planning, sales forecasting, and budgeting

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  1. 1. Chapter 3 Planning, Sales Forecasting, and Budgeting Prepared By: Mr. Nishant Agrawal
  2. 2. Learning Objectives To understand strategic planning, its linkage to strategic marketing and marketing management To know how sales strategy is developed from marketing strategy To learn basic terms used in forecasting, forecasting approaches, and methods of sales forecasting To understand purposes and the process of sales budget
  3. 3. Strategic Planning Planning is deciding now what, how, and when we are going to do Strategic planning is deciding about the organization's long-term objectives and strategies In a large organization, planning is done at three or four organizational levels.
  4. 4. Planning In A Large Organisation For effective planning, operations, and control, a large multi-product / multi-business firm divides its major products / services into divisions / strategic business units ( SBUs) Each SBU has a separate business, a set of competitors and customers, and a manager responsible for strategic planning, performance, and control Corporate Office SBU A SBU C SBU B Product x Product y Product z Organisational Levels Organisation Structure Type of Planning Corporate Corporate Strategic Planning Division / Business Unit / SBU Divisional / SBU Strategic Planning Product Product / Operational Planning
  5. 5. Strategic Business Unit SBU include following 8 steps. 1. Defining Business units mission 2. Scanning external environment 3. Analysis internal environment 4. Developing Long term objective and goal 5. Formulating Strategic to achieving objective and goal 6. Preparing programme or action plan 7. Implementing strategies and action plan 8. Monitoring result and taking corrective actions.
  6. 6. Role of Marketing and Sale
  7. 7. Role of Marketing in Organisational Planning Type of Planning Role of Marketing Key Tasks Formal Name Corporate strategic planning Provide customer and competition information Support customer orientation as part of long term corporate strategy Corporate marketing Divisional / SBU Strategic planning Provide customer and competition analysis Develop competitive advantage, target markets, value proposition, positioning Strategic marketing Product / functional or Operational planning Evolve and implement marketing plan including marketing-mix strategy, and sales strategy Marketing management
  8. 8. Marketing and Sales Strategies Figure below shows how sales strategy is developed from marketing strategy Marketing Strategy * IMC: Integrated Marketing Communication Target market strategy (Long- term) Marketing mix strategy (Short- term) Product / service strategy Promotion / IMC* strategy Price strategy Distribution strategy Sales promotion strategy Advertising strategy Personal selling / sales strategy Public relations & Publicity strategy Direct marketing strategy
  9. 9. Sale Strategy Strategic decision Area
  10. 10. Components of Sales Strategy Classifying market segments and individual customers within a target segment (Classification of Account) Each firm should first decide on target market segments and if possible, to classify customers into high, medium, low sales & profit potentials Sales strategy is developed accordingly Relationship strategy Whether a selling firm should use transactional, value-added, or collaborative relationship depends on both the seller and the customer Each selling firm to decide which segments and individual customers respond profitably to collaborative relationship
  11. 11. Components of Sales Strategy (Continued) Selling Methods These are: (1) Stimulus response, (2) formula, (3) need-satisfaction, (4) team selling, (5) consultative Selection of appropriate selling method depends on relationship strategy Channel Strategy There are many sales / marketing channels. For example: company sales force, distributors, franchisees, agents, the internet, brokers, discount stores Selection of a suitable channel depends on both the buyer and the seller, products / services, and markets
  12. 12. Basic Terms in forecasting Market Potential / Industry Sale Forecast is the maximum estimated sales of given product or service for the entire industry in given market for specific period of time Market forecast / market size is the expected industry sale of given product or service at one specific level of industry marketing expenditure, in given market. Company sales potential is the maximum estimated sales of given product or service for a company in given geographic area to specific period time. Or maximum share of market potential expected to be achieved by the company
  13. 13. Basic Terms (Continued) Sales forecast is the estimated company sales of a product or service, based on a chosen (or proposed) marketing plan, for a specific time period. It is what a company would achieve under ideal condition. Sales budget is the estimate of expected sales volume in units or revenues from the companys products and services, and the selling expenses. 1) Sales Revenue Budget 2) Selling expense budget Sales Quota is sale goal set for marketing unit for specific period of time. Marketing unit may be salesperson, branch, dealer, etc. Company should set sales quota on the basis of company sale forecast.
