Good Pricing Decisions

Pricing decisions draw on many areas of marketing expertise. It requires a comprehensive understanding of the forces that shape the market, including competitive  interactions, technology and consumer psychology. Sometimes these forces interact and are likely to put downward pressure on prices, such as substitutes, technological advances, price-driven competition, customer experience, and changes in internal focus, such as sales forecasts. Customer makes it difficult to raise prices, as repeat customers’ ability to perceive incremental value of a company’s product or service diminishes over time, especially as substitute or competitive products emerge. Increased internal expectations in the form of expected sales increases or new budgets can send prices on a downward spiral. Customer price sensitivity may also serve  to keep prices in check, especially in the presence of available competitive substitutes or among a company’s marginal customers.

Even in a deflationary economy, there are opportunities for keeping prices from dropping or even for raising prices. However, customers must perceive that these enhancements deliver a genuine, meaningful benefit, or they will continue to seek lower cost alternatives.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

Two-way HR Planning Process

Like other business strategies, human resource strategies are shaped through both top-down and bottom-up processes in an organization. A top-down processes provides the strategic context necessary for team and unit planning.

Through a focused company environmental assessment, it provides information on possible future trends and issues affecting  the business and influencing the shaping of plans and objectives. People close to the operating business may not readily take such a broad future view. It requires looking outside the company to external competitive practices, economic and social trends, and possible future conditions that may some day have an impact on the business.

A plan is strategic in character if it is focused on important issues raised in an environmental assessment. In today’s competitive organization, it is important that employees at all levels be attuned to external  forces and changes and to the strategic direction being taken to address them.

In a bottom-up approach, planning of human resource actions is a cumulative process. Instead of broad strategies being broken down into progressively greater detail, detailed strategies are aggregated and synthesized into  meaningful umbrella strategies. Each business unit or department is asked to identify the human resource issues of concern, taking into consideration the guidance of the long-term planning inputs. They are also asked to specific analyses, forecasts, and assessments regarding these issues. Specific action plans are selected and adopted. Both human resource staff and managers should participate in this effort.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

Pro Forma Income Statement

Because marketing managers are accountable for the profit impact of their actions, they must translate their strategies and tactics into pro forma, or projected, income statements. A pro forma income statement displays projected revenues, budgeted expenses, and estimated net profit for an organization, product, or service during a specific planning period, usually a year. Pro forma income statements include a sales forecast and a listing of variable and fixed costs that can be programmed or committed.

Pro forma income statements can be prepared in different ways and reflect varying levels of specificity. They have a typical layout consisting of six major categories or line items:

1. Sales—forecasted unit volume times unit selling price
2. Cost of goods sold—costs incurred in buying or producing products and services. Generally speaking, these costs are constant per unit within certain volume ranges and vary with total unit volume.
3. Gross margin (sometimes called gross profit)—represents the remainder after cost of goods sold has been subtracted from sales.
4. Marketing expenses—generally programmed expenses budgeted to produce sales. Advertising expenses are typically fixed. Sales expenses can be fixed, such as a salesperson’s salary, or variable, such as sales commissions. Freight or delivery expenses are typically constant per unit and vary with total unit volume.
5. General and administrative expenses—generally, committed fixed costs for the planning period, which cannot be avoided if the organization is to operate. These costs are frequently called overhead.
6. Net income before (income) taxes (often called net profit before taxes—the remainder after all costs have been subtracted from sales.

A pro forma income statement reflects a marketing manager’s expectations (sales) given criterion inputs (costs). This means that a manager must think specifically about customer response to strategies and tactics and focus attention on the organization’s financial objectives of profitability and growth when preparing a pro forma income statement.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

New Product Sales Forecasting

Forecasting sales for a new product is an especially hazardous undertaking because no historical data is available. Companies typically employ consumer panels to obtain reactions to the products and to gauge probable purchase behavior. Test market data may also guide forecasts.

Since few products introduce totally new features to the market, forecasters can gain insight by carefully analyzing the sales of competing products that the new entry may displace. The situation method provides the forecaster with an estimate of market size and potential demand.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

New Product Concept

Webster’s says a concept is an idea or an abstract notion. Businesspeople use the term concept for the product promise, the customer proposition, and the real reason why people should buy. It is a stated relationship between product features (form of technology) and consumer benefits—a claim of proposed satisfactions. This promise is open to four interpretations:

• The producer’s perception of the features of the new product.
• The consumer’s perception of the features of the new product.
• The producer’s estimate of the benefits delivered by that set of features.
• The consumer’s estimate of the benefits delivered by that set of features.

