Sales and Distribution: Management

7/28/2019 05 - Sales Planning & Forecasting
SALES MANAGEMENT
AND DISTRIBUTION
1
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05 – Sales Planning
and
Forecasting
2
Sales and Sales Planning

• In sales, the goal is revenue-driven.
•
A sales
force or sales
having the territory
knowledgeplan
ofistheir
more than the
product sales
pricing,
features and capabilities.
• The basic plan starts with annual gross sales.
• A sales forecast is an essential tool for managing a
business of any size.
• It is a month-by-month forecast of the level of sales
the firm expects to achieve.
4
Strategic Planning
• Strategic planning includes making decisions about
the company‟s long-term objectives and strategies.

• In most large, multiproduct and multi-business
organisations, planning is done at various
organisational levels:
 Corporate strategic plan

 Divisional and/or business unit strategic plans
 Product functional plans.
5
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Planning In A Large Organisation 05 - Sales Planning & Forecasting
Organisational Organisation Structure Type of

Levels Planning
Corporate Office
Corporate Corporate
Strategic
Planning
SBU SBU SBU

Division / Divisional /
‘A’ ‘B’ ‘C’
Business Unit / SBU Strategic
SBU Planning
Product /
Product Product Product
Product Operational
‘x’ ‘y’ ‘z’
Planning
•
Each SBU has a separate business, a set of
competitors and customers and a manager
responsible for strategic planning, performance,
and control.
6
Corporate Strategic Planning

• Corporate strategic planning is developed at the
company‟s headquarters to guide the whole
organisation. The planning process includes four
steps or planning activities:
• Developing corporate mission and objectives

•
Defining strategic business units (SBUs)
• Allocation of resources to SBUs
• Developing corporate strategies to fill the strategic
planning gap
7
Strategic Business Unit (SBU)

An SBU is a group of related businesses
that can be treated as a unified entity for the
purpose of strategic planning.
The principle underlying the SBU grouping

is that all related products, related from the
standpoint of function, should fall under
one SBU.
In basic factors, mission, objectives, competition
and strategy, one SBU will be distinct from another.
8
Titan Industries
Titan Industries has four SBUs – Watches,
Jewellery business, Eye wear and Precision
engineering.
9
Titan Industries
Tanishq offers a premium range of innovatively created gold
jewellery. Under Eye wear, Titan Industries offers sunglasses
under its Fastrack brand.
The Precision Engineering division of Titan Industries

supplies precision components to the aviation and the
automotive industry.
10
7/28/2019 Role of Marketing in Organisational Planning 05 - Sales Planning & Forecasting
Organisational Role of Marketing – Key Tasks Formal Name

Level
(and Strategy
Level)
Corporate • Provide customer and competition Corporate

(Corporate information Marketing
Strategy) • Support customer orientation
Business • Provide customer and competition Strategic

Unit/SBU/Divisi analysis Marketing
on • Develop competitive advantage,
(Business
target markets, value proposition,
Strategy)
positioning
Functional Evolve and implement marketing
• Marketing
i) Marketing plan including marketing-mix Management
Strategy strategy, and sales strategy
Allocate resources •
7/28/2019
Role of Marketing in Organisational Planning 05 - Sales Planning & Forecasting
Type of Role of Marketing – Key Tasks Formal Name

Planning
Functional • Classification of accounts Strategic

ii) Sales • Relationship strategy Sales
Strategy • Selling methods or approaches
• Sales channel strategy
7/28/2019 Marketing and Sales Strategies
05 - Sales Planning & Forecasting
• Figure below shows how sales strategy is developed from marketing

strategy
Sales
Product promotion
/ service strategy
strategy
Target
market Advertising
strategy Promotion
strategy
(Long- / IMC*
term) strategy
Marketing Personal
selling / sales
Strategy strategy
Price
Marketin strategy
g mix Public relations &
strategy Publicity strategy
(Short-
term)
Distribution
strategy Direct
marketing
strategy
* IMC: Integrated Marketing Communication 13

