Use of Input/Output Concepts in Sales Forecasting: Author: Elliot D. Ranard Journal of Marketing Research, February 1972

Use of Input/Output Concepts in
Sales Forecasting
Author: ELLIOT D. RANARD
JOURNAL OF MARKETING RESEARCH, FEBRUARY 1972
Presented by:
Pranay Jain
eMBA B
115
Introduction to the forecasting process
 The I/O concepts can assist in forecasting industry growth and product
markets by using aggregate economic analysis
 The I/O method systematically relates technological change and final
demand to industry growth rates
 When the technique is applied to forecasting product lines, consistent
market information can be arranged by product class and consuming
industry
 This article describes a case study approach using I/O analysis for
forecasting:
 industry growth rates, such as for steel
 The primary input to the long-range plan is a single forecast of industry
growth, such as steel production, based on I/O analysis, interviews with
industry personnel, and company estimates.
Introduction to the forecasting process …cont
 Quantitative forecasting techniques like I/O analysis provide a superior
reconciled forecast because a change in one factor (e.g., auto demand or
steel imports and exports) results in a different overall forecast
 Inputs to the model are final demand—total government purchases of goods
and services, personal consumption expenditures, capital spending, and net
exports.
 The output is industry growth in 1958 dollars for each of the 90 industries
and their market growth rates.
 The model includes changes in technology, such as the quantity of steel used
in automobiles
 I/O analysis can also be used to obtain total industry requirements necessary
to meet an additional unit of final demand.
 For example, the 1963 I/O data indicate that a 10% increase in demand for
autos would necessitate a 2.1% increase in steel output in order to meet
direct and indirect requirements, but only a 1.3% increase in output to meet
direct requirements
Method Of Approach
 The forecasting process begins with general economic indicators
 through the potential market forecast of use by customer class.
 Sales forecasts are then made by applying appropriate market share values
 The forecast for steel can also be applied to other industrial products.
 I /O analysis was used, first, to translate GNP forecasts into long range
industrial forecasts (e.g., for steel production), and second, to translate
industry forecasts into derived product markets.
 The first forecasts were obtained from an I/O model of the general economy
and the second from the industry I/O model
 The model divides the economy into 90 industrial sectors
Method Of Approach …cont
 Economic, industrial, and product forecasts should be viewed within the
context of a total marketing and sales information system
 In order to generate an annual sales plan, a long-range business plan, and
market share objectives :-
 inputs are required from historical sales data, market research, estimates
prepared by the company sales force, product profitability, new product
planning, technological forecasting, divisional sales and profit objectives,
and economic indicators
 The system is updated quarterly and:
(1) compares actual performance against plan (budget) and
(2) presents forecasts for the next four quarters. New 5 and 10-year
forecasts are prepared every year.
Use of I/O concepts at Industry level
 US showed GNP of US$1,226 billion (1958 dollars)
 The 6 largest markets for nonferrous metals in 1980 were calculated
 For example, the motor vehicles market for nonferrous metals was expected
to increase by 6.0% per year and that for nonferrous metals per automobile
by 2.2% per year. The motor vehicle industry (including imports) was
expected to increase by 3.9% per year.
 The 10 industries with the highest growth rates, based on the high GNP
forecast, were:
Use of I/O concepts at Industry level …cont
 A comparison of the forecast of steel shipments plus imports with data for 1968
shows that the model predicted well:
 The FRB index can be used to forecast output of various industrial equipment
sectors and has worked extremely well when combined with capacity utilization to
forecast the industrial boiler market.
Steel: Technological Change
 Industry growth in steel is caused by:
(1) final demand, e.g., the number of automobiles purchased by consumers,
industry, and federal and state governments, and
(2) technology, e.g., the amount of steel used in each automobile.
 Technology is represented by coefficients. If there is no technological
change, the coefficients remain constant with time.
 If technology changes, for instance, if automobiles require less steel in 1980
than in 1963, the coefficients decrease over the time period
 If the erosion in steel usage per unit of industrial output could be stopped,
an additional 26 million tons of steel would be shipped in 1980, or 17% of
the estimated shipment plus imports
 Different assumptions about auto and steel imports would also influence
steel consumption.
Use of I/O concepts at Product level
 The table below shows how the I /O technique can be used to forecast
shipments of castings in 1980 for a GNP forecast of $1,226 billion (1958
dollars)
Conclusion
 This article has been concerned primarily with a portion of marketing
information system used for forecasting long-range industry growth (rates)
using I/O concepts as the primary quantitative tool.
 The systems described provide a means to:
(1) rapidly process large amounts of economic, market, and sales data in a
systematic way and
(2) convert the data into information for planning and control.
 As an example, the 90-sector I/O model can compute growth rates of 90
industries and their markets in 2.5 minutes of computer time.
 I/0 analysis can be used quickly to check both the consistency of forecasts
obtained from other sources and the effect of different economic forecasts
on industry growth
 In this presentation, forecasts of industry growth and specific market
potentials of major product lines were made using I/O concepts
Thank You

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