Chapter 10 Sales Forecasting, Quotas and Territory Management-Sales and Distribution Management

Block: Basics of Sales Management
Ch-10
Sales Forecasting, Quotas and Territory Management
Chapter
10
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Introduction
Demand forecasting is a useful tool for planning. It helps estimate and forecast the market share of a firm. Most firms are very often confronted with the task of
projecting future sales of their product. Identifying future sales problems is no

easy task for companies, small or big. In some cases, it is very difficult to get any information about future market sales. Sales forecasting is not just an estimation of sales; it is also matching sales opportunities actual and potentialwith sales
planning and procedures.
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Sales Forecasting
Sales forecasting, according to Cundiff and Still, is an estimate of sales during a
specified future period which is tied to a proposed marketing plan and which
assumes a particular set of uncontrollable and competitive forces.
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Purpose of sales forecasting
Steps in Sales Forecasting

1. 2. 3. 4. 5. Defining the objectives to be achieved. Dividing various products into homogeneous groups. Analysing the importance of various factors to be studied for sales forecasting. Selecting the method. Collecting and analysing the related information.
6.
7. 8.
Drawing conclusions from the analysis made.

Implementing the decisions taken. Reviewing and revising the sales forecasting from time to time.
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Types of Forecast The term forecast is ordinarily used to refer to a prediction for a future period. Although this usage is technically correct, it is too general for managerial value.
Best Possible Results Industry Level Firm Level Market Potential Sales Potential Expected Results for given strategy Market Potential Sales Potential
A useful way for viewing what is being forecast is presented in figure above. Four different types of forecasts emerge from this classification scheme: 1. 2. 3. 4.
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Market Potential Market Forecast Sales Potential

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Meaning of Sales Forecast The sales forecast is a prediction of expected sales for a specified period. It is an estimate for sales in rupee or units for a specified future period. In other words, it is basic tool for anticipating the nature of future sales or sales prediction. According to Cundiff and Still, is an estimate of sales during a specified future period which period is tied to a proposed marketing plan and which assumes a particular set of uncontrollable and competitive forces. According to Stuits, A sales forecast is an estimate of the amount or unit for a specified future period under marketing plan or programme. According to American marketing Association forecasting is an estimate of sales in dollars or physical units for a specified future period under a proposed marketing plan or program and under an assumed set of economic and other forces outside the unit for which the forecast is made. The forecast Cont. may be for a specified item of merchandise or for an entire line.
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Objectives of Sales Forecasting The objectives of sales forecasting may be studied under the following two major
heads
1. 2. Short - run (range) objectives. Long - run (range) objectives.
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1. 2. 3. 4. 5. 6. 7. 8.
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Short - Run objectives Formulation of suitable production policy so as to meet the demand as per the sales forecast. To make provision for the regular supply of raw material etc. for the production on the basis of sales forecast. To make the best utilization of machines on the basis of sales forecast. To make the regular supply of labour force as per the sales forecast. To determine an appropriate price policy for a given period. To estimate and provide the requisite working capital on the basis of sales forecast. To establish sales quotes targets for different market segments. To estimate stock requirements for unfinished semi-unfinished and finished products for a specified period of time.
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1. 2. 3. 4.
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Long Run objectives Estimating cash inflows from sales. Provision for capital expenditure. Planning of plant capacity so as to meet the future demand. Manpower planning so that production and distribution may not suffer in the long run.
5.
6. 7. 8. 9.
Planning for acquisition of raw materials so as to meet the future demand.

Determining the dividend policy. Establishing coordination between various functions of on organization. Reducing selling costs and thereby reduces the final cost of the product. To estimate future profits of the business enterprise.
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Factors affecting or Influencing sales forecasting 1. Business Environment
2.
3. 4. 5.
Conditions within the industry

