FORECASTING AND
DETERMINATION OF
MARKET SHARE
Dr. Waleed Hemdan
Ph.D. in Business Administration, University
of Science and Technology Beijing
Lecturer in Business Administration, Kafr El-
Sheikh University
Forecasting
Forecasts are necessary to describe the future.
Examples of forecasting include the number of patients
in a hospital, students in a college, customers in a
grocery store, cars to be manufactured, and so on. The
demand forecasts set the agenda for how the entire
company will use its people, commit its resources, call
on outside suppliers, and plan its work schedules.
Forecasting
Forecasts provide information to coordinate
demands for products and services with supplies of
resources that are required to meet the demands. As
such, the forecast is the platform for future planning.
This is reactive planning.
A good strategy also aims at modifying the forecast to
influence what the future might bring rather than just
accepting the forecast as an inevitable truth.
Time Series
A time series is a stream of data that represents
the past measurements. Each event (observation
of demand) is time-tagged so that it is known
where it is located in the series of data. The time
series consists of data recorded at different time
periods such as weekly or daily for the variable,
which could be units produced or demands
received. Forecasters attempt to predict the next
value or set of values that will occur at a future
time.
Time Series
The data in time series may consist of several
different kinds of variations.
1- random variations, an increasing or
decreasing trend.
2- seasonal variations.
Time Series
Random variations (see Figure 3.1) occur
because the demand is often constant at a given
level. Minor variations do occur from one period
to another.
The random variations are a result of the
economic environment and the marketplace
within which an organization is operating.
Time Series
Time Series
In addition to random variations, the time-
series data may show an increasing or
decreasing trend (see Figure 3.2 for an
increasing trend and Figure 3.3 for a decreasing
trend). If the time series shows an increasing
linear trend, as in Figure 3.3, there is a constant
rate of change (increasing) with the increase in
time. Linear decreases can also occur.
Time Series
Time Series
The time series may also display seasonal (or
cyclical) variations. Figure 3.4 shows seasonal
variations coupled with random variations, while
Figure 3.5 combines all three components—
random variations, an increasing trend, and
seasonal variation
Time Series
Time Series
Forecasting Methods for Time-
Series Analysis
We will study the following techniques for time-
series analysis in this section:
◾ Moving average
◾ Weighted moving average
◾ Seasonal forecasting
◾ Trend analysis
Moving Average
The moving average (MA) method supplies a forecast
of future values based on recent past history. MA is also
called simple MA method. The latest n consecutive
values, which are observations of actual events such as
daily, weekly, monthly, or yearly demand, are used in
making a forecast. These data are recorded and must
be updated to maintain the most recent n values. With
the passing of each time period, the most recent value
is stored and the value of the earliest period is dropped
off.
Moving Average
For example, if you want to forecast demand for April
using n = 3, then the demands for last three months,
that is, January, February, and March, are needed.
The forecast for April can then be calculated as
Moving Average
Moving Average
Using Excel to solve the problem
Using Excel to solve the problem
Excel Functions and Formulas
Employed in the Solution
Weighted Moving Average
A way to make forecasts more responsive to the most
recent actual occurrences (demand) is to use the
weighted moving average (WMA) method. Just like the
MA method, the most recent n period are used in
forecasting. However, each period is assigned a weight
between 0 and 1. The total of all weights adds up to 1.
The highest weight is assigned to the most recent
period and then the weights are assigned to the
previous periods in the descending order of
magnitude.
Weighted Moving Average
Example: Consider the data given in Table 3.2.
