GAUHATI UNIVERSITY

A training Report submitted in partial fulfillment of the requirements

For the award of the degree of

MASTER OF BUSINESS ADMINISTRATION (II) ,GAUHATI UNIVERSITY ON

“MARKETING”

Under organization guidance of : under institutional guidance of :

Mr. J.S. Shahi MS. Lucky singh
Apollo business school

Prepared and submitted by :Robin goyal

G.U registration No. 09010918 of 2009-2010
 STUDENT’S DECLARATION

I hereby declare that the Project Report conducted at

JETAGE GARAGE EQUIPMENTS , NEW DELHI

Under the guidance of

MS. LUCKY SINGH

Submitted in partial fulfillment of the requirements for the

Degree of

MASTER OF BUSINESS ADMINISTRATION

TO

GAUHATI UNIVERSITY

Is my original work and the same has been submitted for the award
of any other degree /diploma/fellowship or other similar titles or prizes.

Place: NOIDA Robin Goyal

Reg No.- 09010918

 ACKNOWLEDGEMENTS

A project report can not be completed without motivation, assistance, guidance,

cooperation and inspiration from various triangles. I would like to thank to all the person
who help and persuaded me to work on this project.
Working with the “JETAGE GARAGE EQUIPMENTS” has been a wonderful experience.
It was a dream comes true for me when I was given an opportunity to undergo our
training in JETAGE GARAGE EQUIPMENTS.I express my deepest sense of gratitude
to Mr. J.S. Shahi Who has been a continuous source of inspiration throughout the work
on this project and guided me with keen interest.

Robin Goyal
 CONTENTS

CHAPTER 1. INDUSTRY PROFILE

Origin and Development of the industry
Growth and Present status of the industry
Future of the industry
CHAPTER 2. PROFILE OF THE ORGANISATION
Origin of the organization
Growth and development of the organization
Present status of the organization
Future plans of the organization
Departments of the organization
Organizational structure and organizational chart
Product and service profile of the organization
Market profile of the organization
CHAPTER 3. DISCUSSIONS ON TRAINING
Student’s work profile
Description of live experience
CHAPTER 4. STUDY OF SELECTED PROBLEM
Statement of research objective
Research design and methodology
Analysis of data
Summary of findings -
CHAPTER 6. SUMMARY AND CONLUSIONS
Summary
Conclusions
APPENDIX
QUESTIONNAIRE
BIBLIOGRAPHY
Company Profile

High Performance Automobile Garage Equipments

 
We wish to introduce ourselves as a company with latest technology products suitable for the Indian working environment
at reasonable prices.
 
For the first time in India, we have introduced Wheel Alignment Machine with Blue Tooth Data Communication. This
machine uses CCD Cameras from SONY Japan.
 
We have introduced Computerised Video and Digital Display Wheel Balancers which can take the Rim Distance and Rim
Diameter automatically. We have light and heavy duty Tyre Changers imported from Korea.
 
Also for the first time in India, we have introduced Nitrogen Generators which can Produce Nitrogen Gas used for inflating
the Automobile Tyres. Use of Nitrogen Gas in Tyres increases the tyre life by 20% and fuel saving by 10%.
 
We have introduced low cost Tyre Inflator. Also cost saving Infrared Lamps for baking Painted parts of automobile which
saves the cost of diesel for the same purpose.
 
We have also introduced Electro Hydraulic Two Post and Four Post Lift for Wheel Alignment.
 
We have our Training Centre with all the machines in display. We can provide training to your service staff for better
handling of the machines.
 
We invite you to visit our office and training centre. We can show the working of our machines for better understanding.
 
We look forward for an opportunity to associate with your esteem company and prove our claims
Automobile

The Automotive industry is the key driver of any growing economy. A sound transportation system plays a pivotal role in a
country’s rapid economic and industrial development. The well-developed Indian automotive industry ably fulfils this catalytic
role by producing a wide variety of vehicles. The automobile industry comprises automobile and auto component sectors. It
includes passenger cars; light, medium and heavy commercial vehicles; multi-utility vehicles such as jeeps, scooters,
motorcycles, three-wheelers and tractors; and auto components like engine parts, drive and transmission parts, suspension
and braking parts, and electrical, body and chassis parts.

India’s automotive industry is now worth $34 billion and expected to grow $145billion in another ten years. The Indian
automotive industry is growing at a very high rate with sales of more than one million passenger vehicles per annum. The
overall growth rate is 10-15 per cent annually. India is the world’s second largest manufacturer of two-wheelers, fifth largest
manufacturers of commercial vehicles as well as largest manufacturer of tractors. It is the fourth largest passenger car
market in Asia and home to the largest motorcycle manufacturer.

Major players in this sector include Tata, Mahindra, Daewoo Motor India, Hyundai Motors India and General Motors India,
Maruti, Ashok Leyland, Bajaj, Hero Honda, Ford, Fiat and few other players.

The Indian auto components industry is worth $10 billion. Indigenous firms like Bharat Forge, Sundaram Fasteners, Minda
Industries and Gabrial India Ltd. are in the limelight. There is a boom in the auto components segment because of strong
demand and robust economy. Also, the industry has strong forward and backward linkages with almost every other
engineering segment. The component production range includes engine parts 31%, drive transmission and steering parts
19%, suspension and braking parts 12%, electrical parts 10%, equipments 12%, body and chassis 9% and others 7%.

Indian companies are very optimistic. The Auto Components Manufacturers Association (ACMA) along with McKinsey has
pegged domestic demand for components at $20-25 billion in 2015 from $1.4 billion in 2004-05. This would take the overall
industry size to $40-45 billion by 2015 in India.

The Indian automotive industry has made rapid strides since delicensing witnessing the entry of several new manufacturers
with state-of-the-art technology. The scope of the report includes assessing market potential, negotiating with
collaborators, investment decision making, corporate diversification planning etc. in a very planned
manner by formulating detailed manufacturing techniques and forecasting financial aspects by estimating
the cost of raw material, formulating the cash flow statement, projecting the balance sheet etc.

We also offer self-contained Pre-Investment and Pre-Feasibility Studies, Market Surveys and Studies,
Preparation of Techno-Economic Feasibility Reports, Identification and Selection of Plant and Machinery,

Manufacturing Process and or Equipment required, General Guidance, Technical and Commercial

Counseling for setting up new industrial projects on the following topics.

Many of the engineers, project consultant & industrial consultancy firms in India and worldwide use our

project reports as one of the input in doing their analysis.

GROWTH IN THE SECTOR 

At present the industry is enjoying a growth rate of 14-17% per annum, with domestic sales growth at 12.8%. The growth rate is predicted to
double by 2015. 

As it is seen, the total sales of passenger vehicles - cars, utility vehicles and multi-utility vehicles - in the year 2005 reached the mark of 1.06
million. The current growth rate indicates that by 2012 India will overtake Germany and Japan in sales volumes.  

Financing schemes have become an important factor in the growth of automobile sales. More and more financial schemes are coming up with
easy installment plans to lure the customers. 

Apart from domestic production, the industry is consistently focusing on the automobile exports. The auto component segment is contributing a
lot in the export arena. The liberalized policies of the government are now making the companies go for more and more exports. 

The automobile exports are increasing year by year. According to the Society of Indian Automobile Manufactures (SIAM) automobile exports in
the last five years are as follows:

Export trend over the last five years

NEW LAUNCHES 
The Indian automobile sector is experiencing changes in every arena. Changes in the looks of the vehicles are taking place; the vehicles are
being made more user-friendly. Each and every firm is competing to give the customers more customized vehicles with respect to speed,
mileage, and maintenance. At present there are many new models entering the Indian market. To name a few, Suzuki Heat 125 and Suzuki
 Zeus 125X are the two bikes in the motorcycle segment; Kinetic Blaze and Honda DIO in the scooter segment; Maruti's Zen Estillo in the car
segment, so on and so forth. 

EMPLOYMENT IN THE SECTOR

Investment is leading to the employment growth in the sector. With the emergence of new projects and introduction of technological
advancements, the focus is more on the skilled and experienced human resource. The companies are looking for skilled and hard working
people who can give their best to the organization. 

The engineers in the automotive or electrical or mechanical field are in demand. Some of the firms going for automation, i.e. planning for CAD
(Computer Aided Designs) systems, are also recruiting people with IT specializations.  

PRODUCTS

Wheel Care Lifting Equipments A/C Care

Equipments Two Post Lift AC
Wheel Alignment Recovery,Recycli
Four Post Lift
Wheel Balancer ng and
Low Rise Lift Recharging
Tyre Changer Super Heavy Duty Machine
Automatic Tyre
Inflator  
Rim Straightener
     
PUC Equipments Cleaning Equipments Body Shop
4 Gas Analyser, High Pressure Car Washer Equipments
Model-Air Ultratec Spot Welding
Wet and Dry Vacuum Cleaner
  Machine
Fuel Injector Cleaner MIG Welding
Machine
Plasma Cutter
Paint Booth
Crash Repair
System
Paint Booth Accessories
Filters for Pit, Generating Unit and Ceiling
HVLP - Painting Guns
Filter, Regulator and Lubricator
   
   
SCOPE IN AUTOMOBILE INDUSTRY-

Automobile engineering is a branch of vehicle e

incorporating elements of mechanical, electrical, electronic, so
safety engineering as applied to the design, manufacture and
ofmotorcycles, automobiles,buses and trucks  and their respective
subsystems.

