0507

Problem

Although qualitative forecasting techniques are important in the sales forecasting process in many industrial firms, the marketing manager must understand the limitations of these approaches. Outline these limitations.

Step-by-step solution

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Step 1/2

The production of goods and services alone depends upon the forecast of demand and sales that could be in the future. There are various approaches that business organizations use for sales forecast. Among those, two primary approaches to forecast sales are named below:

1. Qualitative.

2. Quantitative.

Step 2/2

Qualitative techniques:

Qualitative techniques proceed with informed judgment and rating schemes. Personnel such as executives, distributers, and sales persons analyze the market, economy, and customer behavior to estimate sales forecast.

Even though qualitative forecasting techniques are important in the sales forecasting process, in industrial firms the marketing manager must understand the limitations of these approaches. These limitations of qualitative forecasting techniques are sketched below in detail:

Limitations of qualitative forecasting techniques:

• The top-executives of the company who makes judgments on future sales may fall short due to lack of experience in direct sales and marketing.

• There are no proper standards are measures to reason the judgment.

• Sales force composite analysis often stumbles when market and technological aspects change.

• Untrained and ineffective sales persons may gather and form inaccurate estimates.

• Forecasting is based on factors that cannot be measured directly, as a result unexpected situations has to be faced by the business units.

For example: Forecasting is done based on the present market situation, which may differ in the future.

• Invalid expert opinion may ruin the forecasting process. Businesses rely on the opinions of the industry experts. If the opinion of the expert goes wrong the forecasting is incorrect.