chp 7 instructor manual

chp 7 instructor manual - Chapter 6 FORECASTING QUESTIONS...

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Chapter 6 FORECASTING QUESTIONS AND ANSWERS Q6.1 Discuss some of the microeconomic and macroeconomic factors a firm must consider in its own sales and profit forecasting. Q6.1 ANSWER The better a company can assess future demand, the better it can plan its resources. Every corporation is exposed to three types of factors influencing demand: company, competitive and macroeconomic factors. Microeconomic company-related factors include market share trends, changes in strategy and implementation, and changes in brand value. Microeconomic industry-related factors include competitor advertising, competitor product offerings, market share. Macroeconomic factors that must be considered include income, economic growth, interest rates, and shocks. There are several methods used to assess and forecast demand. None yields demand numbers that are 100% successful or guaranteed. However, using more than one imperfect method has proven helpful in improving forecast accuracy and confidence. Q6.2 Forecasting the success of new product introductions is notoriously difficult. Describe some of the macroeconomic and microeconomic factors that a firm might consider in forecasting sales for a new teeth whitening product. Q6.2 ANSWER To forecast market demand for any new product introduction, market size research must be combined with product-specific information. A useful approach would combine macroeconomic trend information with data on microeconomic and competitive performance. Customers will only buy a product if they perceive a need and are able to pay for the new good or service. Of course, ability to pay tends to be a strong determinant of demand for big-ticket items, perceived need may be more important for small-ticket items, like teeth whitening products. Advertising capability or brand name reputation is also apt to be important because consumers must be aware of new product or service offerings and perceive a given company's offerings as having the best value. In practice, market size research is combined with market share research to forecast product and corporate demand. Econometric models are sometimes used for answering a wide variety of “what if” questions regarding the future. This stems from the fact that econometric models reflect the causal relation between Y (the forecast value) and a series of independent
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132 Chapter 6 X variables. When a range of X values relating to various pessimistic to optimistic scenarios concerning future events is incorporated into a given econometric model, the resulting effects on Y become readily apparent. Thus, quantifiable answers to various “what if” questions can be obtained. Q6.3 Blue Chip Financial Forecasts gives the latest prevailing opinion about the future direction of the economy. Survey participants include 50 business economists from Deutsche Banc Alex Brown, Banc of America Securities, Fannie Mae, and other prominent corporations. Each prediction is published along with the average, or consensus forecast. Also published are averages of the 10 highest and 10 lowest
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chp 7 instructor manual - Chapter 6 FORECASTING QUESTIONS...

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