Internal Conditions of the business Enterprise Socio Economic Conditions Factors Affecting Export Trade
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Steps in sales Forecasting 1. Forecasting of General Economic Conditions: General economic conditions within the boundaries of the nation, do effect the purchasing power of the individual customer. The standard yardstick for assessing general economic conditions will be: gross national product, per capita income, personal income, personal consumption expenditure, level of employment and the consumer price index. 2. Forecast of Industry Sales: Though the industry forecast are available from the trade associations and chambers of commerce, a SWOT analysis of the competition prevailing could throw much light on the competition within the industry. 3. Preparing Forecast of Company Sales: The sales manager, while preparing the sales budgets of the company has to forecast the company and product sales for the coming year. The entire planning of the organization for production, manpower, financial arrangements, and revenue calculations will depend upon the accuracy of the sales manager's forecast.
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Choice Modeling Discrete choice, volumetric choice, and conjoint models are analytical methods used to understand the behaviour of consumer purchasing behaviour. Our Advanced Analytics Consultants set up carefully controlled experiments in which consumers are simply asked to choose how many of each product to buy, given predetermined sets of realistic conditions. Discrete Modeling Discrete choice modeling is ideal for each product categories where only one purchase is made over a longer period of time. In these carefully controlled experiments, current and potential customers are asked which one product they would buy, given a realistic scenario including all of the products of services that compete with one another in the marketplace. In each scenario, the respondent is presented with a different set of marketing stimuli and asked which brand or product would be purchased. The type of decision that the respondents make in each scenario is designed to mimic the real market, and again each variables' importance is being determined implicitly. Cont. Copyright 2010, S L Gupta
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Marketing Mix Modeling Marketing mix modeling measures the potential value of all marketing inputs and identifies marketing investments that are most likely to produce longterm revenue growth. Typically, Marketing Mix Modeling involves the use of multiple regression
techniques to help predict the optimal mix of marketing variables. Regression

is based on a number of inputs and how these relate to an outcome such as sales or profits. Once the model is built and validated, the input variables can be manipulated to determine the net effect on a company's sales or profits.
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The data that go into creating a Marketing Mix Model include: Economic data Industry data Category data Advertising data Promotional data Competitive data Service data Product Data Pricing Data Features & Performance Market Outcome Data Sales Revenues Profits Copyright 2010, S L Gupta
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Methods of Sales Forecasting

Survey Method The survey method is based on the opinion of buyers and consumers. It is useful with respect to industrial products but not as far as consumer goods are concerned. Expert Opinion According to this method, a company invites the opinions of executives and consultants who are acknowledged experts in studying sales trends. Market Studies Method This method is commonly used by marketers for consumer goods. It is also known as the Market Test Method. A market test provides data about consumers and the marketing mix. Sales Force Opinion Method This method estimates the buyers intentions from experienced personnel in the Cont. sales force. They can easily forecast for their respective territories.
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Statistical Methods Statistical methods are considered to be superior techniques of sales forecasting because their reliability is higher than that of other techniques. Some commonly used statistical methods are given below:
Commonly Used Statistical Methods

Trend Method This method provides a rough trend of the forecast on the basis of past experience. It does not, however, take into account the changing environment. It is a simple method for business forecasting on the basis of past performance. Graphical Method According to this method, sales data are plotted on graph paper and a graph is drawn for a number of years. This is a simple and inexpensive method. Time Series Method
This method is used for long periods duly taking into account cyclical changes, seasonal variations and irregular fluctuations. Cont. Copyright 2010, S L Gupta
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y
Time Series Method
Sales (Rs)
0 1980 1981 1982 1983 1984 1985
Years
A time series may be defined as a collection of magnitudes belonging to different time periods, of some variable or composite variables, such as production of steel, per capita income, gross national product, price of tobacco, or index of industrial production. Ya-uin-chou
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The Time Series Method shows the future trends of sales. The various techniques that can be used for determining these trends are:
Freehold or Graphical Method

Semi-average Method Moving Average Method Method of Least Squares.
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y
Freehold or Graphical Method: This is the simplest
method for obtaining a straight line. A trend line is fitted by freehand to

