December 30, 1899

SALES MANAGEMENT UNIT- 2 BBA

PROCESS OF PERSONAL SELLING
Personal selling is a face-to-face selling technique by which a salesperson uses his or her
interpersonal skills to persuade a customer in buying a particular product. The salesperson
tries to highlight various features of the product to convince the customer that it will only
add value.

A unique example of personal selling is found in the department stores on the perfume and
cosmetic counters. A customer can get advice on how to apply the product, its specialties
and can try different related products, these all are guided by the personal selling staff
present there. Products with high prices, and with complex features, are often sold using
this type of technique. Examples: Cars and many products that are sold by businesses to
other industrial customers.

IMPORTANCE OF PERSONAL SELLING

The following points explain the importance of personal selling:

1. Two-Way Communication:

This is the best tool for personal selling. Salesmen can provide necessary information to
customers about the company's offer, and also can collect feedback from customers. He can
ask if there are any queries about the product to the salesman present for personal selling.

2. Personal Attention:

Advertising and publicity are among mass communication tools, and thus personal selling
is concentrated and is focused on one individual, this will result in an effective results.

3. Detail Demonstration:

Television demonstrations are limited; thus, salesmen can provide a detailed

demonstration and can supervise the customer through personal selling.

4. Complementary to other Promotional Tools:

Personal selling supports advertising, sales promotion, and publicity. Personal Selling even
removes the drawbacks of advertising and its sales promotion .

5. Immediate Feedback:

This is the only market promotion technique that provides immediate feedback from the
customers.

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 December 30, 1899
SALES MANAGEMENT UNIT- 2 BBA

ADVANTAGES OF PERSONAL SELLING

The Advantages of Personal Selling are as follows -

 This is a two-way communication where the selling agent gets instant feedback from
the prospective buyer about their intention to buy.
 This is an interactive form of selling, which helps in building trust with the
customer. While selling high-value products like cars, the customer must trust the
product and thus personal selling is needed.
 Personal Selling is a persuasive form of selling as in this type of sale the customers
come face to face with the salesperson where it is not easy to dismiss them, there is
an effort of the customer to listen to them.
 Direct selling helps in reaching the audience.

LIMITATIONS OF PERSONAL SELLING

 It is an expensive method of selling that requires high capital costs.
 Also, this method involves many labors as it is a labor-intensive method as a large
sales force is needed to carry out personal selling successfully.
 The training of the salesperson for personal selling is also a very time-consuming
and costly process.
 The method can only reach a limited number of people, it does not provide mass
advertisements like TV or Radio ads.

POINT OF SALE MERCANDISE

Point of sale items are those that create interest in the product on offer, or help stimulate
the customer to make a purchasing decision. Clever use of merchandise items will result in
increased sales. Merchandising includes branding and presentation of logos as well as
highlighting prices, specials, or new products. A smart retailer draws attention to the areas
where they want to increase sales, not to the items that already move quickly. Here are
some tips to get you started. Place the slower moving lines next to the fast lines to increase
exposure. Pop a bright or special ticket with the product or dangle a wobbler in front.
Sometimes just presenting the front face of the products in a smoother, more ordered way
will make them more appealing. Shelf Management and stock control systems do this very
well. Multiple facings of the one product will give it larger presence and draw attention to
it. Retail Display Solutions are everything from good ticketing to using dump bins, to
feeding the stock to the front of the shelf. All are important aspects of good retail display.
Whether you need to display fresh fruit, gumboots or giftware, the principles are the same,
good retail display increases sales.

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 December 30, 1899
SALES MANAGEMENT UNIT- 2 BBA

IMAGES OF WOBBLERS
4 THEORIES OF PERSONAL SELLING
1. AIDAS theory of personal selling

2. “Right Set of Circumstances” theory of selling

3. “Buying Formula” theory of selling

4. “Behavioral Equation” theory

The first two of the four above-mentioned theories, are seller oriented and the third one is
buyer’s oriented. The fourth one emphasizes the buyer’s decision process but also takes the
salesperson’s influence process into account.

