- When a product is new, however, or when data are lacking for one reasons, you have to rely on judgement and intuition. In such cases, you are best advised to find the most experienced, market-savy, objective person – or better yet, group of experts – and rely on them for a rough estimate of likely demand.
- A dose of intuition from a reliable source can be helpful even when working with plentiful data.
Five major types of qualitative forecasting are discussed here:
- Personal insight.
- Sales force consensus estimate
- Management estimate (panel discussion)
- Market research
- Delphi method
Forecasts may sometimes be based upon insight of the most experienced, most knowledgeable, or most senior person available.
Sales Force Consensus Estimate
- The sales and marketing area (or areas) brings special expertise to forecasting, because they maintain the closest contact with customers. While they may participate in gathering data for quantitative forecasts, their special contribution comes at the qualitative level. Even when there is a quantitative forecast, the sales force should be given a chance to review it to see if it is consistent with their knowledge of the marketplace.
- Bringing the entire field sales force together to create a consensus forecast provides the firm – and, at least indirectly, its supply chain partners – a view of the whole market, including all sectors or geographic regions. Demand, obviously, can vary greatly in different market segments.
- Like all functional areas, sales and marketing may bring a special bias to their demand forecasts, generally an optimistic – sometimes an overlay optimistic – one.
The management estimate relies upon a consensus of panel members. Generally, the panel of management-level experts conducts a series of forecasting meetings, with the results of one meeting providing the basis for the next until the panel reaches a consensus. In the process, the panel may rely upon various techniques, including pyramid forecasting and forecasting by historical analogy.
Pyramid forecasting, or rationalizing high- and low-level forecasts, enables management to review and adjust forecasts made at an aggregate level and keep lower-level forecasts balanced. In the process, item forecasts first are aggregated by product group. Management then makes a new forecast for the group. The value is then transferred to individual item forecasts so that they are consistent with the aggregate plan.
When there are no data on a new product or service, forecasters may instead study past patterns of demand for a similar product or service.
- Market research (also known as marketing research) is the systematic gathering, recording, and analyzing of data about problems relating to the marketing of goods and services. Such research may be undertaken by impartial agencies or by business firms or their agents.
- Agent as one who acts on behalf of another (the principal) in dealing with a third party. Examples include a sales agent and purchasing agent.
Market research includes the following approaches:
- Market analysis, including product potential studies, which seeks to determine the size, location, nature, and characteristics of a market.
- Sales analysis, or sales research, which undertakes the systematic study and comparison of sales data.
- Consumer research, such as motivational research, focus groups, questionnaires, and other methods used to discover and analyze consumer attitudes, reactions, and preferences.
- Test marketing, which introduces a product or service in a limited pilot area.
Note that when collecting information with questionnaires or surveys the number of responses compared to the number of nonresponses or incomplete answers should also be tracked to determine if the data are statistically valid.
- The Delphi method, like sales force and management estimate forecasting, relies upon a panel of experts in the field being studied. Also like other panel based methods, it relies upon the experience, wisdom, insight, and even the intuition of disciplined observers acting in concert.
- In Delphi method, questionnaires are generally submitted to the individual experts for their anonymous responses in successive rounds. After responding to the questions in one round, the experts comment on replies from the previous round. After hearing replies and responses, the experts have a chance to revise their own previous work. This iterative process aims to reduce differences in thinking as the answers of experts converge, round by round, upon an increasingly accurate consensus forecast.
- A key feature of the Delphi method is the maintenance of anonymity throughout the process. Instead of meeting face to face, the experts submit their responses, comments, and revisions to a panel director, who is empowered to delete irrelevant information. This reduces the defensiveness that can cause group members to resist changing mistaken views when challenged in person. It also reduces or eliminates the opposite problem: the “groupthink” effect that can cause even a collection of independent thinkers to become emotionally committed to an unrealistic forecast. This is especially likely to happen when a charismatic, opinionated member takes over leadership of the group and steers it in a mistaken direction.
- The Delphi method suffers the mixed results as it is based on human judgement (like other forecasting systems).
- The Delphi method can be time-consuming and is best for long-term forecasts.