Archive for February, 2009

Objectives of demand forecasting

Demand estimation is predicting future demand form a product. The information regarding future demand is essential for planning and scheduling production, purchase of raw materials, acquision of finance and advertising.

The various techniques of demand estimation: –

  • Survey Method
  • Statistical Method

  • Survey Method

Survey method is generally used where the purpose is to make short run forecast of demand. Under this method, customer surveys are conducted to collect information about their intentions and future purchase plan. This method includes

1. Consumer survey method
2. Opinion Poll method

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Consumer survey method

  1. Consumer enumeration: – In this method, almost all the potential users of the product are contacted and are asked about the future plan of purchasing the product in question. The quantities indicated by the consumers are added together to obtain the probable demand for the product.

  1. Sample survey method: – Under this method only a few potential consumers selected from relevant market through a sampling method are surveyed, on the basis of the information obtained, the probable demand may be estimated through the following formula.

D = HR (H.AD)

Hs

Where D = probable demand forecast

H = Census number of households from the relevant market.

Hs = number of households reporting demand for the product.

HR = number of households reporting demand for the product.

AD = average expected consumption by the reporting households.

  1. End User Method: – The end user method of demand forecasting is used for estimating demand for inputs. Making forecast by this method requires building up a schedule of probable aggregate future demand for inputs by consuming industries and various other sectors.

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Opinion poll Method

The opinion poll methods aim at collecting opinion of those who are supposed to possess knowledge of the market e.g. sales representative, professional marketing experts and consultants. The opinion poll method includes

  1. Expert opinion method: – Firms having a good network of sales representative can put them to work of assessing the demand for the product in the areas that they represent. Sales representative, beings in close touch with the consumers are supposed to know the future purchase plans of their customer, their reaction to the market changes, their response to the introduction of new products and the demand for competing products. They are, therefore, in a position to provide an estimate of likely demand for their firm’s product in the area. The estimates of demand thus obtained from different regions are added up to get the overall probable demand for a product.

  2. Delphi Method: – Delphi method is used to consolidate the divergent expert opinions and arrived at a compromise estimate of future demand.

    Under Delphi method the expert are provided information on estimates of forecast of other experts along with the underlying assumptions. The experts may revise their own estimates in the light of forecast made by other experts. The consensus of experts about the forecasts constitutes the final forecast.

    Although this method is simple and inexpensive, it has its own limitations. First estimates provided by sales representations and professional experts are reliable only to extend depending upon their skill to analysis the market and their experience. Second, demand estimates way involve the subjective judgement of the which may lead to over or under estimation, finally, the assessment of market demand is usually based on inadequate information’s, such as changes in GNP, available of credit, future prospects of the industry etc, fall outside their purview.

  3. Market studies and Experiments:- It is a method of collecting necessary information regarding demand is to carry out market studies and experiments on consumer’s behavior under actual through controlled market conditions. This method is known in common parlance market conditions. This methods is known in common parlance as market experiment method under this method, firms first select some areas of the representative markets – three or four cities having similar features viz. Population, income levels, cultural and social background, occupational distribution, choices and preferences of consumers. Then, they carry out market experiments by changing prices, advt. Expenditure and other controllable variable in the demand function under the assumption that other thing remains same. The controlled variable may by changed over time either simultaneously in all the markets or in all the markets or in the selected markets. After such changes are introduced in the market, the consequent changes in the demand over a period of time (a week, a fortnight or month) are recorded. On the basis of data collected elasticity coefficient are computed. These coefficients are then used along with the variables of the demand function to assess the demand for product.

The market experiments methods have certain serious limitations. First, this method is very expensive and hence cannot be afforded by small forms. Second, being a costly affair, experiments are usually carried out on a scale too small to permit generalization with a high degree of reliability.

Third experimental methods are based on short – term and controlled conditions that may exist in an uncontrolled market. Hence, the results may not be applicable to the uncontrolled long-term conditions of the market.

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Marketing communication

Within the context of marketing, we see that marketing communication plays an important role in the dissemination of information. Marketing communication is a term used in a broader sense for promotional strategy. So it is more of a planned promotional communication.

