Business Content, Opportunity, and Small Business Ideas, Businesses can privately own, not-for-profit or state-own. An example of an Online eCommerce industry is Google Searching Web and also Facebook Social Site.
While a mom-and-pop catering profession is a private enterprise. Every industry requires some form of investment and enough customers to whom its output can sale on a consistent basis in order to make a profit. An organization or economic system where goods and services stand exchanged for one another or for money.
A business (also known as an enterprise, a company, or a firm) is an organizational entity and legal entity made up of an association of people, be they natural, legal, or a mixture of both who share a common purpose and unite in order to focus.
Their various talents and organize, their collectively available skills or resources to achieve. Specific declared goals are involved in the provision of goods and services to consumers. A profession can also describe as an organization that provides goods and services for human needs.
Sales forecasting is the process of estimating future sales. Accurate sales forecasts enable companies to make informed business decisions and predict short-term and long-term performance. The sales forecast is the estimate of the number of sales to be expected for an item/product or products for a future period of time. Except the industries based on job order, almost all the enterprises produce in advance to meet the future requirements. Thus accurate sales forecasting is essential for an enterprise to enable it to produce the required number of items at right time.
Sales Forecasting is explained in Meaning and Definition.
Any forecast can be termed as an indicator of what is likely to happen in a specified future time frame in a particular field. Therefore, the sales forecast indicates. As to how much of a particular product is likely to be sold in a specified future period in a specified market at the specified price.
Accurate sales forecasting is essential for a business house to enable it to produce the required quantity at the right time. Further, it makes the arrangement in advance for raw materials, equipment’s, labor etc. Some firms manufacture on the order basis. But in general, the firm produces the material in advance to meet future demand.
Forecasting means estimation of quantity, type, and quality of future work e.g. selling. For any manufacturing concern, it is very necessary to assess the market trends sufficiently in advance. This is a commitment on the part of the selling department and future planning of the entire concern depends on this forecast.
The management of a firm is required to prepare. Its forecast of the share of the market that it can hope to capture over the period of forecasting. In other words, it is an estimate of the sales potential of the firm in the future. All plans are based on the selling forecasts. This forecast helps the management in determining as to how much revenue can be expected to be realized. How much to manufacture, and what shall be the requirement of men, machine, and money.
Definition:
It is an estimation of sales volume that a company can expect to attain within the plan period. A sales forecast is not just a sales predicting. It is the act of matching opportunities with the marketing efforts. It is the determination of a firm’s share in the market under a specified future. Thus sales forecasting shows the probable volume of sales.
According to the American Marketing Association,
“Sales forecast is an estimate of Sales, in monetary or physical units, for a specified future period under a proposed business plan or programme and under an assumed set of economic and other forces outside the unit for which the forecast is made.”
According to Candiff and Still,
“Sales forecast is an estimate of sales during a specified future period, whose estimate is tied to a proposed marketing plan and which assumes a particular state of uncontrollable and competitive forces.”
Thus we can define sales forecasting as, estimation of type, quantity, and quality of future sales. The goal for the selling department is decided on the basis of this forecast. These forecasts also help in planning the future development of the concern. It forms a basis for production targets.
From above, looking to its importance, it is essential that the sales forecast must be accurate, simple, easy to understand and economical. Thus we can say that a sales forecast is an estimate of the number of sales for a specified future period under a proposed marketing plan or programme. They can also be defined as an estimate of selling in terms of money or physical units for a specified future period under a proposed marketing plan or programme and under an assumed set of economic and other forces outside the unit for which the forecast is made.
Learn about the different sales forecasting methods, their importance, advantages, and limitations. Optimize your sales strategy with expert insights. Sales Forecasting; Every manufacturer makes an estimation of the sales likely to take place in the near future. It gives focus to the activities of a business enterprise. In the absence of sales forecast, a business has to work at random. Forecasting is one of the important aspects of administration. The comer-stone of successful marketing planning is the measurement and forecasting to market demand. The sales forecast is the estimate of the number of sales to be expected for an item/product or products for a future period of time. So, what we discussing is – Types, Importance, Advantages, and Limitations of Sales Forecasting.
The Concept of Forecasting explains Sales Forecasting by Types, Importance, Advantages, and Limitations.
In this article is discussing, Sales Forecasting: Types of Sales Forecasting, Importance of Sales Forecasting, Advantages of Sales Forecasting, and Limitations of Sales Forecasting. So, let’s discuss; Meaning of Sales Forecasting: Any forecast can be termed as an indicator of what is likely to happen in a specified future time frame in a particular field. Therefore, the sales forecast indicates as to how much of a particular product is likely to be sold in a specified future period in a specified market at the specified price. Accurate sales forecasting is essential for a business house to enable it to produce the required quantity at the right time.