The engineers of automobile engineering has to develop car b

buildups with aggregates like engines, clutches, gears and steer
have to design according the postulations of aerodynamics and
they have to construct and calculate according the postu
functionality, safety, the dreasing of resources and the economy.

According the priority of the study the engineer gets activities as a

for development in body design, commercial and special vehic
design of motors and transmissions.
 
The field of activity of a qualified engineer in automobile engineerin
development (construction, calculation and testing), priming
fabrication and observation of the functionality of vehicles for stree
 

Education of Automobile engineering

 
The course curriculum is designed to teach students all aspects of moving vehicles, their c
maintenance.To become an automobile engineer, one must have a BE or a B. Tech degree. Even a de
or mechanical can go for specialization in automobile engineering in postgraduate level. Diploma
examination to be at par with the degree holder.
 
Employment Opportunity Automobile Engineering: Automobile manufacturing Industry, in maintenan
private transport company and Defense Services. Self-employment is also possible in setting up
maintenance workshop.
To become a qualified automobile engineer one must have a graduate degree (B.E / B.Tech)
automobileautomobile Engineering is 10+2, with Physics, Chemistry, Mathematics and preferably B
basic eligibility criteria for a candidate aspiring to do a BE in
 
Selection to all Engineering courses is on the basis of : (a.) merit / marks secured in the final exam
 subjects) ; (b.) through the means of entrance exams (joint entrance exam / JEE for the IIT's and s
national level exams for other institutions). Engineering courses are available at two levels. The
postgraduate degree courses offered by the engineering colleges and Institutes of Technology (
courses available at polytechnics.
Competitive examinations on an all-India basis for admission to a B Tech / B E course are also
Institute of Technology, at Pilani, Rajasthan, and at Ranchi; the University of Roorkee, UP; Manipal
Manipal; the Faculty of Engineering and Technology, Annamalai University, among others.
 
 A national level exam called AIEEE is also conducted for admissions in the 20 NITs in India and
colleges.Many colleges having the branch agricultural engineering give admission on the basis of this
can get admission in engineering college for pursuing automobile engineering by qualifying these exam
 
Scope of Automobile engineering
 
As automobile industry is showing rapid growth in India, the country becomes a house to num
automobile companies. They offer excellent job opportunitiesto develop a career in Automobile Indus
car-producing companies that offer jobs in the automobile industry are- Suzuki, Toyota, Tata, Fi
Mahindra, Ford, Hyundai and Skoda. Manufacturing of two-wheelers is dominated by the companies
Kinetic, Yamaha and Hero Honda. The tractors are manufactured by the popular companies like Es
Mahindra, Punjab Tractors, John-Deere, New Holland and ITL-Renault.
Automobile engineering is a part of mechanical engineering that has gained immense importance in
and more automobile companies invest in India, the career scope for automobile engineering studen
Automobile Organizations like TELCO, Bajaj Auto, L & T, Mahindra & Mahindra, Gabrial, Heldex I
group etc, conduct campus interviews for the final year students from these automobile engineering
advance.
 
To know about the institutes providing courses in automobile engineering.Many job opportunitie
candidates with b.e. and ITI courses. Some of the automobile companies require IT specializations. Th
offered by plenty of engineering and polytechnic colleges in India. The eligible candidates are selecte
then trained properly. Considering the wide scope of Automobile sector, it is not surprising that more a
dreaming to develop a career in Automobile Industry. Now, with so many foreign automobile comp
Audi, Renault etc targeting India as a base for manufacturing cars, the scope for a career in Autom
rapidly.
 

Aerospace engineering / Aeronautical Engineeringis one of the most challenging

branch of engineering with a wide scope for growth. This field deals with the development of new technology in
the field of aviation, space exploration and defence systems. It specialises in the designing, construction,
development, testing, operation and maintenance of both commercial and military aircraft, spacecrafts and
their components as well as satellites and missiles.As Aerospace engineering involves design and
manufacture of very high technology systems, the job requires manual, technical as well as mechanical
aptitude. Aeronautical engineer's usually work in teams under the  supervision of senior engineers, bringing
together their skills and technical expertise. Though highly paid, the work is very demanding. An aeronautical
engineer needs to be physically fit and fully dedicated to his work. One needs to be alert, have an eye for
detail and should have a high level of mathematical precision to be successful.

The specialisations includes in areas like structural design, navigational guidance and control systems,
instrumentation and communication or production methods or it can be in a particular product such as military
aircrafts, passenger planes, helicopters, satellites, rockets etc. Engineers may work in areas like design,
development, maintenance as well as in the managerial and teaching posts in institutes. They find a very good
demand in airlines, aircraft manufacturing units, air turbine production plants or design development
programmes for the aviation industry.
 

EDUCATION OF AERONAUTICAL ENGINEERING

To be an aeronautical engineer one should have a graduate degree (B.E/B.Tech.) or at least a diploma in Aeron
postgraduate degree courses are offered by the engineering colleges and Institutes of Technology (IITs), and t
available at polytechnics.
 
The basic eligibility criteria for a BE / B.Tech is 10+2 or equivalent examination, with Physics, Chemistry and Math
a fairly high percentage of marks in the aggregate. One must also pass the qualifying exam JEE (Joint
conducted by the IIT's.
 
Selection : Selection to the graduate courses ( BE / B.Tech ) is based on merit i.e the marks secured in the f
through entrance exams. Entrance to the IIT's is through 'JEE' (Joint Entrance Exam) and for other institutions thr
entrance exams and other state level and national level exams. Most of the institutes conducting engineering
consider JEE score as the qualifying grade.
 
There is also the Associate Membership Examination of the Institute of Engineers (AMIE), which enables worki
and public sector, or diploma holders to acquire a Bachelor's engineering degree through distance education by s
appearing for the Associate membership examination of the Institute of Engineers (AMIE) conducted by ASI ('The
India'). This degree is equivalent to aeronautical engineering degree. Those with a degree in electronics, math
also find opportunities in this area.
 
Some Institutes offer postgraduate (M Tech) and Doctoral (Ph D) programmes in Aeronautics. The Madras Instit
a three year Graduate Programme in Aeronautical Engineering for B Sc students, subject to their having passe
the graduation stage. The Indian Institute of Science (IIS), Bangalore has M Tech and Ph D programmes in aeron
 
SCOPE OF AERONAUTICAL ENGINEERING
 
Aeronautical Engineers work with one of the most technologically advanced branches of engineering. The main
design and development of aircrafts to space and satellite research. Initially, candidates begin work as gradua
junior Engineers. Keeping in view their performance, academic background and aptitude, they are placed fo
maintenance/overhaul or support section. On completion of training they are placed as assistant aircraft enginee
officers. They have to clear departmental examinations for further promotions.  They may advance to adm
positions or become consultants. Aeronautical engineers are assisted by aircraft mechanics in maintenance o
electrical system and other ancillary fittings.
 

Abstract:
One Industry which is full of potential today is that of Two Wheeler Industry in India. The Production capacity of major players increas
demand which leads to increase in the after mark

The objective of the report is to study the business environment of the automotive chains in the aftermarket and to build an entry s

The report begins with an overview of the Global Automobile/ auto component industry and describes Indian Automobile Industry in detai
industry and then to corresponding automotive chains. It talks about auto component market in India following future growth of th
information is Automobile Component Manufacturing Association (ACMA), Confederation of Indian Industries (CII) and Society of Indi
(SIAM). 

The report contains a competitive analysis of key Players such as Rolon, Ti Diamond along with their individual strengths & weaknesses. P
by Questionnaire technique. The responses are captured, analysed & a suitable entry strategy is made for M/S Rockman Industries Ltd. Ap
are recommendations, suggestions and

Objectives of the

In the last few years two wheeler markets in India has grown rapidly. More than 7 million units were sold in 2008 - 2009 out of which 6.2
April 2009 it has increased by 10.7 % in comparison to 2008, which offers a huge opportunity

The Objectives are as under:

 Study of automobile and automotive industry - especially for two wheelers

 In-depth study on 2-wheeler chains
 Studying the existing players in auto chain industry
 Understanding end-users needs and preferences
 Comparative analysis of existing key players product
 Evaluating market share of existing players
 A study on the distribution network of the existing players. Estimating the production of motorcycles & sales figures and estimating

This report gives an understanding of auto-component industry in India. It analyses indian

automobile industry, auto-component structure, domestic market size, turnover and recent
trends in two wheeler sector. Industry product range and export/import describes the
present demand and supply trends. With the help of future forecasting we have tried to
provide better understanding of future opportunities in the sector. Further we have talked
about auto chain trends and compeititon between major players.

Products Mentioned:
- Overall automobile sector
- two wheelers
- automotive chain

One Industry which is full of potential today is that of Two Wheeler Industry in India. The
Production capacity of major players increases because of the increase in demand which
leads to increase in the after marking opportunities. 
The objective of the report is to study the business environment of the automotive chains in
the aftermarket and to build an entry strategy for the new players.

