As time goes on, forecasts that have been made should be adjusted to reflect reality. For example, Katie Scallan-Sarantakes may have to do an annual forecast for Scion sales, but as each month goes by, she has hard sales data with which to adjust future forecasts. Further, she knows how strongly competition has reacted and can adjust her estimates accordingly. So, even though she may have an annual forecast, the forecast changes regularly based on how well the company is doing.
A forecast is an educated guess, or estimate, of sales in the future. Accuracy is important because so many other decisions a firm must make depend on the forecasts. When a company forecasts sales, it has to consider market potential and sales potential. Many methods of forecasting exist, including expert opinion, channel and customer surveys, sales force composites, time series data, and test markets.
Better forecasts can be obtained by using multiple methods, forecasting for various scenarios, and tracking actual data (including sales) and adjusting future forecasts accordingly.
- Which forecasting method would be most accurate for forecasting sales of hair-care products in the next year? How would your answer change if you were forecasting for the next month? For home appliances?
- What is the role of expert opinion in all forecasts?
- How can forecasting accuracy be improved?