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Forecasting Case

GlowSkin Cosmetics is forecasting sales for their face serum using a 3-month moving average and exponential smoothing methods, while also considering the impact of advertising spend on sales through regression analysis. AutoSprint is predicting spare parts demand using quarterly sales data and fuel price fluctuations, applying similar forecasting techniques. Both caselets highlight the importance of econometric analysis to incorporate various market factors into sales predictions.

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3 views4 pages

Forecasting Case

GlowSkin Cosmetics is forecasting sales for their face serum using a 3-month moving average and exponential smoothing methods, while also considering the impact of advertising spend on sales through regression analysis. AutoSprint is predicting spare parts demand using quarterly sales data and fuel price fluctuations, applying similar forecasting techniques. Both caselets highlight the importance of econometric analysis to incorporate various market factors into sales predictions.

Uploaded by

bm
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Caselet 1: Forecasting Sales for GlowSkin Cosmetics

GlowSkin Cosmetics is preparing its sales forecast for the next quarter. They have tracked
monthly sales of their best-selling face serum over the past 8 months (in units):

 Month 1: 1,000
 Month 2: 1,050
 Month 3: 1,150
 Month 4: 1,200
 Month 5: 1,250
 Month 6: 1,300
 Month 7: 1,320
 Month 8: 1,350

Task for students:

1. Using a 3-month moving average, forecast sales for Month 9.


2. Using exponential smoothing with a smoothing constant (α) of 0.3 and starting
forecast of Month 1 = 1,000, calculate the forecast for Month 9.
3. If sales depend on monthly advertising spend, and the following data is available:

Ad Spend (₹ in
Month Sales (Units)
'000)
1 50 1,000
2 55 1,050
3 60 1,150
4 65 1,200
5 70 1,250
6 75 1,300

Apply regression analysis to predict sales if Ad Spend is ₹80,000 in Month 7.

4. Discuss how econometric analysis could help GlowSkin if they wanted to factor in
pricing, competitor promotions, and seasonality.
Caselet 2: AutoSprint - Predicting Spare Parts Demand

AutoSprint is a supplier of automobile spare parts. The company’s quarterly sales data (in
thousand units) for one of their key products is given below for the last 6 quarters:

Quarter Sales (in '000 units)


Q1 22
Q2 25
Q3 27
Q4 30
Q5 32
Q6 35

Additionally, AutoSprint has been tracking fuel price fluctuations (₹/litre) during these
quarters:

Fuel Price
Quarter
(₹/litre)
Q1 95
Q2 98
Q3 100
Q4 102
Q5 105
Q6 107

Task for students:

1. Forecast the sales for Q7 using a 4-quarter moving average.


2. Use exponential smoothing with α = 0.4 and initial forecast at Q1 = 22 to forecast for
Q7.
3. Using regression analysis, predict the demand if the fuel price is expected to reach
₹110 in Q7.
4. How would you set up an econometric model for AutoSprint if you were to include
fuel price, government policies (EV subsidies), and competitor pricing in your
forecast?

Solutions
Caselet 1 (Moving Average & Exponential Smoothing)

Situation Recap:

SuperBikes Ltd. wants to forecast the demand for their new bike model based on past
quarterly sales (in units):
Quarter Sales
Q1 1200

Q2 1350

Q3 1280

Q4 1400

Q5 1450

Q6 1500

(A) 3-Period Moving Average Forecast for Q7:

Moving Average = (Q4 + Q5 + Q6) / 3


= (1400 + 1450 + 1500) / 3
= 4350 / 3 = 1450 units

(B) Exponential Smoothing Forecast for Q7 (α = 0.3, starting with Q4 = 1400):

Formula:
Fₜ = Fₜ₋₁ + α(Actualₜ₋₁ - Fₜ₋₁)

 Forecast for Q5:


F₅ = 1400 + 0.3(1450 - 1400)
= 1400 + 0.3(50) = 1400 + 15 = 1415
 Forecast for Q6:
F₆ = 1415 + 0.3(1500 - 1415)
= 1415 + 0.3(85) = 1415 + 25.5 = 1440.5
 Forecast for Q7:
F₇ = 1440.5 + 0.3(1500 - 1440.5)
= 1440.5 + 17.85 = 1458.35 units

✅ Caselet 2 (Trend Projection & Regression)

Situation Recap:

Star Appliances wants to forecast sales for the next year based on these monthly sales (in
lakhs):

Month Sales
1 50
Month Sales
2 52

3 54

4 57

5 60

6 63

(A) Trend Projection Using Least Squares Method (y = a + bX)

 Calculate ΣX, ΣY, ΣXY, ΣX² (X = time periods from -2.5 to +2.5 or from 1 to 6; I’ll
use 1 to 6 for simplicity):
 ΣX = 21, ΣY = 336, ΣXY = (1×50)+(2×52)+(3×54)+(4×57)+(5×60)+(6×63) =
50+104+162+228+300+378 = 1222
 ΣX² = 1²+4+9+16+25+36 = 91

b = [N(ΣXY) - (ΣX)(ΣY)] / [N(ΣX²) - (ΣX)²]


= [6×1222 - (21×336)] / [6×91 - (21²)]
= (7332 - 7056) / (546 - 441)
= 276 / 105 = 2.63

a = (ΣY - b(ΣX)) / N
= (336 - 2.63×21) / 6
= (336 - 55.23) / 6
= 280.77 / 6 = 46.80

Equation: y = 46.80 + 2.63X

Forecast for Month 7:


y = 46.80 + (2.63×7)
= 46.80 + 18.41 = 65.21 lakhs

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