AIDAS Theory of Selling:

AIDAS theory (attention, interest, desire, action and satisfaction), is based on experimental
knowledge. This theory is very common.

According to this theory potential buyer’s mind passes through the following stages:

1. Attract Attention :
 It is the crucial step in the AIDAS process.
 The objective is to put the prospect into the right state of mind to continue the sales
talk.
 Securing attention is a skill: need- benefit linkage, good communication skills etc.
 The salesperson has to convince the prospect for participating in the face-to-face
interview.
 A good beginning of conversation may set the stage for a full sales presentation.
 The salesperson must able to understand the prospect, as well as his need, want &
kind of benefit that the prospect is seeking..

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 December 30, 1899
SALES MANAGEMENT UNIT- 2 BBA

2. Create Interest :
 The second step is to intensify the prospect’s attention so that it involves into strong
interest.
 To achieve this, the salesperson has to be enthusiastic about the product.
 Another method is to hand over the product to the prospect and let him handle it.
 Brochures and other visual aids serve the same purpose. Throughout the interest
phase, the hope is to search out the selling appeal that is most likely to be effective.

3. Stimulate Desire:

 After the attention getting and creating interest, the prospect must be kindled to
develop a strong desire for the product. This is a ready-to-buy point.
 Objection from the prospect will have to be carefully handled at this stage.
 The prospect should be made to feel & realize as to why he has not bought the
product till now.
 Time is saved and the chances of making a sale improved if objections are
anticipated and answered before the prospect raises them.

4. Induce Action:

 If the presentation has been perfect, the prospect is ready to act, that is, to buy.
 Very often there may be some hesitation on the part of the prospect at this stage.
 The salesperson should very carefully handle this stage and try to close the deal
effectively.
 Once the buyer has asked the seller to pack the product, then it is the responsibility
of the seller to reassure the customer that the decision was correct.

5. Build Satisfaction:

 The customer should be left with the impression that the salesperson merely helped
in deciding.
 After the sale has been made, the salesperson should ensure that the customer is
satisfied with the product.
 The salesperson should sense the prospect’s mind and brief his talks.

“Right set of circumstances” Theory of Selling:

 It is also called the “situation-response” theory.

 It has its psychological origin in experiments with animals.

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 December 30, 1899
SALES MANAGEMENT UNIT- 2 BBA
 The major emphasis of the theory is that a particular circumstance prevailing in a
given selling situation will cause the prospect to respond in a predictable way.
 The circumstances include both internal & external factors:
-Internal: Presence of or absence of prospect’s desire
-External: Sales person’s interaction & dialogue, sales presentation etc.
 The more trained & skilled a sales person is in handling such a set of circumstances,
the higher the likelihood that there shall be a favorable response ( in terms of sales).
 As the theory lays huge emphases upon the influence on external factors rather than
internal factors, it is a seller-oriented theory and it stresses that the salesman must
control the situation in such a way as to produce a sale ultimately.

“Buying Formula” Theory of Selling:

 The buyer’s needs or problems receive major attention, and the salesperson’s role is
to help the buyer to find solutions.
 This theory purports to answer the question: What thinking process goes on in the
prospects’s mind that causes the decision to buy or not to buy? The name “buying
formula” was given to this theory by E.K Strong, Jr.

The theory is based on the fact that there is a need or a problem for which a solution must
be found which would lead to purchase decision, as shown below:

Whenever an individual feels a need, he is said to be conscious of a deficiency of

satisfaction. The solution will always be a product or service or both and they may belong
to a producer or seller. The buyer develops interest in buying a solution.

In purchasing, the “solution” involves two parts:

1. Product or service or both,

2. The brand name, manufacturer or the salesperson of the particular brand name:

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 December 30, 1899
SALES MANAGEMENT UNIT- 2 BBA
The product or service (Brand name) must be considered adequate to satisfy the need and
the buyer must experience a pleasant feeling or anticipated satisfaction. This ensure the

purchase.

