Measures of value or volume? - Marketing Management

In theory, a manager should use sales forecasting where the benefit is greater than the effort needed to generate the forecast. The problem of measuring the effectiveness of a forecast is a major obstacle. A manager can accurately cost the use of a forecasting technique in terms of current time and money, but not the benefits that could possibly be enjoyed in the future by having a more accurate forecast. One of the problems the analyst has to face when preparing a sales forecast for a product or product group is what units should be the units of measurement for future sales? Even if a total market prediction is undertaken, the forecaster still has to determine what units to use for the forecast. In most commercial situations this results in a choice between value and volume, dependent upon whichever is the most consistent over time and likely to provide the most accurate measure of future sales, assuming data are available in both forms.

Volume measures are likely to be confusing where the product mix is not homogeneous, e.g. two products may have similar physical characteristics that classify each of them as one single unit, but they may have widely differing sales values. A volume measure may state a market of so many units, but the value of this market could vary to a large extent as the value of the constituent units is not precisely known. However, volume forecasts have the advantage of not being affected by inflation or deflation because once a physical unit is defined it is not affected by external factors.

On the other hand, value predictions can be adjusted for variations in the buying power of a currency, but the application of many of the available inflation/deflation indices is not representative of the same fluctuation experienced by the product. Indices are invariably computed on the basis of price changes and reflect only one aspect of inflation/deflation, neglecting to compare the product with other products. The consumer can be regarded as having a disposable income for which many companies compete by means of their products, and a consumer’s choice of product is a function of that consumer’s perception of the worth of that product in relation to other products. A price increase index does not reflect the inflation /deflation experienced by a product in relation to other products.

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