The report begins with an overview of the Global Automobile/ auto component industry and
describes Indian Automobile Industry in detail. It specifies the two wheeler industry and
then to corresponding automotive chains. It talks about auto component market in India
following future growth of the industry. The basis of the information is Automobile
Component Manufacturing Association (ACMA), Confederation of Indian Industries (CII) and
Society of Indian Automobile Manufacturers (SIAM). 

The report contains a competitive analysis of key Players such as Rolon, Ti Diamond along
with their individual strengths & weaknesses. Primary Research is carried out by
Questionnaire technique. The responses are captured, analysed & a suitable entry strategy
is made for M/S Rockman Industries Ltd. Apart from market trends, there are
recommendations, suggestions and conclusion. 
Objectives of the Study

In the last few years two wheeler markets in India has grown rapidly. More than 7 million
units were sold in 2008 – 2009 out of which 6.2 million were motorcycles. In April 2009 it
has increased by 10.7 % in comparison to 2008, which offers a huge opportunity for
aftermarket OEM’s. 

The Objectives are as under: 

- Study of automobile and automotive industry – especially for two wheelers
- In-depth study on 2-wheeler chains
- Studying the existing players in auto chain industry
- Understanding end-users needs and preferences
- Comparative analysis of existing key players product
- Evaluating market share of existing players
- A study on the distribution network of the existing players. Estimating the production of
motorcycles & sales figures and estimating the overall market size.
Every other day, we have been hearing about some new launches, some low cost cars – all customized in a manner
such that the common man is not left behind. In 2009, the automobile industry is expected to see a growth rate of
around 9%, with the disclaimer that the auto industry in India has been hit badly by the ongoing global financial crisis. 

The automobile industry in India happens to be the ninth largest in the world. Following Japan, South Korea and
Thailand, in 2009, India emerged as the fourth largest exporter of automobiles. Several Indian automobile
manufacturers have spread their operations globally as well, asking for more investments in the Indian automobile
sector by the MNCs. 

Potential of the Automobile industry

In 2008, Hyundai Motors alone exported 240,000 cars made in India. Nissan Motors plans to export 250,000 vehicles
manufactured in its India plant by 2011. Similar plans are for General Motors. 

Turnover of Automobile Manufacturers(In USD Million)

Year In USD Million
2002-03 14,880
2003-04 16,544
2004-05 20,896
2005-06 27,011
2006-07 34,285

The figures show that the automobile sector in India has been growing robustly. The market shares of the different
types of vehicles will clearly depict the demand pattern in this sector. 

Domestic Market Share for 2008-09

Passenger Vehicles 15.96%
Commercial Vehicles 3.95%
Three Wheelers 3.6%
Two Wheelers 76.49%

Automobile Companies
 Audi
 Bajaj Auto
 BMW
 Chevrolet
 DaimlerChrysler (Mercedes)
 Fiat
 Ford
 General Motors
 Hindustan Motors
 New Car Launches
 Hero Honda Motors
 Hyundai Motors
 Mahindra & Mahindra
 Maruti Udyog
 San Motors
 Skoda
 Tata Motors
 Yamaha Motors
 Top Automobile Companies
Domestic Sales

The cumulative growth of the Passenger Vehicles segment during April 2007 – March 2008 was 12.17
percent. Passenger Cars grew by 11.79 percent, Utility Vehicles by 10.57 percent and Multi Purpose
Vehicles by 21.39 percent in this period.

The Commercial Vehicles segment grew marginally at 4.07 percent. While Medium & Heavy Commercial
Vehicles declined by 1.66 percent, Light Commercial Vehicles recorded a growth of 12.29 percent.

Three Wheelers sales fell by 9.71 percent with sales of Goods Carriers declining drastically by 20.49
percent and Passenger Carriers declined by 2.13 percent during April- March 2008 compared to the last
year.

Two Wheelers registered a negative growth rate of 7.92 percent during this period, with motorcycles and
electric two wheelers segments declining by 11.90 percent and 44.93 percent respectively. However,
Scooters and Mopeds segment grew by 11.64 percent and 16.63 percent respectively.

Exports

Automobile Exports registered a growth of 22.30 percent during the current financial year.

The growth was led by two wheelers segment which grew at 32.31 percent. Commercial vehicles and
Passenger Vehicles exports grew by 19.10 percent and 9.37 percent respectively. Exports of Three
Wheelers segment declined by 1.85 percent.
 

Qualitative data is subjective, rich, and in-depth information normally presented in the form of
words. In undergraduate dissertations, the most common form of qualitative data is derived from
semi-structured or unstructured interviews, although other sources can include observations, life
histories and journals and documents of all kinds including newspapers.

Qualitative data from interviews can be analysed for content (content analysis) or for the language
used (discourse analysis). Qualitative data is difficult to analyse and often opportunities to achieve
high marks are lost because the data is treated casually and without rigour. Here we concentrate on
the content analysis of data from interviews.

Theory

When using a quantitative methodology, you are normally testing theory through the testing of a
hypothesis. In qualitative research, you are either exploring the application of a theory or model in a
different context or are hoping for a theory or a model to emerge from the data. In other words,
although you may have some ideas about your topic, you are also looking for ideas, concepts and
attitudes often from experts or practitioners in the field.

Collecting and organising data

The means of collecting and recording data through interviews and the possible pitfalls are well
documented elsewhere but in terms of subsequent analysis, it is essential that you have a complete
and accurate record of what was said. Do not rely on your memory (it can be very selective!) and
either tape record the conversation (preferably) or take copious notes. If you are taking notes, write
them up straight after the interview so that you can elaborate and clarify. If you are using a tape
recorder, transcribe the exact words onto paper.

However you record the data, you should end up with a hard copy of either exactly what was said
(transcript of tape recording) or nearly exactly what was said (comprehensive notes). It may be that
parts of the interview are irrelevant or are more in the nature of background material, in which case
you need not put these into your transcript but do make sure that they are indeed unnecessary. You
should indicate omissions in the text with short statements.

You should transcribe exactly what is said, with grammatical errors and so on. It does not look very
authentic if all your respondents speak with perfect grammar and BBC English! You may also want
to indicate other things that happen such as laughter.

Each transcript or set of notes should be clearly marked with the name of the interviewee, the date
and place and any other relevant details and, where appropriate, cross-referenced to clearly
labelled tapes. These transcripts and notes are not normally required to be included in your
dissertation but they should be available to show your supervisor and the second marker if required.

You may wonder why you should go to all the bother of transcribing your audiotapes. It is certainly a
time-consuming business, although much easier if you can get access to a transcription machine
that enables you to start and stop the tape with your feet while carrying on typing. It is even easier if
you have access to an audio-typist who will do this labour intensive part for you. The advantage of
having the interviews etc in hard copy is that you can refer to them very quickly, make notes in the
margins, re-organise them for analysis, make coding notations in the margins and so on. It is much
slower in the long run to have to continually listen to the tapes. You can read much faster than the
tape will play! It also has the advantage, especially if you do the transcription yourself, of ensuring
that you are very familiar with the material.

Content analysis

Analysis of qualitative data is not simple, and although it does not require complicated statistical
techniques of quantitative analysis, it is nonetheless difficult to handle the usually large amounts of
data in a thorough, systematic and relevant manner. Marshall and Rossman offer this graphic
description:

"Data analysis is the process of bringing order, structure and meaning to the mass of collected
data. It is a messy, ambiguous, time-consuming, creative, and fascinating process. It does not
proceed in a linear fashion; it is not neat. Qualitative data analysis is a search for general
statements about relationships among categories of data."

Marshall and Rossman, 1990:111

Hitchcock and Hughes take this one step further:

"…the ways in which the researcher moves from a description of what is the case to an explanation
of why what is the case is the case."

Hitchcock and Hughes 1995:295

Content analysis consists of reading and re-reading the transcripts looking for similarities and
differences in order to find themes and to develop categories. Having the full transcript is essential
to make sure that you do not leave out anything of importance by only selecting material that fits
your own ideas. There are various ways that you can mark the text:
Coding paragraphs – This is where you mark each paragraph with a topic/theme/category with an
appropriate word in the margin.

Highlighting paragraphs/sentences/phrases – This is where you use highlighter pens of different

colours or different coloured pens to mark bits about the different themes. Using the example
above, you could mark the bits relating to childcare and those relating to pay in a different colour,
and so on. The use of coloured pens will help you find the relevant bits you need when you are
writing up.

With both the above methods you may find that your categories change and develop as you do the
analysis. What is important is that you can see that by analysing the text in such a way, you pick up
all the references to a given topic and don’t leave anything out. This increases the objectivity and
reduces the risk of you only selecting bits that conform to your own preconceptions.

You then need to arrange the data so that all the pieces on one theme are together. There are
several ways of doing this:

 Cut and put in folders approach

Make several copies of each transcript (keeping the master safe) and cut up each one
according to what is being discussed (your themes or categories). Then sort them into
folders, one for each category, so that you have all together what each interviewee said
about a given theme. You can then compare and look for
similarities/differences/conclusions etc. Do not forget to mark each slip of paper with the
respondent’s name, initials or some sort of code or you won’t be able to remember who
said what. Several copies may be needed in case one paragraph contains more than one
theme or category. This is time consuming and messy at first, but easier in the long run
especially if you have a lot of data and categories.

