strategy
Markets And Customers: Market Boundaries; Target Marketing
Product And Innovation Strategies
Channels Of Distribution And Logistics
Customer Care And Relationship Marketing
Marketing Information Systems And Research
Analysing The Environment: (opportunities And Threats) And Appraising Resources (strengths And Weaknesses)
Evaluating And Controlling Strategic Marketing
Strategic Marketing Planning Tools
Services Marketing And Not-for-profit Marketing
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