Sales (Rs)
know future sales.
0 1988 1989 1990 1991 Years 1992 1993

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Semi Average Method: According to this method, data are divided into two parts, preferably with the same number of years. For example, (3-year semi-averages)
Year 1986 1987 1988 1989 1990 1991 Sale (Rs. Lakhs) 12 13 12 14 13 16
0 1986 1987 1988 1989 1990 1991 Years
Actual Line
SALES in (Rs) Lakhs
Trend Line
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Moving Averages Method: According to this method, a trend is determined by moving averages. Therefore, out of the averages such as 3-yearly moving, 5yearly moving and 7-yearly moving average, the five-yearly moving average will be computed as follows:
A BCD E 5 BC D EF 5
CDEFG 5
Least Squares Method: This method is most commonly used in practice. The straight line is represented by the equation: yc = a + bx For example: Fit a straight line trend for the following series. Estimate the value for 1994.
Year: Sales: 1987 80 1988 90 1989 92 1990 83
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1991 1992 94 99
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Sales Quotas
A sales quota refers to an expected routine assignment to sales units, such as territory, districts and branches, etc. Sales quotas are also assigned to individual
salespeople over a particular time period and are used to plan, control and
evaluate the selling activities of a company. Sales control is facilitated by setting quotas to use in appraising the performances of sales force. Sales control is tightened by setting quotas on expenses and profitability of sales volume. They are tactical in nature and are thus derived from the sales force strategic objectives. Strategies stem from marketing and sales plans, sales forecasts and budgets. Thus, quotas are guides for what needs to be done and a means of evaluating how well they have been done.
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Importance of Sales Quotas Sales quotas serve several purposes. The important objectives are shown in the diagram below:
Sales Quotas
Quotas provide performance targets Quotas provide standards Quotas provide control Quotas are motivational
Sales Objectives
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Purpose of setting sales quotas Provides Goals and Incentives.
Evaluating performance.
Controlling the sales person activities. Uncovering strengths and weaknesses in the selling structure.
Improving the compensation Plan's effectiveness.

Controlling the Selling Expenses. Enhancing sales Contests,
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Types of Sales Quotas A sales organisation can set many types of quotas. The most common quotas are
shown in the following diagram:

Types of Sales Quotas
Sales Volume Quotas
Profit Quotas
Expense Quotas
Activity Quotas
Quota Combinations
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Sales Volume Quotas Sales volume quotas include sales in rupees or product unit objectives for a specific period of time. Sales volume quotas are first set for the entire year. The yearly total volume quota is then set for shorter time periods, such as three months, six months and nine months. The sales force is assigned their yearly quotas. Sales targets are set for the year for sales force so their aim is to sell throughout the year to achieve the total sales objective. The sales volume quotas can be set in the following areas:
Product line Product range Sales division Sales territories Sales districts Branch offices Sales force (Individual)
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Profit Quotas
Profit quotas are particularly useful in multiproduct companies where different products contribute to varying levels of profits. It creates opportunities for the
salesperson to make optimum use of time.

Expense Quotas Expense quotas are related to selling costs within reasonable limits. Some companies set quotas for expenses linked to different levels of sales attained by their sales force.
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Activity Quotas These quotas set objectives for job-related duties useful for attaining salespeoples performance targets. Activity quotas are required to make the sales force perform other activities which have long-term implications on the goodwill of the firm. A sales organisation must set a target level of performance for salespersons. Some common types of activity quotas prevalent in Indian companies are as follows Common
Number of sales presentations made Number of service calls made Number of dealers visited Number of calls made for recovery Number of new accounts opened Types of Activity Quotas
Activity quotas typically should not be a basis for rewards. Rather, their attachment helps the manager better understand why salespeople do or do not meet their sales volume quota. Quota Combinations Many companies use a combination of these quotas. The two most commonly combined are sales volume and activity quotas. These quotas influence selling and non-selling activities. Copyright 2010, S L Gupta
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Territory Management
The following diagram outlines the activities of territory management
Activities of Territory Management
Trade relations/Dealer relations Potential business Coverage Reports Territory size Portfolio of accounts Selling techniques Customer satisfaction Selling abilities
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Why Establish Sales Territories? A company can develop and use sales territories for various reasons. Some of
the reasons are as follows:

To obtain entire coverage of the market To establish a salespersons responsibility To evaluate performance To improve customer relations To reduce sales expenses
To allow better matching of salesperson to customer

To benefit salespeople and the company.
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Factors to be Considered when Designing Territories In setting up or designing sales territories, these four steps must be followed: 1. Selecting a basic geographical control unit 2. Determining sales potentials in control unit
3. Combining control units into tentative territories 4. Adjusting for coverage difficulty and reallocating tentative territories. The two basic approaches commonly used for designing sales territories are discussed below. Market Build-up Approach In this approach, an estimation of the present and potential products/services demand is made by looking at how the market is built up, who are its present/potential users, how much do they consume and at what frequency. The Workload Approach This approach is designed by WJ Talley on the basis of the workload performed by salespersons. Cont. Copyright 2010, S L Gupta
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Assigning to Territories Some salespeople can handle large territories and the travel associated with them, some territories require experienced salespeople, and some are best suited to new people. There are a few factors a manager needs to consider when assigning both new and experienced people to territories. In todays complex selling situation, the presence of a well-thought-out daily and weekly route plan is required for effective management. The following may be considered basic route patterns of a territory.
Base First Call
Straight Line Pattern
C C C 10-32 Sales and Distribution Management