Within this we have the following tools:

  • Advertising: Which is any paid form of non-personal communication of ideas, products and services by an identified sponsor.
  • Sales Promotion: Short term direct inducement to encourage sales of products and services.
  • Publicity: Non-personal stimulation of demand for a product / service or business organization as a whole by putting commercially significant news in media to create a favorable image. The sponsor does not pay it for.
  • Personal selling: For making sales, a salesman interacts orally with the buyer or buyers in the form of sales presentation.
  • Public Relations: Marketers engage in public Relations to develop a favorable image of their organizations in the eyes of the public – public at large, customers, suppliers, government, media, competitors, shareholders, employees and the society.

So how does one go about it? Following are the key areas as to how marketing is an integral part of advertising.

  • Objective setting: What is the objective of your advertising plan? Look towards your product or service. Also look towards what is it that you really want to achieve. Is it a new product or an existing one? Would you like to see more people buying your product? Do you want to measure the effectiveness of your advertising campaign? Some of the objectives could be:
  • Increasing Awareness
    • Increasing Sales
    • Sales promotion offer
    • PR exercise for a negative news about the brand
    • Fighting competitor’s claims
    • Introducing changes in the product offering

  • Understanding the Target Audience: Read the following brief of a Brand and identify the customer group they are looking at.

“The beer-drinkers in the country are much younger than the average beer-drinker elsewhere in the world. This makes them more likely to carry the brand with them for a lifetime. Also, as the target audience becomes younger, a light beer like Foster’s LightIce is expected to attract first-time drinkers, since it is much milder than any of the other beers in the country. Even if one accounts for the fact that the strong beer market is growing fast in India, we expect that at times when consumers of ourproduct shift to stronger beers, they will restrict themselves to the Foster’s brand because of the association they have with it and the positive connotations from the Foster’s name.

A lot of new variants promise to gain prominence, but mainly in niche urban segments. The sophisticated consumer who drinks beer for the experience and not to get drunk will lap up ice beer or light beer. In urban centers, apart from first time users we are also targeting women, who as ‘the times they are a changing,’ are entering the market for beer. Essentially, women shy away from beer consumption because it is associated with calories, and has traditionally been a buddy drink, associated with pot-bellied men sitting at bars and shooting darts.

Our product however is light both in colour and body, and mild in flavour. It is highly carbonated with low bitterness and no aftertaste. It has fewer calories lower alcohol content. It thus moves away from the traditional psychographics of the sector and toward the more up-market, college/office going youth, male or female, with aspirations, who sees himself as both physically and mentally fit, has an attitude of self-confidence and nurtures the belief that ‘he/she can change the world’.”

You would be able to understand the consumer base that the brand is intending to target at. So we focus on the fact that the age, income and sex plays an important part but also the lifestyles and the psychographical profile of the consumer base which are but an integral aspect in the determination of the target audience.

So come to think of it, advertising plays an important role in the overall marketing program. Some of the basic tools by which marketing program could be made are:

  • Product or services can be developed or refined.
  • A wider distribution coverage could be made.
  • Pricing could be another important decision.

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Integrated Marketing Communication

IMC can be defined as:

A concept of marketing communications planning that recognizes the added value of a comprehensive plan that evaluates the strategic roles of a variety of communication disciplines. In other words, the message and approaches of general advertising, direct response, sales promotion, public relations, and personal selling efforts are combined to provide clarity, consistency, and maximum communications impact.

IMC, thus, calls for a “big picture” approach to planning marketing and promotion programs and coordinating the various communication functions. It requires firms to develop a total marketing communications strategy that recognizes what the sum total of a firm’s marketing activities, not just advertising, communicate to its customers.

Consumers’ perceptions of a firm and/or brands are a synthesis of the messages they receive from various sources. These include media advertisement, price, direct marketing efforts, publicity, and sales promotions, as well as interactions with salespeople and other customer-contact employees.

In a global economy with international markets and instantaneous communications, no aspect of marketing can be studied in a vacuum or in isolation if one expects to be accurate and relevant. Marketing tools, used as planned business-building techniques are more likely to facilitate attainment of organizational goals than current “silo” approaches.

Advertising is but a part of this integrated marketing communication. One such tool within IMC is Direct or Database Marketing. This involves not just direct mail but also telemarketing & direct response advertising on T.V and radio and other media, in which ad aims to generate an action response (eg. Call center number). Direct marketing has two advantages over mass advertising.

  • The ability to target specific individual consumers with an offer that is tailored to that consumer.
  • The ability to directly measure response.

The goal of direct marketing may not be to generate awareness or change preference but it generates some action. It could be to get an order or request for some information, a visit to a dealer or a store and so on.