Behaviour Equation Theory of Selling:

Using a stimulus-response model (a sophisticated version of the “right set of

circumstances” theory), and incorporating findings from behavioral research, J.A. Howard
explains buying behavior in term of the purchasing decision process, viewed as phase of
the learning process.

Four essential elements of the learning process included in the stimulus-response model
are drive, cue, response, and reinforcement, described as follows:

 Drives are strong internal stimuli that impel the buyer’s response. There are two
kinds:
-Innate drives stem from the physiological needs, such as hunger, thirst, pain,
cold, and sex.
-Learned drives, such as striving for status or social approval, are acquired
when paired with the satisfying of innate drives. They are elaborations of the innate
drives, serving as a façade behind which the functioning of the innate drives is
hidden. Insofar as marketing is concerned, the learned drives are dominant in
economically advanced societies.
 Cues are weak stimuli that determine when the buyer will respond.
 Triggering cues activate the decision process for any given purchase.
 No triggering cues influence the decision process but do not active it, and may
operate at any time even though the buyer is not contemplating a purchase. There
are two kinds:
 Product cues are external stimuli received from the product directly, for example,
color of the package, weight, or price.
 Informational cues are external stimuli that provide information of a symbolic
nature about the product. Such stimuli may come from advertising, conversations
with other people (including sales personnel), and so on.

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 December 30, 1899
SALES MANAGEMENT UNIT- 2 BBA
 Specific product and information cues may also function as triggering cues. This may
happen when price triggers the buyer’s decision.
 Response is what the buyer does.
 Reinforcement is any even that strengthens the buyer’s tendency to make a
particular response.”

Howard incorporates these four elements into an equation:

B=PxDxKxV

Where

B = response or the internal response tendency, that is, the act of purchasing a brand or
patronizing a supplier

P = predisposition or the inward response tendency, that is, force of habit

D =present drive level (amounts of motivation)

K =“incentive potential” that is, the value of the product or its potential satisfaction to the
buyer

V =intensity of all cues: triggering, product, or informational

The relation among the variables is multiplicative. Thus, if any independent variable has a
zero value, B will also be zero and there is no response. No matter how much P there may
be, for example, if the individual is unmotivated (D = 0), there is no response.

Each time there is a response—a purchase in which satisfaction (K) is sufficient to yield a
reward, predisposition (P) increases in value. In other words, when the satisfaction yields a
reward, reinforcement occurs, and, technically, what is reinforced is the tendency to make
a response in the future to the cue that immediately preceded the rewarded response. After
reinforcement, the probability increases that the buyer will buy the product (or patronize
the supplier) the next time the cue appears—in other words, the buyer has learned.

Stimulus-response or “black box” model

Another model of consumer behavior, called the stimulus-response or “black box” model,
focuses on the consumer as a thinker and problem solver who responds to a range
of external and internal factors when deciding whether or not to buy.

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 December 30, 1899
SALES MANAGEMENT UNIT- 2 BBA

As illustrated in the figure above, the external stimuli that consumers respond to include
the marketing mix and other environmental factors in the market. The marketing mix (the
four Ps) represents a set of stimuli that are planned and created by the company. The
environmental stimuli are supplied by the economic, political, and cultural circumstances
of a society. Together these factors represent external circumstances that help shape
consumer choices.

The internal factors affecting consumer decisions are described as the “black box.” This
“box” contains a variety of factors that exist inside the person’s mind. These include
characteristics of the consumer, such as their beliefs, values, motivation, lifestyle, and so
forth. The decision-making process is also part of the black box, as consumers come to
recognize they have a problem they need to solve and consider how a purchasing decision
may solve the problem. As a consumer responds to external stimuli, their “black box”
process choices based on internal factors and determine the consumer’s response–whether
to purchase or not to purchase.

SPIN Model
Situation: Establish buyer’s current situation.

Problem: Identify problems the buyer faces that your product solves.

Implication: Explore the causes and effects of those problems.

Need-Payoff: Show why your product is worth it.

