There are two major types of forecasting, which can be broadly described as macro and micro:
Macro forecasting is concerned with forecasting markets in total. This is about determining the existing level of Market Demand and considering what will happen to market demand in the future.
Micro forecasting is concerned with detailed unit sales forecasts. This is about determining a product’s market share in a particular industry and considering what will happen to that market share in the future.
The selection of which type of forecasting to use depends on several factors:
(1) The degree of accuracy required – if the decisions that are to be made on the basis of the sales forecast have high risks attached to them, then it stands to reason that the forecast should be prepared as accurately as possible. However, this involves more cost
(2) The availability of data and information - in some markets there is a wealth of available sales information (e.g. clothing retail, food retailing, holidays); in others it is hard to find reliable, up-to-date information
(3) The time horizon that the sales forecast is intended to cover. For example, are we forecasting next weeks’ sales, or are we trying to forecast what will happen to the overall size of the market in the next five years?
(4) The position of the products in its life cycle. For example, for products at the “introductory” stage of the product life cycle, less sales data and information may be available than for products at the “maturity” stage when time series can be a useful forecasting method.