After the company decides on Hie niy by-city allocation ofiis hi id gel, ¡1 can refine each city allocation down tt) census tracts or zip - ( code centers. Census trrursiuv smalt locally defined statistical ureas in metropolitail an-Lis and sonic other couutics, Tliey generally have Stable boundaries and a population of about -i.utitv Zip - ■! code centers ¡.which were Resigned by (he U.S. I'd si Office) area little larger thai neighborhoods. Data on population size, median family income, arid other characteristics tun1 available f<ir tliese geographical tin its. Marketers have Found these data exirumely useful for identifying high-potential retail areas Within large cities in' for buying mailing lists to use in direct-mail campaigns (see Chapter H).

INDUSTRY SALES AND MARKET SHARES Besides estimating total potential and area potential, a company needs to know the actual industry «ties taking place in its market. This men i ts i t le 111 i IV i ng competitors and est ¡inat jrtg.t Ilei r sa les.

The indust ry t rutli: eissoci ati (ft 1 wiII often coll ect and pub! ish total i 11 dusl ry le*. al t hu ugh it usually does not list individual company sales separately. Witli this information, each company can evaluate its performance against the whole Industry. Suppose a company's sales ate increasing by fi percenl a year, ami industry sales are Increasing by lti percent. This company is actually losing iis relative standing In the ihdusu y.

Another way to estimate (ales is 10 buy reports Ffbln a tfffilfketing research firm 1 hat ¡nidiis total sales and brand Stiles, Nielsen Media Hcs.ean.Ti audits retail stiles in various product categories in supermarkets ami drugstores and sells this information to interested companies. These audi is ca n give a con 1 pnny valuable inforn ui 1 ion about i (s t u taI prod tj ct -ca 1 egory saIe-* as well as brand sales. H can compare Its performance to the total Industry or any particular competitor to see whether it is gaining or losing shore.

fin sin ess-goods markers typically have a harder time estimating industry stiles and market shares. Kusuiess marketers have tvo Nielsens (0 rely on. Distributors typically will not supply information about how much of competitorV products they are selling, Business-goods marketers therefore operate with le^s knowledge of titeir market share results.

Estimating Future Demand

Very few products or services lend themselves to easy forecasting; those that do generally involve a product whose absolute level or trend Is Fairly constant eiiki where competition i* nonexistent (public utilities) or stable (purl1 oligopolies 1. In most markets, total demand and company demand are not stable. Good forecasting becomes a key factor in company success. The mere unstable the demand, the more critical is forecast accuracy, and the more elaborate is forecasting procedure.

Companies commonly use <1 three-stage procedure m prepare a sale* forecast.They prepare a niacroecnuomic forecast first, followed by an industry forecast, followed by co lit pa nv sales forecast- The AlqcroecOnOmic forecast calls for projecting inflation, unemployment interest rates, const niter spending, business investment, government expenditures, net exports, and other Variables. The end result is a forecast of gross national product; which is then used, along with other environmental indicators, 10 forecast industry sales. T he company derives its stiles Forecast Eiy assuming that it ivill win a certain market share,

HûW do firms develop their forecasts? i-inns may do il internally Or buy fate caps from &tit$lde sources such as marketing research firms, which develop ll Forecast by interviewing customers, distributors, and other knowledgeable parties. Specialized forecasting firms produce long-range forecasts of particular macroenvitonmental components, s tic h as population, neural resources, and technology. Some examples arc Global Insight (a merger of Data Resources and Wharton rconouieuic Forecasting Associates), Forrester Research, and the Oorincr (¡roup. Futurist research firms produce speculative scenarios; three examples are the Institute for the Future, Hudson Institute, and the Futures Group

All forecasts Etre built on one of three information liases: what people say. what people du, or what people have done. The first basis—what people say—involves surveying the opinions of buyers or those close to them, such as salespeople or outside experts. It includes three methods: surveys of buyer's intentions, composites of sales force oipjnions, and expert opinion, puifdlpg a forecast on what people do in volves a not her met bod -putting the product into a test martel to measure buyer response. The final basis—what people have done— i wolves a i in ly/i 11 g record s o f past buying twlia vi or or using t i m e ■ series analysis or si a t i s ti cal duriand analysis.

