METHODS OF MARKET FORECASTING FOR SMALL BUSINESSES
what is forecasting in business?
A marketing plan’s core and the foundation of making strategic decisions – Market Forecasting! Market forecasting is a phase every business moves through. It’s how brands build products and services. In simpler terms, market forecasting is the study of market behavior, predicting potential changes in the industry, and taking action based on that prediction.
The purpose of market forecasting extends beyond the creation of products and services; it contributes to the projection of cash flow statements and the analysis of how the business will perform financially as a result of the given market statistics. The process of market forecasting usually starts with a top-down approach, where the company studies the current market as a whole, gets a bird’s eye view, and then narrows it down according to its target market. This makes it possible for businesses to get detailed information about the market.
Using market forecasting, businesses’ financial projections can be made accurately, current financial status can be analyzed, and forecasts of better returns can be predicted.
In order to help you better understand the importance of market forecasting, here are three reasons:
1. Aids in setting clear
Realistic objectives for the company that is in line with the needs of the market. Having a grasp of the market will aid in setting clear goals for the company that is in line with the market’s needs.
2. Aids in budget development
Without creating an accurate budget and setting goals in line with it, business development cannot be considered complete. This aids in moving in the right direction and maintaining control over your finances.
3. Grow your business
There is no better method to discover new markets and consumer trends than to do this! Forecasting the market can help businesses grow and expand into new markets.
From new startups to well-established companies, it is crucial that they research market trends, consumer behavior, and, most importantly, what the industry’s rivals are offering.
The most crucial question in this situation is HOW to start market forecasting.
There are primarily two approaches to forecasting:
By using this approach, you can’t use historical data to compare your business predictions. It’s a typical approach for new companies without previous sales or expense information. The forecast’s judgment heavily relies on the person creating it. It’s also a desired method for forecasting.
When you have quantifiable data to support the forecast, you can use this approach. You can determine whether a business is expanding or contracting by comparing current sales to previous results. It is a typical approach to short-term forecasting.
Here’s how you can predict the market behavior Qualitatively
The most effective and traditional techniques are market surveys:
You might be wondering if surveys are still relevant nowadays. They most definitely are!
Physical forms and individual manual surveys have been replaced with Google forms and a tonne of social media tools. Businesses can now receive survey answers and numerous statistics within minutes, covering a wide range of dynamics.
Business executives are solely responsible for leveraging these technologies.
1. Market Experiments:
This is a tried-and-true method of evaluating things on the market, and it’s arguably the most trustworthy as well!
releasing a test product in “limited” markets to a particular group of consumers, or, to use another term, the target market, and gathering feedback. This would be the main source of information, and having firsthand knowledge of the product will help you decide whether or not to launch it.
2. Extraction of Sales Data:
Sales data records are the best resource for organizations to follow their customers. encouraging customers to try your new goods and services by following up with them. By soliciting opinions about your service and suggestions for enhancements, you may use sales data in the best possible way. By doing so, you may show customers that their opinions are valued and learn more about the level of customer service they are used to receiving from the company.
3. Exploiting Social Media:
To know what the customer needs, go where the customer exists!
Social media- you may love it, or hate it but you cannot ignore it… Today the customer exists on social media platforms. Following the pattern of customers’ behavior on certain posts and videos will contribute to great insights into the customers’ points of view. With trending videos and challenges, it has become easier to understand where the viewers are moving and what interests them the most.
It also helps to observe how influencers and celebrities are contributing to the trends and influencing market behavior.
The qualitative methods, this is our favorite as we interact directly with the customers.
5. Keeping up with the global trends
Keeping a track of daily news: nationally and globally as well will help you to keep up with changing govt regulations, how companies in the industry are performing globally, and changes taking place in the industry. Keeping an eye on peers and analyzing their strategic decisions will help to predict market changes.
Apart from Qualitative or also traditional methods of forecasting,
here’s a list of methods that will help to measure market trends Quantitatively
1. Correlation Models
Most popular methods of quant methods- consider two variables one would be Sales and the other one would be the basic factor that would drive your Sales significantly. Considering how that one factor would affect your sales will help to make decisions regarding the Factor. That one factor could be price, demand for the product, or even your product quality.
2. Analysing Sales data
Using analytical tools and software to study the sales pattern and brainstorming ways to overcome the drop in sales. Using historical data helps to gain insights into the pattern of market behavior, which can also be called a time series model.
Quantitative models of forecasting differ from business and involve complex models of Linear regressions, Seasonal forecasting, and Econometrics models as well. These sophisticated models dive deeper into numbers from sales data and provide forecasting inaccurate numbers.
Irrespective of the methods, the most basic step in understanding a market trend is to first define your target market and your target audience. That’s how observing market changes will get easier and more precise as well.
Knowing whom to sell to and what are their needs regarding the product will help to make better strategic decisions and also assess your performance in the industry.
It would be fatal to make a mistake or neglect the market predictions. For instance, if a firm underdelivers because of inaccurate estimates, it may hinder corporate growth; yet, if a company over delivers, it may prove advantageous but may place the business in peril.
Companies may deploy resources effectively for growth and steer their financial management in the proper direction by using accurate sales predictions. These sales projections make it simpler for managers to predict future trends. Sales targets and revenue projections must be in line for revenue leaders to earn additional bonus points.