  14. 14. Forecasting Approaches Two basic approaches: Top-down or Break-down approach Bottom-up or Build-up approach Some companies use both approaches to increase their confidence in the forecast
  15. 15. Steps followed in Top-down / Break-down Approach
  16. 16. Step 4 : Decide company sales forecast Company sale forecast usually lower than company sales potential due to insufficient funds, increase in competition, shortage of aw material Breaking down company sale forecast to different region is done based on market potential of geographic area. Market Buildup method Identify existing and potential business buyers in area Find out their potential purchase of the product under study Add Up business potential of all buying firm to obtain accurate Multiple Factor Index Method Identifies factors that influence sales of product. Factors like populations and income that influence sales.
  17. 17. Example: Find out Market potential of detergent in all cities, including Bangalore Major factors influence sales of detergents are population (0.4), personal income(0.3) and retail sales(0.3). Suppose Bangalore has 0.7% India's population, 1% of Indias personal income and 0.9% of India's retail store. So Multi Factors buying index for Bangalore would be, 0.4*0.7 + 0.3*1 + 0.3*0.9 = 0.85 Based on Indias detergent industry forecast of Rs.55000 million for year 2005-06. Market potential for detergent in Bangalore would be 0.85 percent.
  18. 18. Bottom-up / Build-up Approach
  19. 19. Bottom-up / Build-up Approach Salespersons estimate sales expected from their customers Area / Branch managers combine sales forecasts received from salespersons Regional / Zonal managers combine sales forecasts received from area / branch managers Sales / marketing head combines sales forecasts received from regional / zonal managers into company sales forecast, which is presented to CEO for discussion and approval
  20. 20. Sales Forecasting Methods Qualitative Methods Quantitative Methods Executive opinion Moving averages Delphi method Exponential smoothing Salesforce composite Decomposition Survey of buyers intentions Nave / Ratio method Test marketing Regression analysis Econometric analysis
  21. 21. Executive opinion method Simplest, Most widely used Procedure includes discussions and / or average of all executives individual opinion Advantages: quick forecast, less expensive Disadvantages: subjective, unscientific Accuracy: fair; time required: short to medium (1 4 weeks) Delphi method Process includes a coordinator getting forecasts separately from experts, summarizing the forecasts, giving the summary report to experts, who are asked to make another prediction; the process is repeated till some consensus is reached Experts are company managers, consultants, intermediaries, and trade associations
  22. 22. Delphi Method (Continued) Advantages: good accuracy, long and short term forecast possible Disadvantages: getting experts, time required: medium (3/4 weeks) to long (2/3 months) Sales force composite method An example of bottom-up or grass-roots approach Procedure consists of each salesperson estimating sales. Company sales forecast is made up of all salespersons sales estimates Advantages: Salespeople are involved who is close to market, detailed sale estimate broken down by customer , product are possible Disadvantages: Optimistic (hopeful) forecasts, medium to long time required Accuracy: fair to good (if trained)
  23. 23. Survey of Buyers Intentions Method Process includes asking customers about their intentions to buy the companys products and services. Company make effective decisions Advantages: gives more market information, can forecast new and existing products, good accuracy Disadvantages: some buyers unwilling to respond, time required is long (3-6 months), medium to high cost Test Marketing Method Method is useful for new product, which has no historical sale figure. 1. Full blown: Company choose representative and introduce full promotion campaign 2. Controlled: Company with new product hire research firm 3. Simulated test marketing: 30-40 consumer selected , based on their brand familiarity and preference, money will given to customer, understand buying behaviour
  24. 24. Test Marketing Method (Continued) Advantages: used for new or modified products, good accuracy, minimizes risk of national launch Disadvantages: Competitors may disturb if some methods are used, medium to high cost, medium to lo

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