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 December 30, 1899
SALES MANAGEMENT UNIT- 2 BBA
WHAT IS SPIN SELLING?
A great model, was the brainchild of Neil Rachham who authored a book of the same name
in 1998.They examined large complicated sales scenarios & after analyzing more than
35,000 sales calls they were able to put to rest a variety of traditional myths about closing
sales. The original survey showed that in successful sales call it’s the buyer who does most
of the talking, which means sales persons are asking questions.

This outcome is particularly important for businesses that sell products with long sales
cycles, multiple stakeholders, and complicated implementation. In this scenario, buyers
may often not realize that they have a problem — or, if they are aware of the problem, they
assume that it can’t be solved. Using questions to uncover needs and create value ensures
that sellers create urgency for your buyers and drive them towards purchase.

SPIN Selling is a sales methodology where sellers apply four types of questions – situation,
problem, implication, and need-payoff – at different stages in the sales cycle.

According to Rackham, sellers need to leave traditional sales tactics behind and instead, act
as “trusted advisors” to build trust, nurture relationships, and present solutions that win
complex deals.

The SPIN acronym comes from the four types of questions at the center of the
methodology, which break down as follows:

 Situation. Situation questions help sellers understand the basic facts about the
buyer’s current state. Essentially, you’re trying to gather the foundational
information that sets the tone for the rest of the sales process.
 Problem. Problem questions are used to uncover more details about the problems
your prospects are facing. Your goal is uncovering the what and the why behind
their pain points and challenges, probing deeper so you can learn what’s really
going on behind the scenes.
 Implication. Implication questions are used to help reps understand the
consequences or impact of the prospect’s problem. These questions give prospects a
chance to voice their frustrations–and for reps, present an opportunity to
strengthen bonds by validating prospect pain.
 Need-payoff. Need-payoff questions focus on understanding of the urgency and
impact of solving the problem. Here, you’re trying to figure out if solving this
problem is a priority—and if so, quantifying the impact of that solution.

1. Situation (Opening Stage)

 Tell me about your company

 What do you sell?
 Who is your target audience?
 What is your role there?

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 December 30, 1899
SALES MANAGEMENT UNIT- 2 BBA
 What does your average day look like?
 Can you tell me about your current processes?
 What tools/solutions are you currently using to handle X problem or Y use case?
 What made you choose those solutions in the first place?
 Are they effective?
 Who manages X use case/process?
 What resources are allocated to this problem/use case?
 Who owns the budget?
 Who is in charge of the strategy for X use case?
 What are your priorities this quarter/year?
 Why do those priorities matter to your business/customers?‍

2. Problem (Investigating Stage)

 How important is solving X problem to your business?

 Does your current approach ever fail?
 Do you think that problem can be solved?
 What will it take to get closer to solving that problem/pain point?
 If it were up to you, what would your approach to solving the problem look like?
 How important is it to you personally? What about your team?
 What are your biggest day-to-day challenges?
 What barriers do you anticipate in making a decision? Implementing a solution?
Getting users to embrace the change?
 What happens if you don’t solve this problem?‍

3. Implication (Demonstrating Capability Stage)

 How does X problem impact your work?

 Would solving it help your career?
 How does it impact your team’s work?
 How does it impact your customers/stakeholders?
 Has your current solution ever caused your business to miss critical
milestones/targets?
 Why? What happened?
 How much are you spending on your current solution?
 How many hours do you/your team spend using that solution?
 If this problem didn’t exist, how would you use your budget/time differently?
 What goals are you unable to achieve because of this problem?
 How much more could your team achieve each week by solving X problem?
 If you had more resources to solve this problem, how would you spend them?‍

4. Need Payoff (Obtaining Commitment Stage)

 What would solving this problem mean for your business?

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 December 30, 1899
SALES MANAGEMENT UNIT- 2 BBA
 How would finding a solution help you succeed in your role?
 How would it help your peers, partners, and subordinates?
 How would solving the problem enable you to do A, B, or C?
 Would X solution increase stakeholder buy-in?
 Would Y tool help your team do A, B, and C?