 Card index system

Each transcript must be marked with line numbers for cross-referencing purposes. You
have a card for each theme or category and cross-reference each card with each
transcript so that you can find what everyone has said about a certain topic. This is quicker
initially but involves a lot of referring back to the original transcripts when you write up your
results and is usually only suitable for small amounts of data.

 Computer analysis

If you have access to a computer package that analyses qualitative data (e.g. NUDIST)
then you can use this. These vary in the way they work but these are some of the basic
common principles. You can upload your transcripts created in a compatible word-
processing package and then the software allows you to mark different sections with
various headings/themes. It will then sort all those sections marked with a particular
heading and print them off together. This is the electronic version of the folders approach!
It is also possible to use a word-processing package to cut and paste comments and to
search for particular words.

There is a great danger of subjective interpretation. You must accurately reflect the views of the
interviewees and be thorough and methodical. You need to become familiar with your data. You
may find this a daunting and stressful task or you may really enjoy it – sometimes so much that you
can delay getting down to the next stage which is interpreting and writing up!
Presenting qualitative data in your dissertation

This would normally follow the topics, themes and categories that you have developed in the
analysis and these, in turn, are likely to have been themes that came out in the literature and may
have formed the basis for your interview questions. It is usually a mistake to go through each
interviewee in turn and what they said on each topic. This is cumbersome and does not give the
scope to compare and contrast their ideas with the ideas of others.

Do not analyse the data on a question-by-question basis. You should summarise the key themes
that emerge from the data and may give selected quotes if these are particularly appropriate.

Note how a point is made and then illustrated with an appropriate quote. The quotes make the
whole text much more interesting and enjoyable to read but be wary of including too many. Please
note also the reference to literature (this one is an imaginary piece of literature) – you should
evaluate your own findings in this way and refer to the literature where appropriate. Remember the
two concepts of presenting and discussing your findings. By presenting we mean a factual
description/summary of what you found. The discussion element is your interpretation of what these
findings mean and how they confirm or contradict what you wrote about in your literature section.

If you are trying to test a model then this will have been explored in your literature review and your
methodology section will explain how you intend to test it. Your methodology should include who
was interviewed with a clear rationale for your choices to explain how this fits into your research
questions, how you ensured that the data was unbiased and as accurate as possible, and how the
data was analysed. If you have been able to present an adapted model appropriate to your
particular context then this should come towards the end of your findings section.

It may be desirable to put a small number of transcripts in the appendices but discuss this with your
supervisor. Remember you have to present accurately what was said and what you think it means.

In order to write up your methodology section, you are strongly recommended to do some reading
in research textbooks on interview techniques and the analysis of qualitative data. There are some
suggested texts in the Further Reading section at the end of this pack.

SALES FORECASTING

1. Forecasting methods: an overview

2. Direct extrapolation of sales
3. Causal approaches to sales forecasting
4. New product forecasting
5. Evaluating and selecting methods
6. Estimating prediction intervals
7. Implementation
8. Conclusions
Overview
Interesting and difficult sales forecasting problems are common. Will the 1998
Volkswagen Beetle be
a success? Will the Philadelphia Convention Hall be profitable? How will our
major competitors respond
if we raise the price of our product by 10 per cent? What if we cut advertising by
20 per cent?
Sales forecasting involves predicting the amount people will purchase, given the
product features and
the conditions of the sale. Sales forecasts help investors make decisions about
investments in new
ventures. They are vital to the efficient operation of the firm and can aid managers
on such decisions as
the size of a plant to build, the amount of inventory to carry, the number of
workers ,to hire, the amount
of advertising to place, the proper price to charge, and the salaries to pay
salespeople. Profitability
depends on (1) having a relatively accurate forecast of sales and costs; (2)
assessing the confidence one
can place in the forecast; and (3) properly using the forecast in the plan.
Marketing practitioners believe that sales forecasting is important. In Dalrymple”s
(1975) survey of
marketing executives in US companies, 93 per cent said that sales forecasting was
“one of the most
critical” or “a very important aspect of their company”s success.” Furthermore,
formal marketing plans
are often supported by forecasts (Dalrymple 1987). Given its importance to the
profitability of the firm, it
is surprising that basic marketing texts devote so little space to the topic.
Armstrong, Brodie and Mclntyre
(1987), in a content analysis of 53 marketing textbooks, fou9nd that forecasting
was mentioned on less
than 1 per cent of the pages.
Research on forecasting has produced useful findings. These findings are
summarized in the
Forecasting Principles Project, which is described on the website
forecastingprinciples.com. This entry
draws upon that project in summarizing guidelines for sales forecasting. These
forecasting guidelines
should be of particular interest because few firms use them. I also describe some
commonly used
approaches that are detrimental to sales forecasting.
After a brief overview of forecasting methods, I discuss the direct extrapolation of
sales data, either
through statistical data or simply judgmental. Next, I describe causal approaches
to sales forecasting.
Attention is then given to new product forecasting. This is followed by a
discussion of how to select
appropriate methods and by a description of methods to assess uncertainty. I
conclude with suggestions
for gaining acceptance of forecasting methods and of forecasts. 2
1. Forecasting methods: an overview
Forecasting involves methods that derive primarily from judgmental sources
versus those from
statistical sources. These methods and their relationships are shown in the flow
chart in Figure 1.
Judgment and statistical procedures are often used together, and since 1985, much
research has examined
the integration of statistical and judgmental forecasts (Armstrong and Collopy
1998b). Going down the
figure, there is an increasing amount of integration between judgmental and
statistical procedures
Econometric models allow for extensive integration of judgmental planning and
decision making. They can incorporate the
effects of marketing mix variables as well as variables representing key aspects of
the market and the
environment. Econometric methods are appropriate when one needs to forecast
what will happen using
different assumptions about the environment or different strategies. Econometric
methods are most useful
when (1) strong causal relationships with sales are expected; (2) these causal
relationships can be
estimated; (3) large changes are expected to occur in the causal variables over the
forecast horizon; and
(4) these changes in the causal variables can be forecast or controlled, especially
with respect to their
direction. If any of these conditions does not hold (which is typical for short-range
sales forecasts), then
econometric methods should not be expected to improve accuracy.
2. Direct extrapolation of sales
If one does not have substantial amounts of sales data; it may be preferable to
make judgmental
extrapolations. This assumes that the person has good knowledge about the
product. For example, the
characteristics of the product and market and future plans are all well-known.
When one has ample sales data, it is often sufficient merely to extrapolate the
trend. Extrapolation of
the historical sales trend is common in firms (Mentzer and Kahn 1995).
Extrapolation methods are used
for short-term forecasts of demand for inventory and production decisions.
When the data are for time intervals shorter than a year, it is generally advisable to
use seasonal
adjustments, given sufficient data. Seasonal adjustments typically represent the
most important way to
improve the accuracy of extrapolation. Dalrymple”s (1987) survey results were
consistent with the
principle that the use of seasonal factors reduces the forecast error. Seasonal
adjustments which also led
to substantial improvements in accuracy were found in the large-scale study of
time series by Makridakis
et al. (1984).
If the historical series involve much uncertainty, the forecaster should use
relatively simple models.
Uncertainty in this case can be assessed by examining the variability about the
long-term trend line.
Schnaars (1984) presented evidence that the naïve forecast was one or me most
accurate procedures for
industry sales forecasts. Uncertainty also calls for conservative forecasts. Being
conservative means to
stay near the historical average. Thus, it often helps to dampen the trend as the
horizon increases (see
Gardner and McKenzie 1985 for a description of one such procedure and for
evidence of its
effectiveness). 5
One of the key issues in the extrapolation of sales is whether to use top-down or
bottom-up
approaches. By starting at the top (say the market for automobiles), and then
allocating the forecast
among the elements (e.g. sales of luxury cars or sales of the BMW 3-series) one
typically benefits from
having more reliable data, but the data are less relevant. In contrast, the bottom-up
approach is more
relevant and less reliable. "(For a more complete discussion on these issues, see
Armstrong, 1985: 250-66
and MacGregor 1998.) Research on this topic has been done under the heading of
“decomposition” or
“segmentation.” Additive breakdowns tend to be fairly safe. Seldom do they harm
forecast accuracy, and
often they provide substantial improvements (Dangerfield and Morris 1992).
3. Causal approaches to sales forecasting
Instead of extrapolating sales directly, one can forecast the factors that cause sales
to vary. This
begins with environmental factors such as population, gross national product
(GNP) and the legal system.
These affect the behavior of customers, competitors, suppliers, distributors and
complementors (those
organizations with whom you cooperate). Their actions lead to a market forecast.
Their actions also
provide inputs for the market share forecast. The product of the market forecast
and the market share
forecast yields the sales forecast.
The breakdown of the problems into the elements of Figure 2 may aid one”s
thinking about the sales
forecasts. It is expected to improve accuracy (versus the extrapolation of sales)
only if one has good
information about each of the components and if there is a good understanding
about how each relates to
sales. If there is high uncertainty about any of the elements, it might be more
accurate to extrapolate sales
directly.
Figure 2. Causal approach to sales forecasting
Environment
Customers
Market Forecast
Company Marketing Mix
Market Share
Sales Forecast
Supplier(s)
Distributor(s) and
Complementor(s)
Competition
Marketing Mix
The primary advantage of the indirect approach is that it can be more directly
related to decision
making. Adjustments can be made in the marketing mix to see how this would
affect the forecast. Also,
forecasts can be prepared to assess possible changes by other decision makers
such as competitors or
complementors. These forecasts can allow the firm to develop contingency plans,
and these effects on 6
sales can also be forecast. On the negative side, the causal approach is more
expensive than sales
extrapolation.
Environment

