SALES FORECASTING IN MARKETING

Every act of preparing for the future implies some forecasting of impending conditions. In the context of
business management, forecasts can be used to support long-term strategic decisions, operational decisions
or short-term tactical decisions. Management requires forecasting information when making a wide range of
decisions. The sales forecast is particularly important, as it is the foundation upon which all company plans
are built in terms of markets and revenue.

Management would be a simple matter if business were not in a continual state of change, the pace of which
has quickened in recent years. The result of this constant change, however, is that business tasks are
becoming more complex and business decisions are being more long-term in nature. It is becoming
increasingly important and necessary for businesses to predict their future prospects in terms of sales, costs
and profits. The value of future sales is crucial as it affects costs and profits, so the prediction of future sales
is the logical starting point for all business planning. Thus, the company's customers and their likely
purchasing behavior during the period to come are the starting point for business planning, and this idea
lies at the very heart of all marketing activity.

As well as helping to plan expansion into new markets and new product lines, forecasting can also be
viewed as the act of giving advance warning in time for beneficial action to be taken. In order to predict the
future it is usual to examine the past in order to observe trends over periods, and to establish the degree of
probability with which these trends are likely to repeat themselves in the future. Future predictions are
therefore inherently wrong as they are based upon probability; it is up to management to decide upon the
degree of imprecision that can be tolerated when planning. One general rule, which can be applied to
forecasting, is that forecasts that are more accurate will be more expensive than less accurate ones because
they employ more sophisticated analyses in their computation.

Forecasting techniques can be either subjective or objective. Subjective techniques are generally based upon
qualitative opinion or intuition; objective techniques are normally quantitatively based and use
mathematical analysis in their computation. Objective techniques are in turn divided into trend projections
of previous sales, and causal methods which attempt to assess the relationship between two or more
variables.

The availability of appropriate data is of central importance to the development of a forecasting system.
Depending upon the degree of accuracy required, most forecasting techniques require a considerable
amount of data to be collected and analyzed. This data must then be judged in terms of its usefulness and
validity in the forecasting process. Selection of the most suitable forecasting technique will in turn depend
on the availability of existing data and the company's ability to access this data.