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Intrinsic & Extrinsic Factors

By Anonymous - Posted on 08 January 2012

Intrinsic Factors
Internal factors are those under the direct control of the company itself. They are:
a) Product Life Cycle Management:
Stage 1: In the introductory phase accurate forecasting of demand is essential. Since there is no previous sales history, qualitative methods are used for forecasting.
Stage 2: In the growth phase the product grows & must be forecasted using the best available methods. Typically a mix of qualitative & quantitative measures are used. The data in this phase exhibit a positive trend.
Stage 3: In the maturity phase the product is established in the marketplace. In this phase the majority of profit can be expected from product sales. Demand should be fairly predictable based on historical performance so quantitative forecasting methods can be used. Data in this phase are largely flat so moving averages & exponential smoothing techniques are typically used, unless the demand is seasonal.
Stage 4: In the decline phase the product demand is dwindling (gradually decreasing) & the company has to take make decision about not supporting the product. Some companies actually sell the product line to another company prepared to undertake the sales & support functions. Accurate forecasting of declining product is essential to minimize inventory exposure & obsolescence issues. The data in this phase typically exhibit a negative trend.
b) Planned price changes:
Many companies use the concept of hedging to acquire stocks of products that are likely to be subject to future price changes.
c) Changes in the sales force:
In many companies there is a direct correlation between the size of the sales force & the level of sales revenue. Assuming the market is not saturated the company could expect to receive double the sales
revenue from doubled sales force.
d) Resource Constraints:
If a company historically faced resource constraints then the sales history reflects only what was capable of being delivered not the true level of actual demand from the customers. Therefore it is important to note the periods of constrained output so that true demand may be recognized not just what was sold or shipped in a given period.
e) Marketing & Sales Promotion:
In many consumer goods companies products are often sold during special promotional periods. In these promotional periods special offers or pricing is created in order to stimulate additional demand for the product to try to gain the market share from the competition & become a more dominant supplier to the market. The promotion creates artificial demand that is transitory at best.
f) Advertising:
Higher rates of advertising for higher sales.

External (Extrinsic) Factors:
The external factors fall outside the control of the company. They are:
a) New Customers:
There is usually a direct correlation between the number of new customers & the level of sales activity. External factors such as casual factors, leading indicators & correlation analysis are useful in forecasting total company demand or demand for families of products.
b) Plans of Major Customers:
A supplier to Wal-Mart will be affected when Wal-Mart opens a new store. There will be an immediate demand for inventory to fill the selves in the new store & an ongoing additional demand for replenishment.
c) Government Policies:
Government policies cam have a large impact on projected sale revenue.
d) Regulatory Concerns:
Regulatory concerns are issues whereby legislation. Regulation or both have been used to control the sale of certain products or services to customers. E.g. Tobacco products & guns.
e) Economic Conditions:
The general health of economy has a large impact on the sales revenue of many companies. E.g. during economic recession people are unsure of the future so they avoid making commitments to major products.
f) Environmental Issues
g) Global Trends:
The world is shrinking fast today & previously protected markets are being opened up to the harsh light of expert competition.

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