It is sometimes possible to obtain published forecasts of environmental factors

from Tablebase,
which is available on the Internet through various subscribing business research
libraries. These
forecasts may be adequate for many purposes. However, sometimes it is difficult
to determine what
methods were used to create the forecasts. In such cases, econometric models can
improve the accuracy
of environmental forecasts. They provide more accurate forecasts than those
provided by extrapolation
or by judgment when large changes are involved. Allen (1999) summarizes
evidence on this. Important
findings that aid econometric methods are to: (1) base the selection of causal
variables upon forecasting
theory and knowledge about the situation, rather than upon the statistical fit to
historical data (also,
tests of statistical significance play no role here); (2) use relatively simple models
(e.g. do not use
simultaneous equations; do not use models that cannot be specified as linear in the
parameters); and (3)
use variables only if the estimated relationship to sales is in the same direction as
specified a priori. The
last point is consistent with the principle of using causal not statistical reasoning.
Consistent with this
viewpoint, leading indicators, a non causal approach to forecasting that has been
widely accepted for
decades, does not seem to improve the accuracy of forecasts (Diebold and
Rudebusch 1991).
Interestingly, there exists little evidence that more accurate forecasts of the
environment (e.g.
population, the economy, social trends, technological change) lead to better sales
forecasts. This, of
course, seems preposterous. I expect that the results have been obtained for studies
where the conditions
were not ideal for econometric methods. For example, if things continue to change
as they have in the
past, there is little reason to expect an econometric model to help with the
forecast. However, improved
environmental forecasts are expected when large changes are likely, such as the
adoption of free trade
policies, reductions in tariffs, economic depressions, natural disasters, and wars.
Customers
One should know the size of the potential market for the given product category
(e.g. how many
people in region X might be able to purchase an automobile), the ability of the
potential market to
purchase (e.g. income per capita and the price of the product), and the needs of the
potential customers.
Examination of each of these factors can help in forecasting demand for the
category.
Company
The company sets its own marketing mix so there is typically little need to
forecast these actions.
However, sometimes the policies are not implemented according to plan because
of changes in the
market, actions by competitors or by retailers, or a lack of cooperation by those in
the firm. Thus, it may
be useful to forecast the actions that will actually be taken (e.g. if we provide a
trade discount, how will
this affect the average price paid by final consumers?)
Intermediaries
What actions will be taken by suppliers, distributors and complementors? One
useful prediction
model is to assume that their future decisions will be similar to those in the past,
that is, the naive model.
For existing markets, this model is often difficult to improve upon. When large
changes are expected,
however, the naive model is not appropriate. In such cases one can use structured
judgment, extrapolate
from analogous situations, or use econometric models. 7
Structure typically improves the accuracy of judgment, especially if it can
realistically mirror the
actual situation. Role playing is one such structured technique. It is useful when
the outcome depends on
the interaction among different parties and especially when the interaction
involves conflict. Armstrong
and Hutcherson (1989) asked subjects to role play the interactions between
producers and distributors. In
this disguised situation, Philco was trying to convince supermarkets to sell its
appliances through a
scheme whereby customers received discounts based on the volume of purchases
at selected
supermarkets. Short (less than one hour) role plays of the situation led to correct
predictions of the
supermarket managers” responses for 75 per cent of the 12 groups. In contrast,
only one of 37 groups was
correct when groups made predictions without benefit of formal techniques. (As it
turned out, the decision
itself was poor, but that is another story.)
Econometric models offer an alternative, although much more expensive approach
to forecasting the
actions by intermediaries. This approach requires a substantial amount of
information. For example,
Montgomery (1975) described a model to predict whether a supermarket buying
committee would put a
new product on its shelves. This model, which used information about advertising,
suppliers” reputation,
margin and retail price, provided reasonable predictions for a hold-out sample.
Competitors
Can we improve upon the simple, “naïve,” forecast that competitors will continue
to act as they have
in the past? These forecasts are difficult because of the interaction that occurs
among the key actors in the
market. Because competitors have conflicting interests, they are unlikely to
respond truthfully to an intentions survey.
A small survey of marketing experts suggested that the most popular approach to
forecasting
competitors” actions is unaided expert opinion (Armstrong et al. 1987). Because
the
,
experts” are usually
those in the company, however, this may introduce biases related to their desired
outcomes. For example,
brand managers are generally too optimistic about their brands. Here again, role
playing would appear to
be relevant. Although no direct experimental evidence is available on its value in
forecasting competitor”s
actions, role playing has proven to be accurate in forecasting the decision made in
conflict situations
(Armstrong 1999).
Market share
Can we do better than the naive model of no change? For existing markets that are
not undergoing
major change, the naive model is reasonably accurate (Brodie et al. 1999). This is
true even when one has
excellent data about the competitors (Alsem et al. 1989). However, causal
models should improve
forecasts when large changes are made, such as when price reductions are
advertised. Causal models
should also help when a firm”s sales have been artificially limited due to
production capacity, tariffs, or
quotas. Furthermore, contingent forecasts are important. Firms can benefit by
obtaining good forecasts of
how its policies (e.g. a major price reduction) would affect its market share.
4. New product forecasting
New product forecasting is of particular interest in view of its importance to
decision making. In
addition, large errors are typically made in such forecasts. Tull (1967) estimated
the mean absolute
percentage error for new product sales to be about 65 per cent. Not surprisingly
then, pretest market
models have gained wide acceptance among business firms; Shocker and Hall
(1986) provide an
evaluation of some of these models. 8
The choice of a forecasting model to estimate customer response depends on the
stage of the product
life-cycle. As one moves through the concept phase to the prototype, test market,
introductory, growth,
maturation, and declining stages, the relative value of the alternative forecasting
methods changes. In
general, the movement is from purely judgmental approaches to quantitative
models that use judgment as
inputs. For example, intentions and expert opinions are vital in the concept and
prototype stages. Later,
expert judgment is useful as an input to quantitative models. Extrapolation
methods may be useful in the
early stages if it is possible to find analogous products (Claycamp and Liddy
1969). In later stages,
extrapolation methods become more useful and less expensive as one can work
directly with time-series
data on sales or orders. Econometric and segmentation methods become more
useful after a sufficient
amount of actual sales data are obtained.
When the new product is in the concept phase, a heavy reliance is usually placed
on intentions
surveys. Intentions to purchase new products are complicated because potential
customers may not be
sufficiently familiar with the proposed product and because the various features of
the product affect one
another (e.g. price, quality, and distribution channel). This suggests the need to
prepare a good description
of the proposed product. This often involves expensive prototypes, visual aids,
product clinics, or
laboratory tests. However, brief descriptions are sometimes as accurate as
elaborate descriptions as found
in Armstrong and Overton”s (1970) study of a new form of urban mass
transportation.
In the typical intentions study, potential consumers are provided with a description
of the product and
the conditions of sale, and then are asked about their intentions to purchase.
Eleven-point rating scales are
recommended. The scale should have verbal designations such as 0 = No chance,
almost no chance (1 in
100) to 10 = Certain, practically certain (99 in 100). It is best to state the question
broadly about one”s
“expectations” or “probabilities” to purchase, rather than the narrower question of
intentions. This
distinction was raised early on by Juster (1966) and its importance has been shown
in empirical studies by
Day et al. (1991).
Intentions surveys are useful when all of the following conditions hold: (1) the
event is important; (2)
responses can be obtained; (3) the respondent has a plan; (4) the respondent
reports correctly; (5) the
respondent can fulfill the plan; and (6) events are unlikely to change the plan.
These conditions imply that
intentions are more useful for short-term forecasts of business-to-business sales.
The technology of intentions surveys has improved greatly over the past half
century. Useful methods
have been developed for selecting samples, compensating for nonresponse bias,
and reducing response
error. Dillman (1978) provides excellent advice that can be used for designing
intentions surveys. Improvements in this technology have been demonstrated by
studies on voter intentions (Perry 1979).
Response error is probably the most important component of total error (Sudman
and Bradburn 1982).
Still, the correspondence between intentions and sales is often not close. Morwitz
(1999) provides a
review of the evidence on intentions to purchase.
As an alternative to asking potential customers about their intentions to purchase,
one can ask experts
to predict how consumers will respond. For example, Wotruba and Thurlow
(1976) discuss how opinions
from members of the sales force can be used to forecast sales. One could ask
distributors or marketing executives to make sales forecasts. Expert opinions
studies differ from intentions surveys. When an expert is
asked to predict the behavior of a market, there is no need to claim that this is a
representative expert.
Quite the contrary, the expert may be exceptional. When using experts to forecast,
one needs few experts,
typically only between five and twenty (Hogarth 19,78; Ashton 1985).
Experts are especially useful at diagnosing the current situation, which we might
call “nowcasting.”
Surprisingly, however, when the task involves forecasting change, experts with
modest domain expertise 9
(about the item to be forecast) are just as accurate as those with high expertise
(Armstrong 1985: 91-6
reviews the evidence). This means that it is not necessary to purchase expensive
expert advice.
Unfortunately, experts are often subject to biases. Salespeople may try to forecast
on the low side if
the forecasts will be used to set quotas. Marketing executives may forecast high in
their belief that this
will motivate the sales force. If possible, avoid experts who would have obvious
reasons to be biased
(Tyebjee 1987). Another strategy is to include a heterogeneous group of experts in
the hopes that their
differing biases may cancel one another.
Little is known about the relative accuracy of expert opinions versus consumer
intentions. However,
Sewall (1981) found that each approach contributes useful information such that a
combined forecast is
more accurate than either one alone.
Producers often consider several alternative designs for the new product. In such
cases, potential
customers can be presented with a series of perhaps twenty or so alternative
offerings. For example,
various features of a personal computer, such as price, weight, battery life, screen
clarity and memory
might vary according to rules for experimental design (the basic ideas being that
each feature should vary
