To make realistic and accurate sales forecasts, managers can use several qualitative methods of sales forecasting:
1. Qualitative market research: Consumer surveys. This sales forecasting method is about asking questions to current and potential customers about their future purchase intentions. The company is trying to identify and forecast the buying habits of consumers to predict the future sales. Survey questions may be either quantitative asking about the number of products the respondent intends to buy or qualitative asking about the reasons behind making future product choices. There are two approaches to carrying out consumer surveys for sales forecasting:
A. In-house market research. Surveys are conducted by the business itself. This will take up time and effort of the marketing department. Detailed awareness of the research techniques, questionnaire construction and statistical analysis of results is needed.
B. Outside market research agency. Surveys are conducted by a specialist market research agency. This will free up workload among marketing employees and guarantee better quality research output, but will be more expensive. Specialization always costs big money.
With the aid of the questionnaire and the large sample of consumers selected, researchers can determine the total number of consumers for a product as accurately as possible.
2. Sales-force composite. This sales forecasting method adds together individual predictions of future sales made by all sales representatives. As they work for a business and have frequent direct contact with customers, they possess a real insight into potential future demand and market trends. Sales staff will share their individual estimates of future sales which will be added together to come up with a total sales forecast. While this method is quick and cheap, sales representative may overestimate the number of products that they hope to sell in the future. They may also lack broader knowledge of macroeconomic developments in the country and competitors’ actions as these are discussed at more senior levels.
3. Jury of experts. Also called the jury of executive opinion. This sales forecasting methods uses a panel of internal experts employed by the business such as directors and senior managers who work collaboratively to make sales forecasts for the future. The experts know each other as they work together within a business. As they meet, they will develop a sales forecast based on knowledge in their specific narrow areas of responsibility. Jury of experts is cheaper than the Delphi method. But, it is less structured and less accurate as it lacks the external opinions about the market and insights into consumer trends.
4. The Delphi method. Also called the Delphi technique named after the all-knowing Oracle of Delphi. This sales forecasting methods uses a panel of independent external experts not employed by the business who are surveyed through a sequence of questionnaires to share their opinions about sales forecasts in the future. The experts never meet and their answers are anonymous to each other. Each new round of questionnaires builds on previous questionnaires. This is a typical process of the Delphi method:
STEP 1: Prepare a detailed questionnaire which will be sent to external experts asking for their opinions and judgements about future sales-related events. The experts answer independently of each other and the facilitator will collect the results.
STEP 2: After the questionnaire results have been collected and processed, they are analyzed. The facilitator provides an anonymous summary of the experts’ forecasts from the previous round as well as the reasons for their judgments. The results are then sent to all of the experts on the panel.
STEP 3: The experts are asked to revise their earlier answers considering the replies of other members of their panel. Then, a further questionnaire is sent out to the experts to see whether any of them changed their minds after reading the results of the first round of questionnaires. The extreme responses tend to be amended, so eventually a consensus is reached.
STEP 4: The group will eventually reach a consensus, but it may take doing several rounds of questionnaires to achieve. The process is stopped when a consensus is reach producing the most correct future forecast.
The Delphi method is more expensive and time-consuming than jury of experts. But, it is more structured and more accurate as market specialists share their opinions about the market and insights into consumer trends in organized way.
The next article will be concerned with using quantitative methods of sales forecasting. Check it out as well!
