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Sunday, September 14, 2008

2nd Tools to Manage a Marketing Program - Sales Forecasting

2. Sales Forecasting

Sales forecasting involves estimating sales in dollars and physical units as accurately as possible for a specific period of time. Many times this means forecasting sales for the total market, and then determining what share of the market can be captured with a specific product or service.

Both short-term and long-term sales forecasts are useful for agribusiness. Short-term forecasts, usually one season or shorter for agribusiness firms, are useful in formulating current operating plans. In food firms, such forecast may be weekly or even daily. In a food service firm, like Kentucky Fried Chicken and Ayamas, forecasts may be hourly as the firm works to schedule food preparation to accommodate daily patterns. Longer-range sales forecasts are important for capacity and research and development decisions. In general, the longer the time period forecasted, the less accurate the forecast is likely to be.

Three types of forecast normally being used by agribusiness managers are: a) General Economic forecasts, b) Market forecasts, and c) Sales forecasts.

a) General Economic forecasts
General Economic forecasts considers broad factors that affect the total economy such as: government farm programs, inflation, the money supply, international affairs, exchange rates, population demographics, and a host of other factors.

b) Market forecasts
Agricultural economists continually monitor changing economic indicators that track or lead agricultural trends. Some use econometric models to predict demand for various products and commodities.

Factors determining farm market demand have been researched extensively. For example, agricultural economists have discovered various cycles in livestock production. Traditionally, cows cycled every 9 years. During these cycles, prices fell as the number of animals on feed increased, and profits declined. As a result, some less efficient producers exited from the market, livestock numbers dropped, and prices gradually increased.

Note that despite all the sophisticated techniques, forecasting market demand is far from an exact science. Random event such as unexpected weather, changes in consumer taste and preferences, a food safety scare, or an international crisis can play havoc with the most elaborate market demand forecast.

c) Sales forecasts
A sales forecast for a specific product within the firm is driven in part by the general economic forecast and the market forecast. Sales of a particular firm’s low fat yogurt are clearly influenced by general trends in the overall economy and trends in the market for dairy products.

(Reference: Erickson, S., Ckridge, J. T., Barnard, F. & Downey, D. (2001). Agribusiness Management. (3rd. ed.). New York: McGraw-Hill.)

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