Skip to main content

Table of Contents

  1. Topic pack - Marketing - introduction
  2. 4.1 The role of marketing - notes
  3. 4.1 The role of marketing - questions
  4. 4.2 Marketing Planning - notes
    1. Marketing planning
    2. The marketing mix
    3. The Total Product Concept
    4. Ethics of marketing
    5. Marketing audit
    6. Porter's five forces
    7. Porter's five forces - activities
    8. Marketing objectives
    9. Market research - introduction
    10. The role of market research
    11. Primary and secondary research
    12. Primary research - information gathering techniques
    13. Observations - case studies
    14. Group-based market research
    15. Market research - summary
    16. Questionnaires
    17. Sampling
    18. Methods of sampling - introduction
    19. Main methods of sampling
    20. Sampling errors
    21. Market segmentation
    22. Consumer Profiles
    23. Types of segments
    24. Demographic segmentation
    25. Psychographic segmentation
    26. Psychographic segmentation - case study
    27. Geographic segmentation
    28. Industrial markets
    29. Targeting
    30. Positioning
    31. Corporate image
    32. Position/perception maps
    33. Unique selling point/proposition USP
    34. Marketing strategies and tactics
    35. Sales forecasting
    36. Qualitative forecasting/data
    37. Forecasting and correlation
    38. Forecasting techniques
    39. Constructing time-series analysis
    40. Moving average
    41. Four point moving average - worked example
    42. Identifying the seasonal variation
  5. 4.2 Marketing planning - questions
  6. 4.3 Product introduction - notes
  7. 4.3 Product - questions
  8. 4.3 Product - simulations and activities
  9. 4.4 Price - notes
  10. 4.4 Price - questions
  11. 4.4 Price - simulations and activities
  12. 4.4 Promotion - notes
  13. 4.5 Promotion - questions
  14. 4.6 Place (distribution) - notes
  15. 4.7 International marketing - notes
  16. 4.7 International marketing - questions
  17. 4.8 E-commerce - notes
  18. 4.8 E-commerce - questions
  19. Printable version

Sales forecasting


Trends and extrapolation

When you are given figures in a case study or IB question on the development of a business, or results of marketing surveys, look for information that indicates an underlying pattern of growth or decline - referred to as a trend. Your task will be to analyse the movements and suggest reasons for the changes and most importantly, the consequences for the business.

In an IB examination, a question may ask you use the data you have been given to make predictions about future sales and profits. This process of using past data to predict the future is called extrapolation. To achieve this you will need to establish if there is an underlying trend below what may appear to be inconsistent past financial data. If you can find a trend, your next task will be to use this to predict the future - a business crystal ball! The problem is that, however scientific the process, the end result may be no more than a 'guestimate' and in practice may prove completely inaccurate - the future does not always resemble the past as events can rapidly change the status quo. You only have to consider the implosion of world economies from 2008 onwards to see how rapidly the external environment can change.

Figure 1 below shows a trend and an extrapolated trend.


Figure 1 Extrapolated trend

The diagram shows actual sales figures over a period, which appear to be inconsistent. However, we are able to produce a 'line of best fit' called the trend line. In figure 1, the trend points to improving sales in the future. This trend is established through the use of MOVING AVERAGES to smooth out the impact of variations in data. We will look in more detail at these in the next section (click on the right arrow at the top or bottom of the page to start having a look at this).

Forecasting future sales has several important applications. The firm can use this information to:

  • Plan future production levels: this will allow for a more efficient use of the firm's resources, in particular labour which is normally a firm's highest cost. It will identify recruitment and training needs, or depressingly the requirement for redundancies.
  • Improve cash flow and working capital: examining variations in sales and predicting future sales can help the firm plan for its liquidity and evaluate the need for additional sources of finance. Lenders will be more likely to supply additional funds if they can see that the firm will be able to repay on time.
  • Improve stock control: accurate sales forecasts will underpin stock ordering and ensure that production has the raw materials when required. Stock represents is tied up cash, so maintaining the correct level of stock will also help liquidity.
  • Drive marketing campaigns: the identification of key periods for company sales will allow the firm to plan effective marketing including distribution, pricing and promotion.
  • Underpin the budgeting process: sales are a major driver of budgets.
  • Want to identify significant trend: firms want to know what trends are emerging to make sure they can adapt their marketing or product portfolio to reflect this.
  • Want to see if any seasonal factors affect their product: Customers enjoy strawberries more often than just in the summer, so the major supermarkets import from warmer climates. That way they can eat strawberries and cream 12 months of the year, but at a price.
  • Want to identify the influence of economic cycles arise within the firm's demand patterns: is the firm's demand closely linked to the state of the economy?