Suppose the number of periods used in forecasting n =
3 and the weights are 0.2, 0.3, and 0.5. The highest
weight (in this case 0.5) is assigned to the most recent
period. For example, the forecast for period 4 will be
calculated by using the weight 0.5 for period 3, 0.3 for
period 2, and 0.2 for period 1. The forecast for period
4 will then be
Weighted Moving Average
Using Excel to solve the problem
Using Excel to solve the problem
Excel Functions and Formulas
Employed in the Solution
Regression Analysis
Trend projection
Excel spreadsheet shows application of trend
production method of forecasting applied to the
same data of bicycles seen earlier. those data
appear in column b in this spreadsheet
Forecasting Sales trend
Layout of the spreadsheet
The above spreadsheet is organized as follows
1- rows 1 and 2 for problem and method labels
2-row 4 for number of data items
3-row 6 and 7 for labels of data inputs and labels
and the values of parameters their details are
-Cell A6: label of the sequence of the time series
-Cell :B6 and B7 label of available data
-Cell D6 - E6 label of intercept parameter and F6
for its value.
Layout of the spreadsheet
-Cell D7-E7 label of slope parameter and F7 for its
value
4-Cell D9-E9 the label of outputs ( forecasts )
5-column D( cells dD11 - D 14) For the number of
periods that separates period of forecast from last
period in the time series
6-Column E( Cells e11 - E 14) for sales forecastes
Excel's formulas used in calculations
1-formula to calculate the parameter intercept in
Target cell F6: ………………
2-formula to calculate the parameter Slope in
Target cells F7:…………..
3-formula to calculate sales forecast of period 11 in
the time series in Target cell E12 ……………
4-calculating the rest of sales forecasts: copy cell
E12 and paste it down in the required cells (cells
E13 and E14 in the example)……………..
Layout of the spreadsheet
The regression equation
A linear regression line has an equation of the
form Y = a + bX,
where
X is the explanatory variable
Y is the dependent variable.
The slope of the line is b,
and a is the intercept (the value of y when x =
0).
Excel Functions and Formulas Employed
in the Solution
DETERMINATION OF MARKET SHARE
The fundamental theorem of market-share
determination, i.e. the theory, which says that the
market shares of various competitors will be
proportional to their marketing – effort shares, seems
likely to operate in this case since it is assumed
(previously) that investors U.M. believes in such a
theorem and the company has the relevant data
needed for market-share determination.
DETERMINATION OF MARKET SHARE
DETERMINATION OF MARKET SHARE
The aim of This model however is to determine The
company's product share in The whole market as a step to
calculating the predicted demand of products according to
its marketing policies. The assumption here is that The
expected market share of The Company is a function of
1 -The quality rating ,
2 ـThe selling price Level ,
3 _ The determined marketing expenditure, and
4-The elasticity of quality, prices and marketing
expenditure of the company, against the same factors of
the competitors .
DETERMINATION OF MARKET SHARE
DETERMINATION OF MARKET SHARE
An Example
Al-Abd Company wishes to estimate The demand of its
automatic washer AQ in the Egyptian market The following
are data available from The Company and its competitors
to do such estimation .
DETERMINATION OF MARKET SHARE
producers Price Quality rank market expend elasticity of mar.exp
AL-Abd co 1550 2 880,000 0.7
compit.1 1600 2 700,000 0.5
compit.2 1850 4 600,000 0.5
compit.3 1500 1 300,000 0.4
compit.4 1650 3 900,000 0.7
compit.5 1800 4 500,000 0.4
compit.6 1580 2 800,000 0.7
compit.7 1550 1 700,000 0.7
compit.8 1560 2 650,000 0.5
DETERMINATION OF MARKET SHARE
Elasticity of price =1.05
Elasticity of Quality= 1 .1
whole demand (in ooo's of units) of automatic
washers in The Egyptian market during the past six
Years was as follows.
Three stages are required to estimate demand of Al Abd's
automatic washer AQ in The Egyptian market, They are :
1٠ Estimation of total demand of automatic washers in the Egyptian
market during year 2008 .
2-Estimation of market ـshare of AL-Abd company in the Egyptian
market.
3.Estimation of demand of Al-Abd's Automatic AQ washer in The
Egyptian market.
Using Excel to solve the problem
1-Estimation of total demand of automatic
washers in the Egyptian market during 2008
Excel Functions and Formulas Employed in
the Solution
2-Estimation of Market share of AL-Abd
company in the Egyptian market
Excel Functions and Formulas Employed in
the Solution