So direct marketing encompasses the following:

  • Targeting
  • Customization ability
  • Measurability

This has become a major tool since many advertisers are combining direct marketing efforts with their regular advertising efforts. Primarily to retain loyalty of existing customers, to cross sell new products and services to these existing customers, and to increase the amount or frequency of usage.

The second important tool within the context of IMC is Sales Promotion. They are of two types:

  • Consumer promotion (coupons, samplings, premiums, sweepstakes, low-cost financing deals and rebates)
  • Trade promotions (allowances for featuring the product in retail advertising, display and merchandising allowances and the like)

These are used to get the consumer to try or to repurchase the brand and to get the retail trade to carry and to ‘push’ the brand. Retails in turn use promotions to clear their inventory of slow moving, out of season, shelf-unstable products (such as fresh produce). Price cuts, displays, frequent shopper programs and so on are few of the sales promotions done by the retailers.

So how does it play a role with IMC or advertising?

There are 3 ways in which it plays a role:

  • It is a key element in inducing trial or repurchase in many communication programs in which advertising creates awareness and favorable attitudes but fails to spur action. The action comes about due to the limited duration of the program so the consumer must act quickly. The consumer may perceive this as a value for money purchase.
  • In many retail outlet the companies are able to make out through scanners as to which brands are moving fast off the retail shelves and also try to understand as to which shelf does not receive much sales so that they could reduce the hiring or the display of merchandise from the shelf. This is done in order to be cost effective.
  • In order to keep the brand equity of the brand intact especially for high involvement products and ‘feeling’ products, the advertising and sales promotion efforts must complement each other.

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Retail Advertising

The retails in order that the consumer can see the product and buy it are those that provide the consumer with lots of information. So listing the size, color and prices of various shirts in a store make a buyer more action inductive. Appropriate behavioral aspects are used in case of durables and automobiles. The advertisement used here must create a strong sense of desire, curiosity and urgency to get the reader or viewer to make the store visit.

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Cooperative Advertising

Here a manufacturer offers retailers an advertising program for the later to run. The program may include suggested advertising format, materials to be used to create actual advertisements, and money to pay a portion of the cost. Certain merchandise quantity is also suggested for the retailer to stock and perhaps display. There are 3 types of co-op advertising:

  1. Vertical: When the upstream manufacturer or service provider pays for a downstream retailers ad.
  2. Horizontal: When local dealers in a geographic area pool money for advertising.
  3. Ingredient producer co-op: When the producer of an ingredient pays part of an ad run by the user product.

The intention of this type of communication is to stimulate short-term sales. The advertising is specific to the product, the place as to which it can be purchased and the price. To maintain the brand image and to reinforce the company’s leverage with the retailers are important long-term considerations. The need should also be to expand the distribution coverage by allowing allowances to the retailers.

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Reminder, point-of-Purchase and Specialist Advertising

Reminder ads serve to stimulate immediate purchase and/or use to counter the inroads of competitors. It is basically reminding the consumer about its existence. ‘Shelf talkers’ or point of purchase materials placed in stores at or near the place where the brand is on display. You might have seen sachets of shampoos hanging right in front of the shop and they hit you on the face that could be taken as point of purchase material. Here the product itself acts as the material. Top of the mind awareness is the basis of the reminder and point of purchase material. Specialist advertising is useful in circumstances when certain free products like diaries, pens and calendars bearing the name of the manufacturer are given to the consumers for greater brand awareness. Pepsi and Coca Cola often paint the entire shop with their logo, this is to remind the consumer of their existence in that area.

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Sales promotions

Sales promotions are different from advertising, in that they do not involve the use of mass media. Many sales promotions are designed to encourage the immediate sale of goods, while others have longer-run goals of keeping customers loyal to the store, aiding salespeople, or attracting customers into the store. The term promotion is used to refer to all communication efforts made on an impersonal basis, including sales promotions, publicity, and advertising.

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Word-of-mouth

Retailers cannot directly control what customers say to friends about their stores, services and products. However, they should be aware of this channel of information because potential customers often rely on what customers of a store say about it. Unfair treatment of one customer can create an ever-widening web, as more people are told about that customer’s experience. Fortunately, fair treatment and real value are also discussed among customers, although positive aspects may not have as much influence as negative ones do. The point is, customers are going to talk about how they are treated in a store.

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