Module 3 • Sales forecasting 2. 2.1 Demand estimation and potential
The business's sales forecast is closely related to the market and sales potentials of the products and services it sells. Thus, the forecasting process begins with determining the businesses market and sales potentials.
Market potential
This refers to the total expected sales for a given product or service for the entire industry, in a specific market over a specific period of time, for example the market potential for 4x4 vehicles in South Africa for 2016 is: x rand or units.
2.2 Sales potential (market share)
This refers to the share of the market potential that an individual business can reasonably expect to achieve (the product, market and the time period must be specified), for example the sales potential/ market share for Landrover 4x4 vehicles in South Africa for 2016 is x number of units.
Market potential is a total industry concept, while sales potential refers to an individual business. The market and sales potentials are the same when a business has a monopoly in the market, for example Eskom.
2.3 Geographical potential
Geographical potential refers to the expected sales within a certain geographical area (territory). Sales and geographic potentials can be combined to help evaluate the performance of individual salespeople per territory (Module 4). The most commonly used procedure is to divide sales for a period of time by the potential for the area, producing a measure of the ability of the salesperson to penetrate the available market, taking into consideration how a similar competitor product has performed.
3. Factors influencing probable sales volume 3.1 Conditions within the business
Any changes in a business's marketing policy/4 Ps can reduce or increase sales. For example, if the business has to raise prices in future, this action could possibly reduce unit sales volume. Sales volume can go up or down depending on the price elasticity and whether the product is a luxury item or a necessity. These conditions are internal and controllable by a business.
3.2 Conditions within the industry
A business obtains its sales volume from total industry sales. Think of industry conditions as anything that might hurt or help the entire industry. These conditions are external and uncontrollable. Therefore any change within the industry has an impact on the business. For example, new producers/competitors in an industry (a lot of new car manufacturers from overseas entered the South African car industry: Volvo, Daihatsu, Lexus) may mean that whatever volume they gain must come from existing businesses and this will obviously affect the business.
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