European Journal of Scientific Research - EuroJournals

429 Cihat Polat
show different expense patterns. Also, a firm’s production level is linked closely to its sales output and,
thus, the financial budget is dependent upon the sales forecasts [Johnson et al., 1994: 191].
Besides forecasting sales for established goods, predicting sales of a new product has a
particular importance for management from strategic point of view. The decisions regarding new
products include many uncertainties in addition to those regarding established products (such as the
environmental factors that may affect the new product and their weights on it, the uncertainties that
may come from pricing decisions made in uncertainty, the resistance that come from competitors, and
the uncertainties about the expected perception of customers (see Kelly, 1974: 4-73)). That is why,
forecasting new product sales is of particular importance for management when making decisions in
uncertainty before a new product is launched into the market. Given that a success in a particular
product may deeply affect the strategic position of a company in a specific market, the importance of
and the emphasis that should be given to it in order to achieve the desired success by strategic
management can easily be understood. Marketing and forecasting literature have given particular
importance to the subject. For the sake of our purpose, two studies are mentioned here as an example
among many. Kelly (1974) discussed the nature of prediction problems, the sources of information,
and techniques for sales level regarding predicting new products in detail. Hsiao et al. (2002) also
investigated the role of stated intentions in new product purchase forecasting and developed various
models to investigate the role of intentions and explanatory variables in forecasting purchase. They
found that a weighted average of stated intentions together with the explanatory variables included are
powerful indicators of future purchase behaviour.
In short, sales forecasts have many uses in variety of decision areas such as in (i) setting of
financial (e.g. capital) and operational (e.g. sales) budgets; and (ii) scheduling of purchasing and
production activities and controlling of inventories; and (iii) establishing sales projections and sales
quotes, each of which has, direct or indirect, strategic implications, at least, at the operational level,
which is where strategic plans are put into action.
Price forecasts are another application area of forecasting function. Price forecasts are used
frequently in management decisions about marketing strategy, new investments, budgeting, and raw
material purchasing. Price forecasting practices have a long history, probably due to its strategic value
for management. The more realistic price forecasts are available, the higher the number of implications
for management is, including the improved pay off in better decisions regarding marketing strategy,
which is probably the most important one. For instance, “a knowledge of pricing trends for various
product lines also suggests the most appropriate balance of marketing effort for each product.”
Hegeman (1974) reviewed the price forecasting practices and techniques used. Price forecasts are
mostly based on appropriate demand and supply curves developed for the products of concern. In order
to help reduce the risk and uncertainty in management decisions, a variety of techniques have been
developed to deal with the problems associated with supply, demand, and prices for most of which
products’ supply and demand curves have never been developed (Hegeman, 1974: 4-286). Due to a
large number of uncertain factors in the marketplace, price forecasting becomes a rational behaviour in
reducing these uncertainties and price and volume forecasts are required by for all business planning
activities. For instance, improved price forecasting can significantly influence budgeting because the
forecasts of future product and raw material prices help in making more accurate sales budgets and
appreciation of changing production costs, which leads to important potential for inventory savings
(see Hegeman: 4-294). The forecasts of tendencies in prices additionally provide a company to adjust
its investment plans and activities, providing the greatest payoff to company. The problem is, in fact,
rarely whether or nor to forecast, it is whether to forecast systematically or judgemental. In this sense,
forecasting is a natural and essential part of strategic marketing management.
Manufacturing
How long time does it take to design and produce a product for a company and how long does it take
for a competitor to imitate and follow such a product in the market? Time plays a critical role,