Question

5. Derek is VP of Marketing for Pennwood Products and wants to improve the accuracy of Pennwood’s sales forecasts. Currently, Pennwood uses a system that models sales mathematically based on prior sales and economic data. Derek has heard good things about qualitative approaches to forecasting and is thinking of switching to a qualitative method. What are some of the problems/limitations of this approach, and what are some things Pennwood could do to improve a qualitative forecasting approach?

Answer 1

A qualitative approach to forecast sales is based on receiving information from consumers, market experts regarding the new trends, changes in preferences/tastes and style which may impact the future sales of a particular product. Although the qualitative approach to forecast sales is fast gaining popularity, the method doesn't come without limitations. Let us discuss a few of them.

• When collecting information, the approach uses the opinions of experts and consumers to forecast sales. However, it fails to take into account other changes such as changes in economic policies, taxation rules or even the health of the economy which can impact the ultimate sales.
• Since the approach relies on other people who are experts in the field, if even one expert provides a wrong opinion, it can heavily impact the outcome of the sales forecasts.

To improve the qualitative approach, Pennwood can combine it with some quantitive approach elements as well. From analyzing past data and trends, understanding the financial markets along with the opinions of experts, analysts and consumers can help Pennwood in reaching an accurate forecast for future sales.