substantially and that the variations among the features should not correlate with
one another). The
customer is forced to make trade-offs among various features. This is called
“conjoint analysis” because
the consumers consider the product features jointly. This procedure is widely used
by firms (Wittink and
Bergestuen 1998). An example of a successful application is the design of a new
Marriott hotel chain
(Wind et al. 1989). The use of conjoint analysis to forecast new product demand
can be expensive
because it requires large samples of potential buyers, the potential buyers may be
difficult to locate, and
the questionnaires are not easy to complete. Respondents must, of course,
understand the concepts that
they are being asked to evaluate. Although conjoint analysis rests on good
theoretical foundations, little
validation research exists in which its accuracy is compared with the accuracy of
alternative techniques
such as Delphi or judgmental forecasting procedures.
Expert judgments can be used in a manner analogous to the use of consumers”
intentions for conjoint
analysis. That is, the experts could be asked to make predictions about situations
involving alternative
product design and alternative marketing plans. These predictions would then be
related to the situations
by regression analysis. Following the philosophy for naming conjoint analysis,
this could be called
exjoint analysis. It is advantageous to conjoint analysis in that few experts are
needed (probably between
five and twenty). In addition, it can incorporate policy variables that might be
difficult for consumers to
assess.
Once a new product is on the market, it is possible to use extrapolation methods.
Much attention has
been given to the selection of the proper functional form to extrapolate early sales.
The diffusion literature
uses an S-shaped curve to predict new product sales. That is, growth builds up
slowly at first, becomes
rapid as word-of-mouth and observation of use spread, then slows again as it
approaches a saturation
level. A substantial literature exists on diffusion models. Despite this, the number
of comparative
validation studies is small and the benefits of choosing the best functional form
seem to be modest
(research on this is reviewed by Meade 1999).
5. Evaluating and selecting methods
Assume that you were asked to predict annual sales of consumer products such as
stoves,
refrigerators, fans and wine for the next five years., What forecasting method
would you use? As
indicated above, the selection should be guided by the stage in the product life-
cycle and by the 10
availability of data. But general guidelines cannot provide a complete answer.
Because each situation
differs, you should consider more than one method.
Given that you use more than one method to forecast, how should you pick the
best method? One of
the most widely used approaches suggests that you select the one that has
performed best in the recent
past. This raises the issue of what criteria should be used to identify the best
method. Statisticians have
relied upon sophisticated procedures for analyzing how well models fit historical
data. However, this has
been of little value for the selection of forecasting methods. Forecasters should
ignore measures of fit
(such as R
Z
or the standard error of the estimate of the model) because they have little
relationship to
forecast accuracy. Instead, one should rely on ex ante forecasts from realistic
simulations of the actual
situation faced by the forecaster. By ex ante, we mean that the forecaster has only
that information that
would be available at the time of an actual forecast.
Traditional error measures, such as mean square error, do not provide a reliable
basis for comparison
of methods (for empirical evidence on this, see Armstrong and Collopy 1992).
The Median Absolute
Percentage Error (MdAPE) is more appropriate because it is invariant to scale and
is not overly
influenced by outliers. For comparisons using a small set of series, it is desirable,
also, to control for
degree of difficulty in forecasting. One measure that does this is the Median
Relative Absolute Error
(MdRAE), which compares the error for a given model against errors for the
naive, no change forecast
(Armstrong and Collopy 1992).
One can avoid the complexities of selection by simply combining forecasts.
Considerable research
suggests that, lacking well-structured domain knowledge, equally-weighted
averages are as accurate as
any other weighting scheme (Clemen 1989). This produces consistent, though
modest improvements in
accuracy, and it reduces the likelihood of large errors. Combining seems to be
especially useful when the
methods are substantially different. For example, Blattberg and Hoch (1990)
obtained improved sales
forecasts by equally weighting managers” judgmental forecasts and forecasts from
a quantitative model.
The selection and weighting of forecasting methods can be improved by using
domain knowledge
(about the item to be forecast) as shown in research on rule-based forecasting
(Collopy and Armstrong
1992). Domain knowledge can be structured, especially with respect to trend
expectations. These, along
with a consideration of the features of the data (e.g. discontinuities), enable
improvements in the
weightings assigned to various extrapolations.
6. Estimating prediction intervals
In addition to improving accuracy, forecasting is also concerned with assessing
uncertainty. Although
statisticians have given much attention to this problem, their efforts generally rely
upon fits to historical
data to infer forecast uncertainty. Here also, you should simulate the actual
forecasting procedure as
closely as possible, and use the distribution of the resulting ex ante forecasts to
assess uncertainty. So, if
you need to make two-year-ahead forecasts, save enough data to be able to have a
number of two-year
ahead ex ante forecasts.
The prediction intervals from quantitative forecasts tend to be too narrow. Some
empirical studies
have shown that the percentage of actual values that fall outside the 95 per cent
prediction intervals is
substantially greater than 5 per cent, and sometimes greater than 50 per cent
(Makridakis et al. 1987).
This occurs because the estimates ignore various sources of uncertainty. For
example, discontinuities
might occur over the forecast horizon. In addition, forecast errors in time series
are usually asymmetric,
so this makes it difficult to estimate prediction intervals. The most sensible
procedure is to transform the
forecast and actual values to logs, then calculate the prediction intervals using
logged differences. 11
Interestingly, researchers and practitioners do not follow this advice except where
the original forecasting
model has been formulated in logs.
When the trend extrapolation is contrary to the managers” expectations, the errors
are asymmetrical in
logs. Evidence on the issue of asymmetrical errors is provided in Armstrong and
Collopy (1998a). In such
cases, one might use asymmetrical prediction intervals. Notice that this discussion
takes no account of
asymmetric economic loss functions. For example, the cost of a forecast that is too
low by 50 units (lost
sales) may differ from the cost if it is too high by 50 units (excess inventory). But
this is a problem for the
planner, not the forecaster.
Judgmental forecasts are also too narrow. That is, experts are typically
overconfident (Arkes 1999).
To a large extent, this is because forecasters do not get good feedback on their
predictions. When they do,
such as happens for weather forecasters, they can be well calibrated. When
forecasters say that there is a
60 per cent chance of rain, it rains 60 per cent of the time. This suggests that
marketing forecasters should
try to ensure that they receive feedback on the accuracy of their forecasts. The
feedback should be
relatively frequent and it should summarize accuracy in a meaningful fashion.
Another procedure that
helps to avoid overconfidence is for the forecaster to make a written list of all of
the reasons why the
forecast might be wrong.
7. Implementation
There are two key implementation problems. First, how can you gain acceptance
of new forecasting
methods, and second, how can you gain acceptance of the forecasts, themselves?
Acceptance of forecasting methods
The diffusion rate for new methods is slow. Exponential smoothing, one ofthe
major developments
for production and inventory control forecasting, was developed in the late 1950s,
yet it is only recently
that the adoption rate has been substantial (Mentzer and Kahn 1995). Adoption is
probably slow because
there are many steps involved in the diffusion of the method. Here is the
traditional procedure.
Techniques are first developed. Some time later they are tested. At each stage they
are reported in the
literature. They are later passed along via courses, textbooks, and consultants,
eventually reaching the
manager who can use them. Even then they may be resisted, perhaps because the
procedures are too
complex for the users.
The future is promising, however. The latest methods can be fully disclosed on
websites and they
can be incorporated into expert systems and software packages. For example, the
complete set of rules
for rule-based forecasting is kept available and up-to-date and can be accessed
through the forecasting
principles site (forecastingprinciples.com).
Acceptance of forecasts
Forecasts are especially useful for situations that are subject to significant
changes. Often, these
involve bad news. For example, Griffith and Wellman (1979), in a follow-up
study on the demand for
hospital beds, found that the forecasts from consultants were typically ignored
when they indicated a need
that was less than that desired by the hospital administrators.
Firms often confuse forecasting with planning, and they may use the forecast as a
tool to motivate
people. That is, they use a “forecast” to drive behavior, rather than making a
forecast conditional on
behavior. (One wonders if they also change their thermometers in order to
influence the weather.) One 12
way to avoid this problem is to gain agreement on what forecasting procedures to
use prior to presenting
the forecasts.
Another way to gain acceptance of forecasts is to ask decision makers to decide in
advance what
decisions they will make, given different possible forecasts. Do the decisions
differ? These prior
agreements on process and on decisions can greatly enhance the value of the
forecasts, but they are
difficult to achieve ,in many organizations. The use of scenarios offers an aid to
this process. Scenarios
involve writing detailed stories of how decision makers would handle situations
that involve alternative
states of the future. Decision makers project themselves into the situation and they
write the stories in the
past tense. (More detailed instructions for writing scenarios are summarized in
Gregory 1999.) Scenarios
are effective in getting forecasters to accept the possibility that certain events
might occur.
8. Conclusions
Extrapolations of sales are inexpensive and often adequate for the decisions that
 need to be made. In
situations where large changes are expected or where one would like to examine
alternative strategies,
causal approaches are recommended.
Some of the more important findings about sales forecasting methods can be
summarized as follows:
• Methods should be selected on the basis of empirically-tested theories, not
statistically based
theories.
• Domain knowledge should be used.
• When possible, forecasting methods should use behavioral data, rather than
judgments or
intentions to predict behavior.
• When using judgment, a heavy reliance should be placed on structured
procedures such as
Delphi, role playing, and conjoint analysis.
• Overconfidence occurs with quantitative and judgmental methods. In addition to
ensuring
good feedback, forecasters should explicitly list all the things that might be wrong
about their
forecast.
• When making forecasts in highly uncertain situations, be conservative. For
example, the trend
should be dampened over the forecast horizon.
• Complex models have not proven to be more accurate than relatively simple
models. Given
their added cost and the reduced understanding among users, highly complex
procedures
cannot be justified at the present time.
The sales forecast should be free of political considerations in a firm. To help
ensure this, emphasis
should be on agreeing about the forecasting methods, rather than the forecasts.
Also, for important
forecasts, decisions on their use should be made before the forecasts are provided.
Scenarios are helpful in
guiding this process.