How does SPIN Selling Work?

SPIN Selling consists of just two key components: four types of questions and four stages of
selling.

SPIN selling stages

According to Rackham, sellers tend to work through the same general steps as they move
from discovery to close.

Here’s a look at how those stages are defined within the SPIN methodology:

Opening. The opening stage is all about building rapport and establishing trust. You’re
trying to make a good first impression – while at the same time, gathering the details you
need to flesh out a picture of your prospect’s current situation.

Investigating. Once you have a clear sense of your prospect’s situation, you’ll want to
transition into “investigation mode.” Here, your job is to dig deeper, asking probing
questions that help you understand the opportunities, challenges, and the “why” behind the
prospect’s problems. But – it’s important to avoid making assumptions or pushing a
solution too soon. Instead, you’ll want to guide the prospect toward the information that
enables them to identify and diagnose their own problems.

Demonstrating capability. The “demonstrating capability” stage is where you introduce

the product or service you’re offering. According to Rackham, there are a few ways you
might approach this. You can focus on features, advantages, or benefits.

Features describe the product’s capabilities. For example, if you’re selling a laptop, features
include things like RAM or connection ports. Essentially, things you might find on a spec
sheet. Advantages explain why someone might choose your solution over some other
option. So, if we’re using the same example, a laptop’s advantage over pen and paper is that
you can write faster and edit your work without starting from scratch.

Finally, benefits represent the impact a product’s features and advantages deliver to the
user. With the laptop example, you might highlight the positive outcomes that purchase
might have on the buyer’s productivity or quality of work.

Obtaining commitment. The fourth and final stage is obtaining commitment. At this point,
your goal is convincing the buyer to take the next step – that might mean convincing them
to loop in other decision-makers, book a demo, or go ahead and sign the contract. This

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 December 30, 1899
SALES MANAGEMENT UNIT- 2 BBA
stage might span multiple meetings and phases – and in many cases, it’s where reps
encounter the most objectives.

BEST PRACTICES TO GET SPIN SELLING RIGHT

It’s up to each rep to make situational decisions on which questions they use. This means
there are endless ways you can “SPIN” a sales call — but a few best practices you’ll want to
get right, regardless of which questions you ultimately ask.

1. Ask open-ended questions

The last thing you want as a sales rep is for a customer conversation to be reduced to a
series of blunt “yes” or “no” answers. Without detailed answers, it will be difficult to dive
deeper or fully understand a business’s challenges and opportunities.

To avoid that, it’s important to ask open-ended questions. As you pose these queries,
remember you don’t have to jump in with a follow-up question right away — sometimes a
simple “Oh?” is the best open-ended question you can ask. Buyers naturally follow up with
more clarifying information, often with the details you need to effectively position your
product.

2. Don’t dominate the conversation

When people respond to our questions, the natural tendency is to affirm what they just said
with an anecdote or opinion of our own. In personal relationships, this is a great way to
build depth. But if you’re not careful, this tendency can easily waste precious customer
time.

Avoid dominating the customer conversation by validating what the buyer just said by
paraphrasing their response. This demonstrates that you were listening — which is all the
buyer really needs from you. Then, simply move the conversation forward.

3. Don’t cram too many questions into one call

At first glance, the SPIN methodology seems simple and straightforward. Its brevity may
imply that you can and should try to get through all four stages in one call. For some
products and businesses, this may be possible — especially if the buyer is raring to
purchase.

But for most businesses, especially ones with complex buyers, it’s likely that your SPIN
conversation will happen over a series of calls. A buyer may have challenging problems to
explain or need additional education at a particular SPIN stage. So don’t rush — take your
cues from your buyer and be prepared to move at their pace, even if you don’t get through
all your questions.

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 December 30, 1899
SALES MANAGEMENT UNIT- 2 BBA
4. Practice before your engage

Finally, as with any sales methodology, the key to flawless execution is practice. For
revenue leaders implementing SPIN selling or any other methodology, it’s therefore
essential to build practice into your sales processes and programs.