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Clover Leaf Pattern

C
Major City Pattern
C
Base 2 C C C C 4 5 1 3
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Sales Forecasting and Global Factors

With globalization of trade, it has became difficult to forecast accurately, more particularly for the long-term. Technological changes, sudden appearance of a competitor from any part of the world, selling the goods at competitive prices or even resorting to dumping, are some of the problems faced in accurate forecasting. It requires a well planned effort to take into consideration the factors influencing the sales strategy, so that sales forecasting may be a realistic one, as far as possible. This situation has been drafted by Warren J Keegan as follows: In terms of cultural sensitivity, consumer products are more sensitive than industrial products. Another rule of thumb is that food products, especially those served at home, frequently exhibit the highest degree of cultural sensitivity. What this means to managers is that some products of daily life use are likely to demand significant adaptation. Others require only partial adaptation and still others are best left unchanged. Cont. Copyright 2010, S L Gupta
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Companies differ in both their willingness and capability to identify and produce profitable product adaptations. Unfortunately, too many stage one and stage two companies are oblivious to the foregoing issues. One new-product expert has described three stages that a company must go through as follows 1. Cave dweller. The primary motivation behind launching new products internationally is to dispose of excess production or increase plant-capacity utilization. Naive nationalist. The company recognizes growth opportunities outside the domestic market. It realizes that cultures and markets differ from country to country and, as a result, it sees product adaptation as the only solution. Globally sensitive. This company views regions or the entire world as a competitive marketplace. New-product opportunities are evaluated across countries, with some standardization planned as well as some differentiation to accommodate cultural variances. New-product planning processes and control systems are reasonably standardized. Copyright 2010, S L Gupta
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Block: Basics of Sales Management

Sales Forecasting, Quotas and Territory Management

Sales Forecasting, Quotas and Territory Management

Copyright 2010, S L Gupta

Sales and Distribution Management

Text & Cases

Block: Basics of Sales Management

Sales Forecasting, Quotas and Territory Management

projecting future sales of their product. Identifying future sales problems is no

planning and procedures.

Copyright 2010, S L Gupta

Sales and Distribution Management

Text & Cases

Block: Basics of Sales Management

Sales Forecasting, Quotas and Territory Management

Cont. Copyright 2010, S L Gupta

Sales and Distribution Management

Text & Cases

Block: Basics of Sales Management

Sales Forecasting, Quotas and Territory Management

Purpose of sales forecasting

Steps in Sales Forecasting

Drawing conclusions from the analysis made.

Copyright 2010, S L Gupta

Sales and Distribution Management

Text & Cases

Block: Basics of Sales Management

Sales Forecasting, Quotas and Territory Management

Market Potential Market Forecast Sales Potential

Copyright 2010, S L Gupta

Sales and Distribution Management

Block: Basics of Sales Management

Sales Forecasting, Quotas and Territory Management

Sales and Distribution Management

Text & Cases

Block: Basics of Sales Management

Sales Forecasting, Quotas and Territory Management

Cont. Copyright 2010, S L Gupta

Sales and Distribution Management

Text & Cases

Block: Basics of Sales Management

Sales Forecasting, Quotas and Territory Management

Copyright 2010, S L Gupta

Sales and Distribution Management

Block: Basics of Sales Management

Sales Forecasting, Quotas and Territory Management

Planning for acquisition of raw materials so as to meet the future demand.

Sales and Distribution Management

Text & Cases

Block: Basics of Sales Management

Sales Forecasting, Quotas and Territory Management

Factors affecting or Influencing sales forecasting 1. Business Environment

Conditions within the industry

Cont. Copyright 2010, S L Gupta

10-10 Sales and Distribution Management

Text & Cases

Block: Basics of Sales Management

Sales Forecasting, Quotas and Territory Management

10-11 Sales and Distribution Management

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Block: Basics of Sales Management

Sales Forecasting, Quotas and Territory Management