Statistics Memo

Date: 16th Marchmodel and this model depict that  an increase in the
To: Vice President, Myra Reidlevel of competitors budget by one unit will result into
From: The forecast departmentan increase in the companies advertisement budget by
Subject: Advertising, Sales and production forecast0.8666 units, the correlation coefficient in this case is
This memo outlines the sales forecast for the nextequal to 0.8838 meaning that there is a strong relation
one year in terms of sales and production,between the two variables, the coefficient of
Advertising in the company plays a major role in thedetermination is equal to 0.781 meaning that 78% of
organisation sales level and because competitors havedeviations in advertising budget are explained by the
increased their advertising budget then there is a highcompetitors budget.
possibility that they may capture our market share ifHaving estimated the three model the next step I took
the company does not use a proper advertisingis to choose the best model that could be used in
strategy.forecasting, the sales model is the best due to the
However previous data regarding advertisementstrong relationship that exist between the two
budget by competitors, the company has spent lessvariables. The correlation matrix also shows that there
than its competitors and that advertisement budgetis a strong correlation between sales and other
has increased over the past years and as a resultvariables.
there has been an increase in market share and sales.The expected market in the industry is 40 billion which
Therefore an increase in advertising budget willis 5 billion less, in year 11 the sales level was 2,454
increase sales and at the same time increase marketmillion and in year 12 sales level was 2,264 and
share.therefore we expect the sales level to increase and if
According to the sales model estimated an increase insales level increase then the advertising budget will
one unit of sales will result into a 0.0676 in salesalso increase. If we expect the sales level to increase
budget, this model has a 0.9131 coefficient ofto 2,500 then the advertising budget will increase to 169
determination and this means that 91% of deviations inmillion. An Increase in advertising expenditure will
the advertising budget are determined by sales holdingincrease promotional activity according to Tim.
other factors constant. The correlation coefficient forMarket size has steadily increased over the years and
the data is 0.9555 and this means that there is athis means that there is a high possibility of increase in
strong positive relationship between sales andsales, in year 12 the sales level was 39,049 and this is
advertisement spending.expected to rise to over 40,000 in the next year, for
The retail coverage model depict that if there is anthis reason therefore we choose the weighted moving
increase in retail coverage by one unit then theaverage based on 2 periods where year 11 has 0.1
advertisement budget will increase by 1.9 units holdingweight and year 12 has 0.9 weight. From this point we
all other factors constant, the coefficient ofset the production level at 60 units with seasonal
determination is 0.5934 depicting that 59% deviations invariations of 12 units in the first quarter, 16 units in the
advertising budgets are explained by retail coverage.second quarter, 13 units in the third quarter and 20 units
The correlation coefficient is 0.7703 meaning that therein the forth quarter.
is a strong positive relationship between the twoReferences:
variables.Bluman A.
This last model is the competitors advertising budget