This means that reps should build confidence and drive towards mastery of SPIN questions
long before they ever try them out on a customer. This should take the form of self-guided
learning, reinforcement through sales coaching, and opportunities for practical application
such as roleplaying. Additionally, don’t forget the power of just-in-time learning: with
open-ended questions, it’s highly likely that no two customer conversations will look the
same. If you empower reps with sales plays they can access in real-time, they’ll have no
trouble navigating any objections that come their way.

The four types of selling

Those would be:

 Transactional selling

 Solution selling

 Consultative selling

 Provocative selling

OK, that’s all well and good. What now? What do we need to know about all four? Why is that
important for your business?

Transactional selling

Transactional selling is a common method of sales in which a sales representative seeks out
prospects, develops a relationship and then tries to close a sale.”

Transactional selling works in part because it’s psychologically comforting to everyone

involved. You know you need leads, you know you need to work leads, you know you need to
close. This is how we’ve thought of sales forever.

The benefit in transactional is that the focus is short-term. It’s largely about the single sale and
the product. Customer needs may be discussed, but that’s often lip-service.

Transactional selling works best in quarter-focused environments where the entire gospel of the
org is “push the product” and/or “hit the number.” If that’s the true goal, a transactional approach
— tiered with lead-gen specialists or outsourced sales packages — makes the most sense.

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 December 30, 1899
SALES MANAGEMENT UNIT- 2 BBA

Solution selling

This is the next big jump from transactional. Now, instead of focusing on the product only, you
focus on the customer’s needs and you try to work through their needs to match them with
products and services.

This is largely about the value proposition, although it’s important to distinguish between
solution selling and benefits selling. Some sales principals lead with the features and benefits of
their product. That’s actually closer to transactional selling because of the large focus on the
product. Solution selling is about selling the end state. What will the ultimate solution look like?
How much better will your life, team, and productivity be when you get there?

Characteristics of Solution Selling: The prospect is aware of his problem or need, but he is not
quite sure about how to solve it. He is looking for a solution to his problem. Solution Selling is
often performed in multi-touch face to face environment.

Consultative selling

This is similar to solution selling. The focus is on customer relationships and dialogue with the
customer around needs.

This approach is a little harder to execute because it requires a very skilled salesforce. You need
people that really know how to open and engage throughout a customer lifecycle conversation-
wise. You need good listeners and talkers, in other words.

An end goal of consultative selling is often, well, a consulting situation. Someone from your org
with expertise might be part of the deal. You need to know how to weave expertise — and its
inherent value in business contexts — into the discussions too. You need to know how to ask the
right questions.

Provocative selling

“Shock and awe” in some ways, or make customers aware of problems they didn’t even know
existed. If you convince them that not spending is actually a major miss, they will spend.
There’s a degree of “eliminate any possibility except your solution”.

This has become a more used approach in recent years because a lot of businesses, admittedly,
do things the way they’ve always done them. (Change is hard.) If you can come in and show that
you are leaving a ton of money on the table with your current solution,” they are generally more
likely to consider switching or move down your funnel.

Sales Forecasting Methods

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 December 30, 1899
SALES MANAGEMENT UNIT- 2 BBA
Forecasting methods can be qualitative and quantitative. Qualitative methods are subjective in
nature where the opinion of the experts is given importance while estimating the future sales.
Quantitative methods imply objective or mathematical analysis of factors predicting sales.
Quantitative methods provide more accurate forecasts than qualitative ones.

1. Qualitative Methods:

Following are the quantitative methods of sales forecasting:

i. Jury of Executive Opinions:

The jury of executive opinions is based upon the collective judgments of a jury of executive
panel. Top-level executives in an organization are consulted while estimating the possible future
sales of a product or a group of similar products after which an average of all these estimates is
calculated. This is in fact a pooled judgment of sales for a definite time period in future.
Opinions are pooled and averaged out and finally reconciled in a group meeting.