Sales forecasts are common and essential tools used for business planning, marketing,
and general management decision making. A sales forecast is a projection of the
expected customer demand for products or services at a specific company, for a specific
time horizon, and with certain underlying assumptions.
A separate but related projection is the market forecast, which is an attempt to gauge the
size of the entire market for a certain class of goods or services from all companies
serving that market. Sales and market forecasts are often prepared using different
methods and for different purposes, but sales forecasts in particular are often dependent
at least somewhat on market forecasts. Although the focus of this discussion will be on
sales forecasting, a brief summary of market forecasting will help provide context.

A special term in studying sales and market forecasts is the word "potential." This refers
to the highest possible level of purchasing, whether at the company level or at the
industry or market level. In practice, full potential is almost never reached, so actual
sales are typically somewhat less than potential. Hence, forecasts of potential must be
distinguished from forecasts that attempt to predict sales realized.

MARKET FORECASTING

Assessing market potential involves observing and quantifying relationships among

different social and economic factors that affect purchasing behaviors. Analysts at the
industry level look for causal factors that, when linked together, explain changes
(upward or downward) in demand for a given set of products or services. This may be
done on the local level, the national level, or even the international level. The economic
and social variables that are deemed most important—those that historically have
shown the most influence on demand—are then incorporated into some type of formula
or mathematical model that attempts to predict future purchasing activity based on
expected changes in the causal factors.

The simplest example would be to consider the influence of widely observed

macroeconomic indicators such as gross domestic product (GDP) and employment
rates. A simplistic model of market growth might indicate that based on time-series data
from the past decade the restaurant market tends to grow at one and one-tenth times
the rate of GDP when the national unemployment rate is less than 7 percent, and at
four-fifths of the GDP growth rate when unemployment is greater than 7 percent.

Suppose an analyst wishes to create a two-year forecast for the national restaurant
business. Using published estimates from government or private sector economists, the
analyst might learn that next year's GDP is expected to grow at 2.9 percent and
unemployment is expected to register at 6.7 percent. The following year, however, GDP
growth is expected to slow to 1.9 percent and unemployment is expected to rise to 7.6
percent. Using the simple model outlined, the forecast for next year's restaurant sales
growth would be based on the first condition observed, namely that market growth is
somewhat (10 percent) higher than GDP growth when unemployment is relatively low.
In other words, the first year's forecast would be 1.1 × 2.9, or 3.19 percent restaurant
market growth. In the second year, the second condition would come into play—market
growth is slower than GDP growth—since unemployment is expected to surpass 7
percent. Thus the forecast would be 0.8 X 1.9 percent, or 1.52 percent growth in demand
for restaurant services.

While this example illustrates the basic process of forecasting, serious market forecasts
would of course consider many more factors than GDP and unemployment. For
instance, more sophisticated models might look at the changing demographics of the
customer base (size, average income, and other attributes), the rate of inflation, changes
in interest rates, and changes in related markets that could affect the market under
consideration. Consequently, the formulas for obtaining market forecasts are
considerably more complex. But, as in this example, many market forecasts do rely on
economic or demographic data from government or other sources; the forecaster often
doesn't need to come up with from scratch his or her own projections for, say, GDP and
population growth. Many market forecasts also rely on published indexes, ratios, and
averages for various economic and social factors that have been compiled in databases
or in reference books.

SALES POTENTIAL AND FORECASTING

Sales forecasting is an attempt to predict what share of the market potential identified in
a market forecast a particular company expects to have. For very small companies that
serve only a fraction of the total market, the company forecast may not even explicitly
consider the market forecast or share, although implicitly, of course, the company's sales
are subsumed under the total market size. In the other extreme, a monopoly's sales
forecast is essentially the same as the market forecast.
Forecasts of different kinds are often prepared at different levels of a corporate
enterprise. Managers of different stripes use forecasts for a variety of purposes,
including marketing planning, resource\investment allocation, production scheduling,
and labor recruitment. In some cases the uses are simply informational, but in many
cases forecasts are the basis for major decisions like:

 what product lines to pursue

 how much to spend on production and in what ways
 how aggressively to advertise or promote the products
 how best to get the products to market in order to fulfill the projected demand

Yet sales forecasts are conditional in that they are only estimations and are highly
interdependent with corporate strategy and actions. Some forecasts are developed
before strategies and action plans are formulated; others are created to gauge the
anticipated effects of an existing strategy.

A sales forecast may cause management to adjust some of its assumptions or decisions
about production and marketing if the forecast indicates that (1) the current production
capacity is grossly inadequate or excessive and (2) sales and marketing efforts are
inconsistent with the expected outcomes. Management therefore has the opportunity to
examine a series of alternate plans for changes in resource commitments (such as plant
capacity, promotional programs, and market activities), changes in prices, or changes in
production scheduling. Indeed, when a company is evaluating different courses of action
it may develop separate forecasts for each option in order to assess the implications of
each.

THE HISTORICAL PERSPECTIVE.

As a starting point, management analyzes previous sales experience by product lines,

territories, classes of customers, or other relevant categories. This analysis is often on a
detailed level, such as on a month-by-month, quarterly, or seasonal basis, in addition to
looking at overall annual trends. Such detailed views will allow management to look for
seasonality in new forecasts or even to devise strategies to improve sales during slow
seasons.
Management needs to consider a time line long enough to detect significant patterns in
its sales history. This period is typically five to ten years. If the company's experience
with a particular product class is shorter, management might also examine discernible
experiences of similar companies. The longer the view, the better management is able to
detect patterns that follow cycles. Patterns that repeat themselves, no matter how
erratically, are considered "normal," while variations from these patterns are "deviant."
Some of these deviations may have resulted from temporary or fluke conditions, such as
bad weather or uncommon events. Depending on the circumstances, figures may need
to be normalized to remove the influence of such factors.

MARKET POSITION.

Forecasting may also consider how the company rates against its competitors in terms
of market share, research and development, quality, pricing and sales financing policies,
and overall public image. In addition, forecasters may evaluate the quality and size of
the customer base to determine brand loyalty, response to promotions, economic
viability, and credit worthiness.

PRICE INDEX.

If prices for products have changed significantly over the years, changes in dollar
volume of sales may not correlate well with unit sales. To adjust for such discrepancies,
a price index may be developed showing the relative prices of goods for a given year
versus some reference year. Perhaps the simplest case would be if the company's prices
moved exactly at the rate of inflation, in which case it could use the historical tables
from the Consumer Price Index or Producer Price Index, depending on what market it
serves, to adjust its figures. Using this information, the company can establish more
stable projections that are not unduly skewed by price fluctuations or inflation trends.

GENERAL ECONOMIC CONDITIONS AND SECULAR TRENDS.

The condition of the overall economy often influences the rate of growth (or decline) for
particular markets and firms. Sales forecasters may consider any number of
macroeconomic trends that have been shown to correlate with company sales, including
GDP and inflation. General indicators like these can be essential in interpreting a sales
forecast or recent sales history, as they will show, for example, whether the company's
dollar sales are rising faster than the rate of inflation or whether the company is growing
more rapidly than the economy on average.