Types of Sales Forecasting:
The following Types of Sales Forecasting below are:
Economic: This type of forecast is important to understand the general economic trend through a careful study of Five Year Plans, Gross national products. National income, Government expenditure, Unemployment, Consumer spending habits etc. This is in order to have an accurate forecast. Big companies, in India, adopt this method.
Industry: The future market demand is calculated through industrial forecast or market forecast. The expected sales forecasts of all the industries, in the same line of business are combined. Market demand may be affected by controllable-price, distribution, promotion, etc., and uncontrollable-demographic, economic, political, technological development, cultural activities etc. The executive must take into account all these conditions while forecasting.
Company: The third step goes to the firm concerned to look into the market share, for which forecast is to be made. By considering both controllable and uncontrollable, based on chosen marketing plans within the firm, with that of other industries, steps are taken in formulating forecasts.
There are three classes (Periods) of sales forecasts:
Short-run Forecast:
It is also known as operating forecast, covering a maximum of one year or it may be half-yearly, quarterly, monthly and even weekly. This type of forecasting can be advantageously utilized for estimating stock requirements, providing working capital, establishing sales quotas, fast-moving factors. It facilitates the management to improve and coordinate the policies and practice of Marketing-production, inventory, purchasing, financing etc. The short-run forecast is preferred to all types and brings more benefits than other types.
Purpose of Short-Term Forecasting:
Production Policy: By knowing the future demand the decision regarding production policy can be taken so that there is no problem of overproduction and short supply of input materials.
Material Requirement Planning: By knowing the future demand, the availability of the right quantity and quality of materials could be ensured.
Purchase Procedure: The purchase programme could be decided depending on the material requirements.
Inventory Control: Proper control of inventory could be ensured so that inventory carrying cost is minimum or optimum.
Equipment Requirement: The decision regarding procurement of new equipment in view of the capacity and capability of the existing equipment can be taken.
Man-Power Requirement: The decision regarding recruitment of extra labor on the full time or part time could be taken.
Finance: The arrangement of funds for the purchase of raw materials, machines, and parts could be made.
Medium-run Forecast:
This type of forecast may cover from more than one year to two or four years. This helps the management to estimate probable profit and control over budgets, expenditure, production etc. The factors-price trend, tax policies, institutional credit etc., are specially considered for a good forecast.
Long-run Forecast:
This type of forecast may cover one year to five years, depending on the nature of the firm. Seasonal changes are not considered. The forecaster takes into account the population changes, competition changes, economic depression or boom, inventions etc. Also, This type is good for adding new products and dropping old ones. The forecasting that covers a considerable period of time, such as 5, 10, 20 years is called long-term forecasting.
The period no doubt depends upon the nature of business or type of the product the firm is engaged in manufacturing. In many industries like steel plants petroleum refinery or paper mills where the total investment for the equipment/infrastructure is quite high, long-term forecasting is needed.
Purposes of Long-Term Forecasting:
To plan for the new unit of production, or expansion of the existing unit or diversification of lines of production or shut down of the existing units depending upon the level of demand.
Also, To plan the long-term financial requirement for various needs.
To make proper arrangement for training the personnel so that manpower requirement of desired expertise can be met in future.
Importance of Sales Forecasting:
The following Importance of Sales Forecasting below are:
Supply and demand for the products can easily be adjusted, by overcoming temporary demand, in the light of the anticipated estimate; and regular supply is facilitated.
A good inventory control is advantageously benefited by avoiding the weakness of understocking and overstocking.
Allocation and reallocation of sales territories are facilitated.
It is a forward planner as all other requirements of raw materials, labor, plant layout, financial needs, warehousing, transport facility etc., depend in accordance with the sales volume expected in advance.
Sales opportunities are searched out on the basis of forecast; mid thus discovery of selling success is made.
It is a gear, by which all other activities are controlled as a basis of forecasting.
Advertisement programmes are beneficially adjusted with full advantage to the firm.
It is an indicator to the department of finance as to how much and when finance is needed; it helps to overcome difficult situations.
It is a measuring rod by which the efficiency of the sales personnel or the sales department, as a whole, can be measured.
Sales personnel and sales quotas are also regularized-increasing or decreasing-by knowing the sales volume, in advance.
Additional:
It regularizes productions through the vision of sales forecast and avoids overtime at high premium rates. It also reduces idle time in manufacturing.