7/28/2019
Sales Forecasting
• Sales forecasting is crucial because without a proper

sales forecast the marketing executive cannot
determine the type of marketing programme to use
in order to attain the desired sales and marketing
objectives.
It is based on a number of assumptions regarding

customer and competitor behaviour as well as the
market environment and therefore its reliability
depends upon the extent of culmination of the
uncertainty as predicted.
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7/28/2019
What is a Sales Forecast? 05 - Sales Planning & Forecasting
• A sales forecast predicts the value of sales
•
over a period firms
All business of time.
like to know how much of
a given product they are likely to sell in a
given market and in a given period.
•
Whether the sales would increase or

decrease from the current levels and if so, by
how much.
• What would be the share of the firm?
• Demand measurement and sales forecasting
provide this vital knowledge.
15
Why Study Demand?
• Finance - How much cash is required
for operations and

investments?
• Operations - How much capacity and
output levels are to be
established?
• Purchase - What is the right amount
of supplies needed?
• Human - What is the optimum
Resource level of manpower?
•
Marketing - What is the Sales Forecast?
16
Wrong Sales Forecast
• Excessive Inventories or Inadequate

Inventories.
• Sales Forecasts are based on estimates of
Demand.
17
What is Market?
Market refers to the group of consumers or
organisations that is interested in the product, has
the wherewithal to purchase the product and is
permitted by law and other regulations to acquire the
product.
•
Total population
• Potential market
• Available market
• Qualified available market
•
•
Target market
Penetrated market
18
Market Demand
•
Market Demand for a product is the total volume

that would be bought by a
• defined customer group
• in a defined geographical area
• in a defined time period
• in a defined marketing environment
• under a defined marketing programme
19
Market Demand
Market demand shows the total demand of
all the consumers in the market at various
prices.
20
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Market Demand Functions 05 - Sales Planning & Forecasting
Market Potential
e Q2
h
t
n
i
d
n d
a o
m i
r
e e Market
D P Forecast
t c
i
e f
i
k
r c Market
e
a p Minimum
M S Q1
Industry Marketing Expenditure
Q2 - Q1 = Small / Non expansible Market
Q2 - Q1 = Big / Expansible Market
7/28/2019
Market Potential
• Market potential refers to the upper limit of
market demand.
• It is the limit approached by the market

demand as industry‟s marketing
expenditures approach infinity for a given
environment.
22
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Assignment
• You are launching an English Daily,
“Accurate Times” on all India basis.

• Estimate the market potential for all
newspapers in India.
• Make suitable assumptions.
• What could be the market potential for

“Accurate Times?”
23
7/28/2019
Market Forecast
• Market forecast refers to that part of the

market demand that will materialize
with the level of marketing effort the
industry will put in during the period of
the forecast.
• Market forecast is also called market
size.
24
7/28/2019
Company Potential, Company Demand & 05 - Sales Planning & Forecasting
Company Forecast
• Company potential is the maximum sales that an
individual firm can achieve in a given market, under
ideal conditions and on the assumption that the ideal
marketing effort is being made.
• Company demand refers to the portion of company
potential. It is the company‟s estimated share of
market demand at alternative levels of company
effort in a given time period.
• Company forecast, also called company sales
forecast refers to that portion of the company
demand which the company actually expects to
capture with the chosen marketing effort.
25
7/28/2019
Sales Forecast – Short & Long-term
• The short-term sales forecast in effect provides the

essential financial dimension to sales in terms of
expected sales revenue and expenses required. It
helps in assessing the cash inflow and outflow
needs and their sources.
A long-term sales forecast (say for a period of 5

years or so) on the other hand, focuses on capital
budgeting needs and process of the firm.
26
7/28/2019
Sales Budget
• A sales budget is a detailed schedule showing the

expected sales in rupees and units of production.
• It is a financial planning tool detailing allocation of
resources and selling efforts to achieve the sales
forecast for a period of time, usually one year.
• The production budget is prepared after the sales
budget.
• The sales budget is the starting point in preparing
the master budget.
• The sales budget is constructed by multiplying the
budgeted sales in units by the selling price.
• It is an estimated amount of anticipated sales
allocated by product, territory or person, prepared
weekly, monthly or annually.
27
7/28/2019
Sales Forecast Functions
• Used by company decision-makers to translate

changing market environment into specific goals
and plans for business operation
• Estimate future revenue
Used as the starting point for short-and long-term

planning
• Cash flow, production schedules and inventory

levels are determined by sales forecast
• Accurate sales forecasting contributes to overall

organizational effectiveness
28
7/28/2019
Factors influencing the Sales Forecast
• Marketing Plans
•
Industry Trends
• Market Demand
Economic Influences
• Demographic Changes
• Social Changes
• Political Developments
• Legal Developments
29
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.
30
Top-down / Break-down Approach

