Demand Forecasting

Demand programs are the sales tactics and company actions needed to direct the level of discretionary demand in the sales plan projections. Sales projections usually have four components:

1. Base demand—Demands that will happen with little or no external change or marketing & sales planning involve­ment. This demand is due primarily to customer momen­tum. The statistical forecasting system can handle this demand component.

2. Market Modifiers—Changes in the market will cause future demands to change. These changes are usually uncontrollable and have near term influences. Examples include the economy, competitive products, major market­place contracts. The statistical forecasting system cannot manage this demand component. Field sales input is required. This is an example of forward looking demand components that must be integrated into the Strategic Forecast.

3. Major customer orders or contracts—Significant events that have impacts on the demands for products within markets. The field sale force are usually aware of these events but they may have trouble determining exactly when they will happen. Field sales input is required.

4. Sales Tactics—Demands caused by sales and marketing programs within the company. Examples include: adver­tising, price reductions, promotions, improved product availability, etc. These controllable demand factors deter­mine discretionary demands. These internally generated demand components must be reflected in the overall prod­uct forecasts. They are almost always incremental to the base statistical forecast and are considered to be external forward looking demand components.

Demand programs should be formally defined in the sales plan and include: objectives, methods to be used, estimated program costs, and quantitative impact. The demand generated by these programs are definable, incremental to other demands, and controllable by quantity and timing. If the sum of the first three demand components summarize to an annual projection of 82 million dollars, and your sales plan calls for annual revenues of 96 million dollars, you must define and quantify discretionary demand programs that will generate an additional 14 million dollars of annual revenues. The sales plan must clearly identify what, how, and why this program will work. Examples of demand programs include:

• Advertising

• Price reductions and "special offers"

• Direct sales & increased selling resources (reps & agents)

• New product features

• Selling incentives

All of these demand programs are designed to create additional demands. Demands that probably would not take place without them. Each demand program must be carefully defined, explained, and quantified. The key issues that must be covered include: program description, why it will work, when it will begin & end, and a projection of increased demand (in units or dollars by month). Given this information in the sales plan, you can measure the performance of the program and increase your forecast accuracy. If the program does not work, you have a formal framework for improvement. Use the performance (or lack thereof) to develop the new sales tactic program.