Marketing Management Chapter 6: Estimating the Market Demand

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Chapter 6: Summary

Forecasts predict what may happen, all other things being equal. Budgets go beyond these forecasts to incorporate the effects of an organization’s planned actions. Both may be

•     Short term—For capacity loading, information transmission, and control

•     Medium term—For the traditional annual planning process

•     Long term—For strategic planning, resource planning, and communication

Forecasts need to be dynamic. In other words, changes in the environment require modification of forecasts. From them, budgets may be derived at the sales, production, and profit levels.

Forecasting is based on, and derived from, some other data sources; and it is conducted at three different levels. Macroforecasts look at total markets and may be derived from national or global data available from the OECD or the U.S. government. However, the most important aggregate forecast for business is at the market or industry level. Microforecasts build on the predictions of individual or group (customer) behavior. Product forecasts may then be split into forecasts by product type and over time.

There are both qualitative and quantitative forecasting methods. Qualitative forecasting is normally employed for long-term forecasts. Techniques include expert opinion, expert panel method, technological forecasting, Delphi technique, decision tree, and scenario.

Quantitative forecasting techniques for short- and medium-term typically try to isolate the trend, cyclical, seasonal, and random fluctuations. The specific techniques used may be period actuals and percent changes, exponential smoothing, time-series analyses, multiple regression analysis, and more complex econometric modeling. Various leading indicators are also readily available from government sources to forecast the short- to medium-term conditions of the market. Although most forecasting techniques ignore the competitors’ possible reaction to one company’s competitive move, game theory is gaining popularity in recent years to address the likely impact of the competitors’ moves in forecasting.

With the widespread use of personal computers, spreadsheets have become a useful forecasting tool to model many hypothetical “what if” scenarios. By developing many scenarios, you can determine which factors are sensitive to changes in the conditions under investigation.

The primary role of forecasting is risk reduction. You should note that risk can also be reduced by purchasing insurance against unfavorable events, diversifying into a portfolio of different products and markets, or adopting flexible manufacturing to better cope with unexpected changes in the market. Finally, thanks to Internet use, many companies, emphasizing the needs of the customers with an ability to satisfy and serve them quickly and efficiently, have begun to adopt the “build to order” model of sales fulfillment with no forecasting error rather than the traditional “build to forecast” model.

Birmingham Insights on Asia – (6) Implications and Recommendations for Malaysian E-Commerce

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This comment is based on Anson Lim’s Dissertation, Export Intermediaries within The Modernized Structure of E-Commerce and The Prevalence of Internet Based Distribution Channels,written under the supervision of Prof. Michael Czinkota at the University of Birmingham, UK.

Continued:

Given the broad spectrum of online capabilities, assuming the combined roles of distributor and intermediary within the scope of a developing marketplace will enhance the exposure of intermediaries as well as ensure that profitability is aligned with long term exporter objectives. Motivational structures have offered incentives to intermediaries for their successes in foreign market though an increased capitalization and opportunity for contract preservation. The reality is that within the broadening online marketplace, these once outside participants may now integrate their services with distribution channels at a much lower cost incidence than setting up a brick and mortar establishment. As export intermediaries are active participants in the social and economic structure of Malaysia, their understanding of market operations gives them an inside advantage, one which enables rapid transitioning from middle-man to purveyor. The manufacturing relationship is contractually established; however, through integration of broader spectrum distribution channels, the intermediary firm will be protecting their investment and ensuring that products reach the consumers in a profitable manner.

In terms of technical service diversification as well as the incorporation of resource management techniques, the knowledge capital boasted by intermediary firms remains a leveragable asset, one which should be intimately integrated into operations offerings in the future. Such capabilities include consolidation services which reduce the overall cost of transport and distribution across Malaysia’s borders.

Secondly, research demonstrates that in spite of the emphasis which manufacturing firms place on technical expertise and knowledge capacities of intermediaries, practical application of such skill sets falls short of expectation. the expectation o f authority, and thereby, the transitioning skills which enhance the perception of intermediary value continue to challenge and evolution of skill and capacity in order to  accurately integrate the broad spectrum of changes which continues to alter Malaysia’s market. knowledge of tariff changes, pricing decisions a=, and technical support all fell within the lowest ratings among respondent intermediaries, and given the ease of transition from brick and mortar distribution to electronic online channels. these knowledge schemes offer opportunities to remain extremely competitive.

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