These are only forecasts, guesses, at this time—not reality, even with a prototype in hand. They rest on expectations.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

Forecasting in Supply Chain

The forecast of demand forms the basis for all strategies and planning decisions in a supply chain. Consider the pull/push view of the supply chain. Throughout the supply chain, all push processes are performed in anticipation of customer demand whereas all pull processes are performed in response to customer demand. For push processes, a manager must plan the level of production. For pull processes, a manager must plan the level of available capacity and inventory. In both instances, the first step a manager must take is to forecast and what customer demand will be.

Mature products with stable demand are usually easiest to forecast. Staple products at a super market, such as milk or paper towels, fit this description. Forecasting and the accompanying managerial decisions are extremely difficult when either the supply of raw materials or the demand for the finished product is highly variable. Good forecasting is very important because the time window for sale is narrow and if a firm has over- or under-produced, it has little chance to recover. For a product with long life cycle, in contrast, the impact of a forecasting error is less significant.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

Sales Forecasts

From a sales manager’s point of view, the importance of timely, accurate sales forecasts cannot be overstated. There is nothing quite as needlessly frustrating as being surprised at the month end sales results because the forecasts from the field were incorrect, untimely, or inadequate.

More than simply keeping sales managers up to date, accurate sales forecasting can have an important impact on other areas of the company as well. Sales forecasts give management the information that is necessary to implement a product plan that ensures that the right product is available for salespeople to sell.

It is true that a sales force automation system cannot compensate for poor forecasting skills of salespeople in the field. What a sales system can do, however, is to move the information from the field management instantly. Perhaps more important is the fact that an automated sales system can deliver the information in a format that allows the forecasts of several salespeople to be automatically rolled up into a consolidated regional report. Since the information is in a more usable format, it is more valuable to management. It is more likely to be useful in preventing end-of-the-month surprises.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

Estimation of Demand

Potential and forecast are distinct concepts, but they become blurred when estimates of demand are developed. The techniques used to estimate demand differ in their emphasis on the proposed marketing effort. For example some techniques neglect the level of marketing effort and concentrate on the maximum amount of commodity that might be demanded from an industry or company. Estimates produced with the emphasis are closer to being market or sales potential estimates than they are sales forecasts.

Other techniques give great weight to the marketing effort planned for the period and are sales forecasts in the true sense of the word. Still other techniques use historic sales as a basis for future demand estimates. They rely on the implicit assumption that marketing effort in the future period will be similar to what it was in the past.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

 

Choosing a Forecasting Method

The sales manager faced with a forecasting problem has a dilemma: which forecasting method should be used and how accurate is the forecast likely to be? The dilemma is particularly acute when several methods are tried and the forecasts don’t agree.

Each method has advantages and disadvantages, and the decision of which to use will not always be clear. In a typical company, the decision will more than likely depend on its level of technical sophistication and the exercise of historic sales data. It will also likely depend on the use to which the forecast will be put. A forecasting system designed to estimate production scheduling and inventory requirements may rely on a completely different set of procedures than one designed to plan marketing strategy. One guide a manager might find useful when choosing a forecasting method is what other companies have done.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

 

Strategic Sales Program

The activities and influences involved in formulating a strategic sales program requires a five major sets of decisions:

1. How can the personal selling  effort best be adapted to the company’s environment and integrated with other elements of the firm’s marketing strategy? In sum, what should be firm’s personal selling strategy?
2. How can various types of potential customers best be approached, persuaded, and serviced? In other words, what account management policies should be adopted?
3. How should the sales force be organized to call on and manage various types of customers as effectively and efficiently as possible?
4. What level of performance can each member of the sales force be expected to attain during the next planning period? This involves forecasting demand  and setting quotas and budgets.
5. In view of the firm’s account management policies and demand forecasts, how should the sales force be deployed? How should sales territories be defined? What is the best way for each sales person’s time to be allocated within a territory?

The policies and plans involved in such a program must take into account the influences and constraints imposed by the external environment. The demands of potential customers and the actions of competitors are two obvious environmental factors.

In addition to customers and competitors, other environmental factors such as energy shortages, technical advances, government regulations,  and social concerns can  affect a company’s sales policies and plans.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.