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Statistical Methods for Sales Forecasting

The document discusses various statistical methods for forecasting sales, emphasizing the use of naive models, correlation, and regression analysis. Naive models are effective in stable situations, while correlation and regression methods allow for the consideration of multiple factors affecting sales. The document also details how to calculate correlation coefficients and fit regression equations for better forecasting accuracy.

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kairamohan160
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4 views7 pages

Statistical Methods for Sales Forecasting

The document discusses various statistical methods for forecasting sales, emphasizing the use of naive models, correlation, and regression analysis. Naive models are effective in stable situations, while correlation and regression methods allow for the consideration of multiple factors affecting sales. The document also details how to calculate correlation coefficients and fit regression equations for better forecasting accuracy.

Uploaded by

kairamohan160
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd

 Factor like competitors' advertising,

one's own advertising, own price,


STATISTICAL competitor's price, etc. might have
undergone a change and, therefore,
METHODS time will not be able to explain the
movement in sales.
 In such cases we may use
statistical methods. One
may use statistical tools to
construct estimating equations, and
tests can be carried out to
see whether or
not any observed association
between past sales and
another variable is
statistically significant. These methods
are also called economic methods.
1) Naive Models

 Naive models are often as effective as more sophisticated models,


and are cheaper and easier to use.
 They are generally useful where situations are stable or
are experiencing only a gradual change, so long as their results
are fairly accurate they will be quite helpful.
 For example, in a stable situation one may use the ratio of
advertising outlay and sales of the past to forecast how
future sales will react to future advertising outlays.
2. Correlation and Regression
Method
 This is perhaps the most popular method of forecasting. Unlike time series
analysis, the correlation and regression analysis does not limit itself to
“time” as the independent variable.
 It recognises the fact that sales depend upon factory other than time.
 Correlation Analysis:
 Correlation means covariance, or the two series varying together, e.g.
Income and expenditure of families. When the two series vary in the same
direction, it is known ad positive Correlation (r>0), while when these vary
in the opposite direction, it is known as negative Correlation (r<0).
 Correlation Analysis can be of two types:
1. Simple or Partial Correlation
2. Multiple Correlation
Coefficient of Correlation

 To know the closeness of variables ( say X and Y ), we find correlation


coefficient (r) by using the following formula:
Regression Equation Method

 In the case the trend of the dependent variable is approximately


linear we fit in a Linear equation like ,
Export of good X = a ( national income) + b ( domestic prices of X )
+ c ( international prices of X ) + d ( weather).
 It may be noted that X can be taken as independent variable while Y
as dependent, and vice versa. In the first case we will get regression
of Y on X, while in the second case, it is regression of X on Y .
 Let us discuss the various regression equations which can be used for
forecasting exercise.
1. Fitting Simple Linear Regression
 In this case a straight line is fitted to the data containing one
dependent variable and only one independent variable, e.g.,
 Sales = a+b .( price )
1. Graphical Method
 In this Method, we plot the sets of data of the two variable
( dependent and independent variables ) on a graph below. The
regression line is then approximately by sketching it freehand in such
a manner that the line passes through the middle of the scatter of
points.

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