Foundations of Marketing, Part 5
Question 1: Explain how companies estimate area market demand.
Answer 1: Companies use two different methods to determine the best sales territories and the appropriate resources to delegate to these territories. The market buildup method predicts market potential by estimating the number of potential customers and the buying power of these customers. The market factor index method estimates how much money customers would spend on a product by consulting a buying power index (BPI). This formula is based on three factors: population, buying income, and retail sales. BPI = (0.2 x percentage of national population in the area) + (0.5 x percentage of effective buying income in the area) + (0.3 x percentage of national retail sales in the area)
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Question 2: Define forecasting and explain how marketers forecast future demand.
Answer 2: Forecasting is a method of estimating future demand by anticipating the actions of buyers under various conditions. Forecasting the sales of a product or service is very difficult, because it is impossible to foresee what events may happen in the future. Companies usually rely on a three-step process to forecast sales. First, they make an environmental forecast by predicting external factors like inflation, unemployment rates, and interest rates. These findings are used to produce an industry forecast, an estimate of the general market for the products and services offered by the company. Finally, a company sales forecast estimates the sales of the company’s products in a certain market.
Question 3: Explain some of the methods that businesses use to forecast future sales.
Answer 3: Companies have several different ways to forecast future sales. Companies try to figure out what people say, what they do, and what they have done in relation to the market. Some of the common techniques used to figure out what people are saying about products are surveys, expert opinions, and sales force questionairres. Companies determine what people are doing by putting products into test markets and observing how buyers react. Forecasters analyze past buying behavior, statistics, and other leading indicators to evaluate consumption history.
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