SURVEY OF BUYERS' INTENTIONS Forecasting is the art of anticipating what buyers are likely to do under a given set of conditions, Because buyer behavior is so important, buyers sliduId be surveyed, For major consumer durables {for example, major appliances), several research organizations conduct periodic surveys of consumer buying intentions. These organb.alions ask questions like the following;

Go you intend to buy an automobile vrithffi Itie next si* mdiths? D.M 0.30 0,40 0,60 0.80 1.00

No Slight Fair Good Higti Certain chance possibility possibility possibility possibility

Tliis is called a purchase probability scale, The various surveys also inquire into consumers' present and future personal Finances and their expectations about the economy. The various bits of information are then combined into a consumer confidence (Conference board) or consumer sentiment measure (Survey Research Center of the University of Michigan), Consumer durable-goods producers subscribe to these indexes in the hope of anticipating major shifts in buying intentions so they can adjust production and marketing plans accordingly.

For business buying, research firms can carry out buyer-intention surveys regarding plant, equipment, and materials. Their estimates tend to fall within a 10 percent error baud of the actual outcomes, buyer-intent ion surveys are particularly useful in estimating demand for Industrial products, consumer durables, product purchases where advanced planning is required, and new products. The v;iiue of a buyer-intention survey increases (o the extent that the cost of reaching buyers is small, the buyers are few, they have clear intentions, they implement their intentions, and they willingly disclose their intentions.

COMPOSITE OF SALES FORCE OPINIONS When buyer interviewing is impractical, the company may ask its sales representatives to estimate their future sales. Each sales representative estimates-how much each current and prospective customer wi)| buy of each of the company's products.

Few companies use stiles force estimates without ail a king so trie adjustments. Sales representatives might be pessimistic or optimistic, or they might go front one extreme to ao-Other because of a recent setback or success. Furthermore, they are often Unaware of larger economic developments and do not know how their company's marketing plans will influence fulute salc^ in theu They might ddibetaleiry underestimate demand so that the company will set a low sales quota, or they might lack the time to prepare careful estimates or might not consider the effort worthwhile, lo encourage better estimating, the company could offer certain aids or incentives. For example. sales reps might receive a record of their past forecasts compared wilh actual sales and also a description of company assumptions on I he business outlook, competitor behavior, and marketing plans.

Involving the sales force (it forecasting brings a number of benefits. Sales reps might foavu better insight into developing trends than any Other single After participating in the forecasting process, reps might have greater confidence in their sales quotas and more Incentive to achieve them, Also, a "grassroots" forecasting procedure provides detailed estimates broken doivn by product» territory, customer, and sales rcjju

Companies can also obtain forecastsfi*im etpefts, including dealers, distributors, suppliers, marketing consultants, and trade association^ Large appliance companies periodically survey dealers for their forecasts of short-term demand, as dn car companies, Deafer estjrtliites are subject to tire same strengths and weaknesses as sides force estimates. Many Companies buy economic and industry forecasts from well-known economic-forecasting Firms* These specialists art1 able u> prepare better economic forecasts tint 11 the company because they have more data available and more forecasting expertise,

Occasionally, companies will invite a group of experts to prepare a forecast, The experts exchange views and product" a group estimate {^imtp- ctisinssinu methodI; or the experts supply their estimates individually, ami an analyst combines them into :i single estimate [poolingOf irtdh'idualestimates), Aliernatively, the experts supply individual estimates and assumptions that are reviewed by the company, then revised. Further rounds of estimating and refining follow (this is the Delphi method),lfl?

Sales forecasts can he developed on the basis of past sales. Titne-series analysis consists of breaking down past tEme series into four components (trend, cycle, seasonal, and erratic) antl ¡injecting these components into the future, Exponent tat smoothing consists of projecting the tie Ml period's sales by combining an average of past sales and the most recent sales, giving more weight to tin- la tier. ^tQlisticOl demand analysis consists of measuring the impact level of each of ¿l set of causal factors (e.ji., income, marketing expenditures. price) on the sales level. Finally, econometric analysis consists of building sets of equations that describe a system, and proceeding to fil the parameters statistically.

When buyers do not plan their purchases carefully or experts are not available or reliable, a direct-market test is desirable. A direct-market test is especially desirable in forecasting ncw-pjudttct sales or established product sales in a new distribution channel or territory. (We discuss markei testing in detail in Chapter "¿0.)

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