This is a quick method of sales forecasting because data is easily available within the
organization. Only those in the organization are approached who are well-informed about the
industry and factors, internal and external to the organization, influencing sales. The closer the
opinions of the executives are the more reliable is the estimate. In contrast, when opinions vary
significantly, the estimate cannot be depended upon. Executives should be serious enough in
having their opinions and should apply their minds in the prediction.

But the method is not scientific and the executives opine on guesswork. Often executives have
their own personal workloads and may not find it interesting. Also, the estimates of sales,
product- or territory-wise are difficult to get by this method.

ii. Delphi Method:

A group of experts is chosen who are requested to give their views on the projection of sales in
the future time period. Experts are selected from various fields such as – industries, government
agencies, research institutions, trade associations, distribution houses, etc. They are requested to
review competition, customer tastes and preferences, general business conditions, etc., and report
how these will influence the results.

These reports are then processed, analysed, and sent back to the experts for revision. After
getting feedbacks from them, the final report is compiled. This technique is helpful for long-term
forecasting. The opinions from the experts are taken separately on the basis of which results are
reconciled. In fact, the idea for sending the initial reports to the experts is to get second opinions
from them. The process is repeated till deviations of opinions are sorted out and a consensual
opinion is developed.

iii. Sales Force Composite Method:

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Salespeople are asked to prepare a report on the sales estimates of their own territories. These
estimates are later aggregated to project sales for the entire geography. After receiving the
reports, these are checked and verified for final projections. For a limited number of customers in
a territory and industrial products, this method is very practical.

The estimate calculated from this method is expected to be very close to the actual figures
because salespeople hardly overstate the estimates to avoid huge sales quota which would
adversely affect their performance. Salespeople, here, get a chance to interact with the
prospective buyers before they start sales operations. So, the initial recognition to buyers is a
bonus to the salespeople.

The company entrusts senior salespeople, particularly those who are engaged in field selling, to
find sales potentials. But they may devote less attention to the forecasting jobs, if they are busy
with the pressure-selling situations. In such cases, they either might not do it or do it casually, in
which case, the results will be wrong. Sometimes salespeople intentionally report some figures
that best suit them to accept as sales quota, as a result of which, organizations lose a part of their
revenues in those territories.

Some salespeople overstate the sales estimates from share over ambition and in this case, the
company’s selling expenses mount up with less productive results. So, an initial training of
salespeople regarding methods of sales forecasting is important before, they do it in fields.

iv. Survey of Buyers’ Intentions:

The method suggests selecting a sample of buyers and questioning them about their intentions to
purchase a particular product.

This information is then extrapolated to the total population of buyers to estimate probable future
sales. The validity of this method depends on –

a. How accurately the sample is chosen;

b. How accurately the questionnaire is constructed to get information from the samples; and

c. How accurately the sales are estimated from the sample results.

Many companies select a panel of consumers and interact with them at regular intervals about
buying intentions. They are also asked on various other issues such as – product quality, their
satisfaction with price level, after-sales service, etc. Even suitable suggestions can be obtained on
how to improve features or cause changes in the deficient areas to improve sales.

v. Leading Indicators Method:

The method suggests identification of key factors that are called indicators that influence sales.
The trends or time series of the leading indicators are studied to see their impacts on sales. In
fact, these series are combined to see their joint impacts on sales. For example, GDP, industrial

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production, whole sales price index, quality of life, etc., can be leading indicators to influence
sale of a product or product line.

A leading indicator may contain some underlying indicators to influence it. Study of an
economic indicator involves examining the statistics or trends of it. These leading indicators
change to cause change in the business environment. Similarly, leading indicators (say, demand,
personal disposable income, etc.,) are responsible for the change in sales. Forecasting study,
therefore, implies estimation of combined impacts of leading indicators on sales of a product
under study.

2. Quantitative Methods:

i. Moving Average Method:

The method suggests drawing an average of the sales of a number of years to predict the sales of
a coming period. The objective is to smooth out the fluctuations and provide a close estimate of
the forecasted sales.

