Chapter Three“Customer Accommodation”

Part Four

“Forecasting”You will need to manually advance from

slide-to-slide on this presentation.

To follow are explanations of certain quantitative forecasting techniques

used to predict future sales.

No audio on this slide.

Quantitative Methods

• Continuity extrapolation: incremental dollar or percentage increase is carried forward to the next year.

Quantitative Methods

• Continuity extrapolation: incremental dollar or percentage increase is carried forward to the next year.

Growth Maturity Decline

IntroductionProduct Life Cycle

Quantitative Methods (continued)

• Time series analysisSales = T x C x S x IWhere:T = trends or long-run changesC = cyclical changesS = seasonal variationsI = irregular or unexpected factors.

Gasoline demand

Time Series Analysis

Time--Johnson, Kurtz, Scheuing 1994 “Sales Management”

Gasoline demand

Time Series Analysis

Time

Cyclical changes

Cyclical changes (economy)

Cyclical changes

Seasonal variation (summer, winter)

Irregular or unexpected factors (political crisis)

--Johnson, Kurtz, Scheuing 1994 “Sales Management”

Quantitative Methods (continued)

• Moving average

Year Sales 2-year 4-year

forecast forecast

1 4200 -- --

Quantitative Methods (continued)

• Moving average

Year Sales 2-year 4-year

forecast forecast 1 4200 -- --

2 4410 -- --

3 4305 --

Quantitative Methods (continued)

• Moving average

Year Sales 2-year 4-year

forecast forecast

1 4200 -- --

2 4410 -- --

3 4322 4305 --

Quantitative Methods (continued)

• Moving average

Year Sales 2-year 4-year

forecast forecast

1 4200 -- --

2 4410 -- --

3 4322 4305 --

4 4366 --

Quantitative Methods (continued)

• Moving average

Year Sales 2-year 4-year

forecast forecast

1 4200 -- --

2 4410 -- --

3 4322 4305 --

4 4106 4366 --

Quantitative Methods (continued)

• Moving average

Year Sales 2-year 4-year

forecast forecast

1 4200 -- --

2 4410 -- --

3 4322 4305 --

4 4106 4366 --

5 4214

Quantitative Methods (continued)

• Moving average

Year Sales 2-year 4-year

forecast forecast

1 4200 -- --

2 4410 -- --

3 4322 4305 --

4 4106 4366 --

5 4214 4260

Quantitative Methods (continued)

• Moving average

Year Sales 2-year 4-year

forecast forecast

1 4200 -- --

2 4410 -- --

3 4322 4305 --

4 4106 4366 --

5 4214 4260

Quantitative Methods (continued)

• Exponential smoothing:

(alpha)(this period sales) + (1-alpha)(this period forecast) = forecast for next period

Alpha is any number between 0 and 1.

The higher the alpha, the more weight to recent sales.

Quantitative Methods (continued)

• Moving average

Year Sales 2-year 4-year

forecast forecast

1 4200 -

2 4410 -- --

3 4322 4305 --

4 4106 4366 --

5 4214 4260…higher alpha means later data has more influence or weight

All data contribute to forecast, but….

(alpha)(this period sales) + (1-alpha)(this period forecast) = forecast for next period

(alpha)(this period sales) + (1-alpha)(this period forecast) = forecast for next period

Year Sales Alpha Alpha Alpha

=.2 .5 .8

1 4200 -- -- --

(alpha)(this period sales) + (1-alpha)(this period forecast) = forecast for next period

Year Sales Alpha Alpha Alpha

=.2 .5 .8

1 4200 -- -- --

2 4200 4200 4200

(alpha)(this period sales) + (1-alpha)(this period forecast) = forecast for next period

Year Sales Alpha Alpha Alpha

=.2 .5 .8

1 4200 -- -- --

2 4410 4200 4200 4200

(alpha)(this period sales) + (1-alpha)(this period forecast) = forecast for next period

Year Sales Alpha Alpha Alpha .2 .5 .8

1 4200 -- -- --2 4410 4200 4200 4200

(.2)(4410) + (.8)(4200) = 4242

(alpha)(this period sales) + (1-alpha)(this period forecast) = forecast for next period

(alpha)(this period sales) + (1-alpha)(this period forecast) = forecast for next period

Year Sales Alpha Alpha Alpha.2 .5 .8

1 4200 -- -- --2 4410 4200 4200 4200

(.5)(4410) + (.5)(4200) = 4305

(alpha)(this period sales) + (1-alpha)(this period forecast) = forecast for next period

(alpha)(this period sales) + (1-alpha)(this period forecast) = forecast for next period

Year Sales Alpha Alpha Alpha.2 .5 .8

1 4200 -- -- --2 4410 4200 4200 4200

(.8)(4410) + (.2)(4200) = 4368

(alpha)(this period sales) + (1-alpha)(this period forecast) = forecast for next period

(alpha)(this period sales) + (1-alpha)(this period forecast) = forecast for next period

Year Sales Alpha Alpha Alpha

.2 .5 .8

1 4200 -- -- --

2 4410 4200 4200 4200

3 4322 4242 4305 4368

(.2)(4322) + (.8)(4242) = 4258

(alpha)(this period sales) + (1-alpha)(this period forecast) = forecast for next period

Year Sales Alpha Alpha Alpha

=.2 .5 .8

1 4200 -- -- --

2 4410 4200 4200 4200

3 4322 4242 4305 4368

4 4106 4258 4314 4331

5 4311 4228 4210 4151

End of Program.