•
Forecast
factors relevant external environmental
• Estimate industry sales or market potential
• Calculate company sales potential = market
potential x company share
• Decide company sales forecast (lower than
company sales potential because sales
potential is maximum estimated sales,
without any constraints)
31
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
32
Sales Forecasting Methods
Qualitative Methods Quantitative Methods

• Executive opinion • Moving averages
• Delphi method • Exponential smoothing
• Sales force composite • Decomposition
• Survey of buyers‟ • Naïve / Ratio method

intentions
• Test marketing • Regression analysis
• Econometric analysis
Sales Forecasting Methods (Qualitative Methods)
Executive opinion method

• Most widely used
•
Procedure includes getting views of top

executives of the company regarding future
sales and/ or average of all executives‟
individual opinion
• Advantages : quick forecast, less
expensive
• Disadvantages : subjective, difficult to
break-down the forecast
into subunits
•
Accuracy : fair
• Time required : short to medium (1 – 4
weeks)
34
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
• Advantages : objective, good accuracy
• Disadvantages : getting experts, no
breakdown into subunits
• Time required : medium (3/4 weeks) to long
(2/3 months)
35
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,

breakdown into subunits
possible
• Disadvantages: Optimistic or pessimistic
forecasts, medium
long time required to
• Accuracy : fair to good (if trained)
36
Survey of Buyers‟ Intentions Method

• Process includes asking customers about their
intentions to buy the company‟s products and
services
• Questionnaire may contain other relevant
questions
• 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
37
Test Marketing Method

• Methods used for consumer market testing: full
blown, controlled and simulated test marketing

• Methods used for business market testing: alpha
and beta testing
Advantages : used for new

products, goodor accuracy,
modified
minimizes risk of national
launch
• Disadvantages : Competitors may disturb
if some methods are used,
medium to high cost,
medium to long time
required
38
7/28/2019
Test Marketing Methods 05 - Sales Planning & Forecasting
Concept Test
•
This involvestarget
appropriate presenting the product
consumers and concept
getting to an
their
reactions.
• The concepts can be presented symbolically or
physically.
•
However the more the tested concept resembles the
final product or experience, the more dependable
concept testing is.
In recent times, companies are also using virtual

reality to test product concepts. This entails the use
of sensory devices to stimulate reality.

7/28/2019
Test Marketing Methods
Full-blown Test Market

• The ultimate way to test a new consumer product
is to put it into full-blown test markets.
• The company chooses a few representative cities
and the sales force tries to sell the trade on
carrying the product and giving it good shelf
exposure, full advertising and promotional
strategy, similar to the one use in the home
market.
Simulated
•
Test Marketing
This entails finding 30 to 40 qualified shoppers
and questioning them about brand familiarity and
preference in a specific product category.
7/28/2019

Test Marketing Methods
Controlled Test Marketing

•
In this method, the number of geographic
locations are tested.
• The product is delivered to the participating
stores
strategicand the product is placed in a
position.
• Sales results will be measured electronically
through scanners at the checkout.
Sales Forecasting Methods (Quantitative Methods)
Moving Average Method

•Procedure is to calculate the average company sales
for previous years
•Moving averages name is due to dropping sales in
the oldest period and replacing it by sales in the
newest period
•Advantages : simple and easy to
calculate, low cost, less time,
good accuracy for short term
and stable conditions
•Disadvantages : can not predict downturn/
upturn, not used for unstable
market conditions and long-
term forecasts
42
Exponential smoothing method

• The forecaster allows sales in certain periods to
influence
periods the sales forecast more than sales in other
Sales forecast = (L)(actual sales of this year) +
for next period (1-L)(this year‟s sales
forecast)
where (L) is a smoothing constant, ranging greater
than zero and less than 1
• Advantages : simple method, low cost, less
time, good accuracy for short
term forecast
• Disadvantages : smoothing constant is
arbitrary, not used for long-
term and new product
forecast
43
Decomposition Method
• Process includes breaking down the company‟s
previous periods‟
trend, cycle, sales
seasonal, data
and intoevents.
erratic components like
• These components are recombined to produce sales
forecast.
• Advantages : Conceptually sound, fair to

good accuracy, low cost, less
time
• Disadvantages : complex statistical method,
historical data needed, used
for short-term forecasting
only
44
Naive / Ratio Method