This method can be better understood from the following:

So, the sales of the preceding three years are considered to forecast the sales of the year of
interest. This is a very simple method and the calculation for this is easy too.

ii. Exponential Smoothing Method:

It is similar to the moving average method. In moving average, the sales of previous years are
given equal importance but in exponential smoothing, the recent past sales are given more
weight than the earlier pasts. The objective is to smooth out fluctuations in the time series for
accurate estimation of sales forecast.

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The general equation of exponential smoothing is as follows:

Next year’s sales = a (this year’s sales) + (1-a) (this year’s forecasts)

Where,

a is a constant, and is called the smoothing constant or weight

where a = weight for the current year’s sales

(1 -a) = Weight for the immediate preceding year.

If a =1, then, the forecasted sales is equal to sales of the current year. If a = 0, then current year’s
forecast is equal to next year’s forecast. No adjustment is needed.

The range of the value of ‘a’ is from 0 to 1. For practical reasons, the value of a is chosen
between 0.1 to 0.4. Similarly, the observations for the preceding second year, third year, etc. may
be considered.

A practical illustration is discussed as follows to understand the concept better:

iii. Time Series Analysis:

A time series is a sequence of values, a variable assumes corresponding to different time periods.
Data on sales, industrial production, revenues or profits are arranged in a sequence with respect
to time period produces a time series. Say, ten years annual sales, when arranged chronologically
against years give us a time series. A time series of sales represents four basic elements of
variations in sales.

These are:

a. Trends,

b. Cyclical variations,

c. Seasonal variations, and

d. Irregular factors.

a. Trend (T):

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Trend (T) represents long-term increment or decline in the sales. It is the long- term movement
in time series.

b. Cyclical Variations (C):

Cyclical variations (C) represent the ups and downs in the business and are better understood by
studying the nature of the business cycle. Ups in business cycle mean prosperity and downs
mean recession. Twists and turns in the cycle take place in a regular sequence. Time series over
an extended period of time indicate cycles. Exponential smoothing can detect cyclical variations
satisfactorily.

c. Seasonal Variations (S):

Seasonal variations (S) represent periodic movements over a time period, usually one year. For
example, climatic changes, festival periods, Christmas occasions, etc., take place every year at a
particular time period and these influence sales for some products. The sales of garments,
consumer durables pick up during festival times.

Seasonal variations can be understood when data in the time series are presented monthly or
quarterly. Seasonal variations take place in a definite time of a year and when the sales data are
assumed to pick up for some products during that period and therefore, percentages of the total
sales are high. If past data are indicative of it, then percentages of sales during previous years can
be used to predict future sales.

d. Irregular Factors (I):

Irregular factors (I) are unexpected events such as wars, natural calamities, strikes in the
organization, etc., that cannot be predicted in advance.

These four factors are combined to calculate the estimate.

Thus, Sales = T x C x S x I

Projection of sales is made by extrapolating the trends with adjustments of cyclical and seasonal
variations. The irregular factors cannot be anticipated in advance and therefore certain
allowances are given in the future sales trend by provisioning contingency plans.

iv. Regression Analysis:

Regression analysis is a statistical method that is used for representing the linear relationship
between two or more variables. If a relationship between two variables exists, then the value of
one variable can be predicted given the information on the value of the other variable. This
method can be used in sales forecasting to measure the relationship between a firm’s sales and
other economic or demographic indicators.

Four questions are pertinent in this regard as follows:

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a. Is the relationship linear?

b. How strong is the relationship, i.e., how well can we predict the dependent variable from the
value of independent variables?

c. Whether the relationship is statistically significant?

d. Which independent variable contributes more in explaining the variation of the dependent
variable?

v. Econometric Models:

Econometric models are mathematical models describing the economic relationship between
variables; say the relationship between demand and the disposable income. Studies of these
relationships help managers to take economic decisions. Econometrics determines how different
economic variables interact and affect one another.

So far as application of econometrics in sales forecasting is concerned, forecasters study the past
relationships between sales and the sales determining variables such as household incomes,
spending patterns, consumption behaviour, etc. After this they predict how changes in these
variables would affect sales in future by statistical analysis.

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