Many companies forecast both their own sales and sales of the industry. Of those using multimethod forecasting procedures, nearly all—at one or more stages—provide for the making of an industry sales forecast. In fact, of the six sales forecasting methods discussed in this chapter, only in two— the poll of sales force opinion and unsophisticated forms of projecting past sales—it is normal to skip the industry sales forecast and forecast company sales directly. The general practice is to forecast industry sales early in the procedure and from it derive a company sales forecast for use as a check against forecasts arrived at through other methods.
Deriving a company sales forecast from an industry sales forecast requires an appraisal of company strengths and weaknesses (as well as marketing programs) against those of competitors. The result is an estimate of expected market share that (when applied to the industry sales forecast) results in a forecast of company sales. The poll of sales force opinion method leaves this appraisal up to the sales personnel—they focus on estimating how much the company can sell, not on how much the industry can sell. Unsophisticated forms of the past sales projection method implicitly assume that no changes will occur in the company’s strengths and weaknesses nor in its marketing programs vis-a-vis those of its competitors. In the other four forecasting methods considered in this chapter, management makes this appraisal when it determines the company’s probable market share percentage. Moreover, although some companies check such appraisals with sales personnel, in most the main appraisal of competitive position is made by executives better informed on the overall sales outlook than any salesperson can be.
Forecasting a company’s market share varies in complexity from one industry to another. In the steel industry, the number of competitors is small and market share is stable, so determining a given company’s market share is a simple task—a matter of projecting past trends and adjusting for anticipated changes in the company’s relative strengths and weaknesses. But in the women’s clothing industry, the number of competitors is large and market shares fluctuate widely, so determination of market share is difficult. The ability to evaluate a clothing style’s salability is a key element in forecasting, and this requires both thorough knowledge of market trends and keen judgment. Most companies operate in industries that lie somewhere between these two extremes, with market shares neither as stable as in steel nor as volatile as in women’s apparel. Forecasters in most companies need information on competitors’ plans to launch new and improved products, advertising and selling plans, pricing strategies, and so on. When forecasters evaluate this information in relation to their own company’s proposed marketing and selling plans, they are in a position to exercise informed judgment in predicting the company’s probable market share. If, for example, a forecaster knows that a major competitor plans a substantial price cut on a product that many buyers buy mainly on the basis of price, it will be necessary to lower the estimate of the company’s market share unless management is willing to match the price cut. Forecasting a company’s market share is a matter both of examining past trends and of appraising impending changes in competitive relationships.
Source: Richard R. Still, Edward W. Cundliff, Normal A. P Govoni, Sandeep Puri (2017), Sales and Distribution Management: Decisions, Strategies, and Cases, Pearson; Sixth edition.