As is the sales forecast, so is the progress of the firm. The master plan or budget of a firm is based on forecasts. “The act of forecasting is of great benefit to all who take part in the process and is the best means of ensuring adaptability to changing circumstances. The collaboration of all concerned leads to a unified front, an understanding of the reasons for decisions, and a broadened outlook.”
Sales forecast enables all the departments of the business to work together in proper coordination and cooperation.
Sales forecast helps in product mix decisions as well. It enables the business to decide whether to add a new product to its product line or to drop an unsuccessful one.
The sales forecast is a commitment on the part of the sales department and it must be achieved during the given period, and.
It helps in guiding marketing, production and other business activities for achieving these targets.
Advantages of Sales Forecasting:
Sales are the lifeblood of every company. The advantages of forecasting your company’s sales lie mainly in giving you a firm idea of what to expect in the coming months. A standard sales forecast looks at conditions present in your business during previous months and then applies assumptions regarding customer acquisition, the economy, and your product and service offerings. Forecasting sales identifies weaknesses and strengths before you set your budget and marketing plans for the next year, allowing you to optimize your purchasing and expansion plans.
The following Advantages of Sales Forecasting are four types:
1. Cash Flow:
Forecasting helps manage cash flow by predicting future sales and ensuring that the company can meet its financial obligations. This foresight can prevent potential shortfalls and ensure that there are sufficient funds for operations, investments, and emergencies.
2. Purchasing:
Sales forecasting aids in planning purchasing activities. By anticipating future demand, companies can make timely and cost-efficient procurement decisions, avoiding both overstocking and stockouts.
3. Planning:
It assists in strategic planning by providing a basis for making informed decisions. This includes production planning, workforce planning, and setting realistic sales targets and marketing strategies.
4. Tracking:
Sales forecasting offers a framework for tracking progress and performance. This allows management to monitor actual sales against forecasts, identify variances, and adjust strategies accordingly to stay on track with company goals.
By leveraging these advantages, businesses can enhance their operational efficiency, financial stability, and overall market competitiveness.
Limitations of Sales Forecasting:
In certain cases forecast may become inaccurate. The failure may be due to the following factors:
Fashion:
Changes are throughout. Present style may change any time. It is difficult to say as to when a new fashion will be adopted by the consumers and how long it will be accepted by the buyers. If our product is similar to fashion and is popular, we are able to have the best result; and if our products are not in accordance with the fashion, then sales will be affected.
Lack of Sales History:
A sales history or past records are essential for a sound forecast plan. If the past data are not available, then the forecast is made on guess-work, without a base. Mainly a new product has no sales history and forecast made on guess may be a failure.
Psychological Factors:
Consumer’s attitude may change at any time. The forecaster may not be able to predict exactly the behavior of consumers. Certain market environments are quick in action. Even rumors can affect market variables. For instance, when we use a particular brand of soap, it may generate itching feeling on a few people and if the news spread among the public, sales will be seriously affected.
Other Reasons:
It is possible that the growth may not remain uniform. It may decline or be stationary. The economic condition of a country may not be favorable to the business activities-policies of the government, the imposition of controls etc. It may affect the sales.
Basic Limitations of Sales Forecasting;
The tastes and preferences of the buyers do not remain constant. A sudden change in the preference of the buyers may render the forecasts meaningless.
The economic conditions prevailing in every country also do not remain stable. The purchasing power of money, desire to save and invest etc., are some of the important economic factors having a bearing on sales forecast.
The political conditions in a State also influence sales forecast. The policies of the Government regarding business change often. A sudden hike in excise duty or sales tax by the Government may affect sales.
The entry of competitors may also affect sales. A firm enjoying monopoly status may lose such a position if the buyers find the competitors’ products more superior.
Progress in science and technology may render the present technology obsolete. As a result, products which are right now enjoying a good market may lose the market and the demand for products made using the latest technology will increase. This is particularly true in the case of the market for electronic goods, computer hardware, software and so on.
The methods of sales forecasting discussed above have respective advantages and limitations or merits and demerits. No single method may be suitable. Therefore, a combination method is suitable and may give a good result. The forecaster must be cautious while drawing decisions on sales forecast. Periodical review and revision of sales forecast may be done, in the light of performance. A method which is quick, less costly and more accurate may be adopted.
Explore essential factors of sales forecasting to improve accuracy and drive business growth. Learn how to leverage data for better decision-making. The management of a firm is required to prepare its forecast of the share of the market that it can hope to capture over the period of forecasting. In other words, the sales forecast is an estimate of the sales potential of the firm in the future. All plans are based on the sales forecasts. Sales Forecasting is the projection of customer demand for the goods and services over a period of time. A businessman who invests a large amount of capital in his business, cannot afford to work haphazardly. So, what we discussing is – Meaning, Definition, Need, and Factors of Sales Forecasting.