• Assumes what happened in the immediate past will
happen in immediate future
• Simple formula used:
Advantages : simple to calculate, low cost,

less time, accuracy good for
short-term forecasting
• Disadvantages : less accurate if past sales
fluctuate
45
Naive / Ratio Method
(Formula)
Actual sales of this year

Sales forecast for next year  Actual sales of this year 
Actual sales of last year
46
Regression analysis method

• It is a statistical forecasting method.
•
Process consists of identifying causal relationship
between company sales (dependent variable, y) and
independent variable (x), which influences sales
• If one independent variable is used, it is called linear
(or simple)
„a‟ is regression,
the intercept andusing
„b‟ is formula; y=a+bx,
the slope of the where
trend
line.
• In practice, company sales are influenced by several
independent variables, like price, population,
promotional expenditure.
• The method used is multiple regression analysis.
47
Regression analysis method
•
Advantages : Objective, good accuracy,
predicts upturn / downturn,
short to medium time, low to
medium cost
•
Disadvantages : technically
historical datacomplex,
needed, large
software packages essential
48
Econometric analysis method

• Procedure includes developing many regression
equations representing
 relationships between sales and independent

variables which influence sales
 interrelationships between variables
 Forecast is prepared by solving these equations
Computers and software packages are used
49
Econometric analysis method
• Advantages : Good accuracy of forecasts of

economic conditions and
industry sales
• Disadvantages : need expertise & large
historical data, medium to
long time, medium to high
cost
50
7/28/2019
How to Improve Forecasting Accuracy? 05 - Sales Planning & Forecasting
• Sales forecasting is an important & difficult task

• Following guidelines may help in improving its
accuracy
• Use multiple (2/3) forecasting methods

• Select suitable forecasting methods, based on
•
application, cost, and variables
Use few independent available time
/ factors, based on
discussions with salespeople & customers
• Establish a range of sales forecasts – minimum,
intermediate and maximum
• Use computer software forecasting packages
51
7/28/2019
Questions
• The sales for Blaze Fashion Wear Ltd are reported in

the table below. What method of forecasting will you
suggest to the company for the year 2012?

Year Sales (in Rs
Crores)
2005 100
2006 120
2007 150
2008 180
2009 220
2010 250
2011 300

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7/28/2019 05 - Sales Planning & Forecasting

Sales and Sales Planning

the company‟s long-term objectives and strategies.

 Corporate strategic plan

Organisational Organisation Structure Type of

SBU SBU SBU

Corporate Strategic Planning

• Developing corporate mission and objectives

Strategic Business Unit (SBU)

The principle underlying the SBU grouping

In basic factors, mission, objectives, competition

and strategy, one SBU will be distinct from another.

The Precision Engineering division of Titan Industries

Organisational Role of Marketing – Key Tasks Formal Name

Corporate • Provide customer and competition Corporate

Business • Provide customer and competition Strategic

Type of Role of Marketing – Key Tasks Formal Name

Functional • Classification of accounts Strategic

• Figure below shows how sales strategy is developed from marketing

* IMC: Integrated Marketing Communication 13

• Sales forecasting is crucial because without a proper

It is based on a number of assumptions regarding

What is a Sales Forecast? 05 - Sales Planning & Forecasting

• A sales forecast predicts the value of sales

Whether the sales would increase or

• Finance - How much cash is required

for operations and

• Excessive Inventories or Inadequate

Market Demand for a product is the total volume

Market Demand Functions 05 - Sales Planning & Forecasting

Q2 - Q1 = Big / Expansible Market

• Market potential refers to the upper limit of

• It is the limit approached by the market

• You are launching an English Daily,

“Accurate Times” on all India basis.

• Make suitable assumptions.

• What could be the market potential for

• Market forecast refers to that part of the

• The short-term sales forecast in effect provides the

A long-term sales forecast (say for a period of 5

• A sales budget is a detailed schedule showing the

• Used by company decision-makers to translate

• Estimate future revenue

Used as the starting point for short-and long-term

• Cash flow, production schedules and inventory

• Accurate sales forecasting contributes to overall

 Top-down or Break-down approach

Some companies use both approaches to

Top-down / Break-down Approach

• Salespersons estimate sales expected from their

Regional / Zonal managers combine sales

Sales Forecasting Methods

Qualitative Methods Quantitative Methods

• Delphi method • Exponential smoothing

• Sales force composite • Decomposition

• Survey of buyers‟ • Naïve / Ratio method

Executive opinion method