Similarly, the company may consider its performance relative to its industry, the secular
trend. While the secular trend represents the average for the industry, it may not be
"normal" for a particular company. A comparison of the company's trends to the
industry pattern may highlight that the company is serving a specialized market within
the broader industry or that the company isn't keeping up well with its competitors. The
forecast of such patterns may lead management to alter its strategies if such trends are
unfavorable, or to concentrate more on a strategy that appears to be working well.

PRODUCT TRENDS.

Forecasters may also analyze sales trends of individual products. This may include the
use of price indexes. Such trends are important for understanding product life cycles
and separating the performance of similar products (e.g., two different lines of shampoo
from the same company) to evaluate strengths and weaknesses.

DEVELOPING A SALES FORECAST

Forecasting involves more uncertainties than most other management activities. For
instance, while management exerts a good deal of control over expenditures, it has little
ability to direct the buying habits of its customers. Thus, even while sales trends depend
on the vagaries of the marketplace, management must make a reasonable estimate of
what the future holds in order to plan corporate affairs effectively.

The process managers or analysts go through to create a sales forecast is similar to this:

1. Determine the purposes of the forecast (e.g., for purchasing, strategic planning,
etc.).
2. Divide the company's products into homogeneous (or at least relevant)
categories.
 3. Determine the major factors affecting the sales of each product group and their
relative importance.
4. Choose one or more forecasting methods based on the kind of data available and
the sophistication needed in the forecast.
5. Gather all necessary data.
6. Analyze the data.
7. Check and cross-check any adjustments to the data (e.g., price indexing or
seasonal adjustments).
8. Make assumptions regarding any effects of the various factors that can't be
measured or forecast.
9. Convert deductions and assumptions into specific product and territorial
forecasts and quotas.
10. Apply forecasts to company operations.
11. Periodically review performance and revise forecasts.

While forecasting is still neither effortless nor flawless, the gap between forecasts and
reality has steadily narrowed over time. There are several ways that a company can
improve the likelihood of creating an accurate sales forecast and using it effectively:

 using more than one forecasting technique

 abandoning or modifying a specific technique when it has proven unreliable for
the company's needs
 remembering that forecasts are highly conditional
 carefully monitoring market developments for changes that contradict the
underlying assumptions of the forecast
 conducting periodic reviews and making changes when necessary

OVERVIEW OF FORECASTING 
APPROACHES

A variety of approaches can be used to surmise the future growth of sales. Some are
highly dependent on statistics and mathematical relationships, while others are more
inferential or speculative. The choice of approach depends on how accurate or precise
the forecast needs to be, how long of a period it's for, the availability of past or
supporting data, the funding available for forecasting activities, and other
considerations.

CAUSAL APPROACH.

In the causal approach, forecasters identify the underlying variables that have a causal
influence on future sales. For instance, new computer sales generally have a direct
influence on software application sales. In the consumer software market, other causal
factors might be population growth, the expansion of computer-based activities such as
electronic commerce, and trends in work and school practices like working at home and
computer-based education initiatives. Still other more general factors might be the
growth of personal income, employment levels, patterns in international trade (new
market opportunities or new competitive threats), and so forth.

To first assess the market trends, the task of the forecaster is to establish (if it has not
already been reliably by others) how these factors relate to one another and to sales of
software. Some will have a direct (positive) relationship with sales, while others will
have an inverse or negative relationship. In statistical parlance, the forecaster is
identifying a set of correlations. Upon further examination, some of these correlations
will appear causal (population growth causes higher sales), while others will be indirect
or coincidental (inflation growth may cause both rising interest rates and rising sales,
but rising interest rates may have nothing to do with rising sales). The sum of all this
information is a formula or model that, given a certain set of conditions characterizing
the underlying factors, will indicate the future behavior of sales.

On the next level the forecaster must assess the company's position in the industry and
how that is likely to change over the forecast period. If no change at all were expected
(i.e., it retains the exact same share of the market over the period) the company's sales
would grow at the exact same rate as the broader market. Since this is uncommon,
however, the forecaster must surmise whether the firm's recent or intended actions—as
well as those of its competitors—will result in rising or falling market share. Again, there
are a variety of causal variables to be considered, such as advertising expenditures,
promotional efforts, new product introductions, and technological changes, to name a
few.
Eventually, through data analysis, model construction, and statistical methods, the
forecaster will arrive at a causal model of company sales based on external factors and
internal actions. When changes in those factors occur (or are expected to), the
implications for the company's sales can be determined by recalculating the forecast
using the same model but different inputs. As this description suggests, causal
approaches to forecasting tend to be complex analyses of a wide array of potential
influences on sales.

A regression analysis is a specific forecasting tool that identifies a statistical

relationship between sales, the dependent variable in the analysis, and one or more
influencing factors, which are termed the independent variables. When just one
independent variable is considered (say, population growth), it is called a linear
regression, and the results can be shown as a line graph predicting future values of sales
based on changes in the independent variable. When more than one independent
variable is considered, it is called a multiple regression and can't be represented with a
simple line graph. Regression analysis is related to correlation analysis, where the latter
is concerned with the strength of relationships between the independent and dependent
variables.

Another causal model is life-cycle analysis. Here product sales growth rates are forecast
based on analysts' projections of the phases of product acceptance by various segments
of the market—innovators, early adapters, early majority, late majority, and laggards.
Typically, this method is used to forecast new product sales. Analysts' minimum data
requirements are the annual sales of the product being considered or of a similar
product. It is often necessary to do market surveys to establish the cause-and-effect
relationships that signal the different phases of the product life cycle.

NONCAUSAL APPROACHES.

The most common noncausal approaches are time-series models, in which patterns are
extrapolated from standardized historical data in order to reach a future projection.
(Elaborate time series may also be used in causal models as well.) Analysts plot these
patterns in order to project future sales. Because no attempt is made to identify and
evaluate the underlying causes of sales patterns, the analyst implicitly assumes that the
underlying causes will continue to influence future sales in roughly the same manner as
in the past. Consequently, while it is easier to use and understand, this approach tends
to be relatively simple and may not produce as reliable results as other methods.

One common method of forecasting based on time series is the use of moving averages.
There are a number of specific methods that incorporate moving averages. All of these
assume in some way that future sales will reflect an average of past performances rather
than, for example, following a linear percentage increase trend. Moving average
methods minimize the impact of random outcomes that could skew a forecast.

Exponential smoothing is a similar time-series technique. Rather than relying on

equally weighed historical averages, however, exponential smoothing adds weight
exponentially to the most recent values in the series. This assumes that the most recent
figures are the best indicators of current trends and market forces, whereas older figures
may represent an inaccurate or out-of-date picture of the sales trend.

Any sophisticated time-series technique also includes some provision for filtering out
random noise or chance occurrences in the data that aren't part of the underlying sales
trend. In a mathematical formula this takes the form of an error or noise term that is
calculated into the forecast.

QUALITATIVE AND JUDGMENTAL APPROACHES.

A number of approaches rely on the informed opinions of various individuals, who may
consider past trends, causal factors, their personal observations, or any number of other
factors to arrive at a forecast. Usually this involves asking a number of knowledgeable
people from inside or outside the company what they expect will happen during the
forecast period. The forecasters may be customers (intention-to-buy survey), sales staff,
or outside industry experts who are familiar with the company and its competitors.

Aside from relatively informal internal surveys, perhaps the most widely known
judgmental approach is the Delphi technique, which convenes a panel of (usually)
outside experts who each come up with independent forecasts and then revise their
projections until they reach a consensus position. Another important judgmental
method is the program evaluation and review technique (PERT), in which
optimistic, pessimistic, and most likely scenarios are developed (usually by one or more
experts) and then weighed to produce an average expected scenario. A third general
qualitative technique is called the probability assessment method (PAM), in which
relevant internal staff members are asked to rate the probability of achieving a certain
range or ranges of sales volume. The probabilities (given in percentages) are then
translated into a cumulative probability curve that can be further analyzed to arrive at a
forecast.

An intention-to-buy survey measures a target market's plans to buy a product within a

given time period. Market analysts frequently conduct such surveys before introducing a
new product or service. If it isn't a product they already purchase, respondents are given
a neutral and reasonably detailed description of the product with the hope they will
provide honest answers. When surveying the general public, care must be taken to
ensure respondents don't provide unrealistically positive feedback on new product
ideas, otherwise the results will be meaningless.

Such qualitative or judgmental methods are often preferred when (1) the variables
influencing buying habits are changing or hard to determine, (2) enough data isn't
available to support a statistical approach, (3) quantitative methods have given poor
results in this forecasting situation, (4) the planning horizon is too far into the future for
normal statistical methods to be useful, or (5) there is a need to consider technological
breakthroughs which may only be in the early stages of development but will have
impact during the forecasting period.

DIRECT VERSUS INDIRECT.

When forecasters first consider the broader market and then winnow it down to the
company level, it is known as the indirect approach. When they only work with company
data, it is called the direct approach. While indirect obviously lends itself more to causal
analysis and direct more to noncausal, in theory direct and indirect approaches can be
used in both causal and noncausal models. While for many sales forecasters the direct
approach is most practical, it can be a revealing exercise to go through the indirect
approach, since it requires that the forecaster consider the entire market potential for a
product.