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Determine
Forecast independent & Develop forecast
objectives dependent procedure
variables
Comprehend
Collect, collate, Select forecast
total forecast
analyse data analysis method
procedure
General environment
forecast
Industry sales
forecast
Company sales
forecast
Individual product
forecast
Forecasting Methods Amity Business School
Test Marketing
-Most popular/accurate method for measuring
consumers acceptance of new products
- A pilot is conducted by establishing test territory,
channel and personnel. Based on the success of
this pilot, market expansion can be planned.
- Use of test market & controlmarket
- Cannot be applied for products which require
extensive investment in fixed assets before launch.
- Offers opportunity to change features & promotional
tools based on test market results
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Trend Projections
-Basic Assumption is what has happened in the
immediate past will continue to occur in future
-use of graphic curve fitting or by statistical curve
fitting
- Naive Method trend projection formula
Sales( for period t)=Sales ( for period t+1)
- Naive Method adjusted to account for change in
rate of sales level
Sales (t+1) = Sales(t)*Sales(t)
Sales(t-1)
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1+.salest-n)
17666.6666
5 15000 51,000 7
6 17250 48,250 17000
16083.3333
7 18000 50,250 3
8 20000 55,250 16750
9 18417
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Exponential Smoothing
Similar to moving average method
Allowed to vary weights assigned to past data
Weights most recent data more strongly
Reacts more to recent changes
Used to forecast only one period in future
Widely used, accurate method
Smoothing constant chosen b/w 0& 1
Primary disadvantage does not provide
accurate forecasts for a significant trend
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Continued
F(t +1) = a D(t) + (1 - a)F(t)
where:
F(t +1) = forecast for next period
D(t) = actual demand/sales for present
period
F(t) = previously determined forecast
for present period
a = weighting factor, smoothing constant
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Regression Models
Correlation
a measure of the strength of the relationship between
independent and dependent variables
Linear regression
a mathematical technique that relates a dependent
variable to an independent variable in the form of a linear
equation
The independent variables are developed through
correlation analysis
Simple regression models use only one whereas multiple
regression models use more than one independent
variable
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Linear Regression
Y = a+bx xy - nxy
Where: b =
x2 - nx2
y = dependent
a = y-bx
variable( Sales
forecast) where
a= intercept n = number of periods
b= slope
x = x = mean of the x values
X=independent n
variable
y = y = mean of the y values
n
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Continued
78
x = = 6.5
12
593
y = = 49.41
12
xy - nxy 3903 - (12)(6.5)(49.41)
b = =
x - nx
2 2
650 - 12(6.5)2
a = y - bx
= 49.41 - (1.72)(6.5) = 38.23
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Operational Methods
Must Do Forecasts
Often management forecasts what volume of
sales it needs to accomplish certain goals. This
is the must-do forecasted sales in order to
generate sufficient cash to cover fixed and
variable costs.
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