The Concept of Forecasting explains Sales Forecasting by Meaning, Definition, Need, and Factors.
In this article is discussing, Sales Forecasting: Meaning of Sales Forecasting, Definition of Sales Forecasting, Need for Sales Forecasting, and Factors of Sales Forecasting. This forecast helps the management in determining as to how much revenue can be expected to be realized. How much to manufacture, and what shall be the requirement of men, machine, and money. Future is uncertain. Man thinks about the future. He may be a businessman, a broker, a manufacturer, a commission agent etc.
All guess about the future in their respective field of interest. We try to know, through a clear imagination, what will be happening in the near future—after a weak, month or year. It can be called forecast or prediction. The process of forecasting is based on reliable data of past and present. Forecasting is not new, as it has been practiced from time immemorial.
Meaning of Sales Forecasting:
Any forecast can be termed as an indicator of what is likely to happen in a specified future time frame in a particular field. Therefore, the sales forecast indicates as to how much of a particular product is likely to be sold in a specified future period in a specified market at the specified price. Accurate sales forecasting is essential for a business house to enable it to produce the required quantity at the right time.
Further, it makes the arrangement in advance for raw materials, equipment’s, labor etc. Some firms manufacture on the order basis. But in general, the firm produces the material in advance to meet future demand. Forecasting means estimation of quantity, type, and quality of future work e.g. sales. For any manufacturing concern, it is very necessary to assess the market trends sufficiently in advance.
This is a commitment on the part of the sales department and future planning of the entire concern depends on this forecast. It is the estimate of the number of sales to be expected for an item/product or products for a future period of time. Except the industries based on job order, almost all the enterprises produce in advance to meet the future requirements. Thus accurate sales forecasting is essential for an enterprise to enable it to produce the required number of items at right time.
Definition of Sales Forecasting:
Forecasting is one of the important aspects of administration. The comer-stone of successful marketing planning is the measurement and forecasting to market demand.
According to the American Marketing Association,
“Sales forecast is an estimate of Sales, in monetary or physical units, for a specified future period under a proposed business plan or programme and under an assumed set of economic and other forces outside the unit for which the forecast is made.” “An estimate of sales in dollars or physical units for a specified future period under a proposed marketing plan or programme and under an assumed set of economic and other forces outside the unit for which the forecast is made.”
It is an estimation of sales volume that a company can expect to attain within the plan period. A sales forecast is not just a sales predicting. It is the act of matching opportunities with the marketing efforts. It is the determination of a firm’s share in the market under a specified future. Thus sales forecasting shows the probable volume of sales.
According to Candiff and Still,
“Sales forecast is an estimate of sales during a specified future period, whose estimate is tied to a proposed marketing plan and which assumes a particular state of uncontrollable and competitive forces.”
Thus we can define sales forecasting as, estimation of type, quantity, and quality of future sales. The goal for the sales department is decided on the basis of this forecast and these forecasts also help in planning the future development of the concern. The sales forecast forms a basis for production targets. From above, looking to its importance, it is essential that the sales forecast must be accurate, simple, easy to understand and economical.
Thus we can say that a sales forecast is an estimate of the number of sales for a specified future period under a proposed marketing plan or programme. They can also be defined as an estimate of sales in terms of money or physical units for a specified future period under a proposed marketing plan or programme and under an assumed set of economic and other forces outside the unit for which the forecast is made.
Need for Sales Forecasting:
The following Need for Sales Forecasting below are:
Long-term sales forecasts can help in deciding investment proposals. Such as modernization, expansion of existing units, diversification of product lines etc.
Sales forecasts are essential to make proper arrangement for training. The manpower in its own unit or sending them to other industries in the country or abroad to meet the future needs of expertise.
Factors of Sales Forecasting:
Factors influencing a Sales Forecasting; A sales manager should consider all the factors affecting the sales while predicting the firm’s sales in the market.
An accurate sales forecast can be made if the following factors are considered carefully:
General Economic Condition:
It is essential to consider all economic conditions relating to the firm and the consumers. The forecaster must see the general economic trend-inflation or deflation, which affect the business favorably or adversely. A thorough knowledge of the economic, political and the general trend of the business facilities to build a forecast more accurately. Past behavior of the market, national income, disposable personal income, consuming habits of the customers etc., affect the estimation to a great extent. Two types of Economic; microeconomic and macroeconomic as well as short-term market and long-term market.
Consumers:
Products like wearing apparel, luxurious goods, furniture, vehicles. The size of the population by its composition-customers by age, sex, type, economic condition etc., have an important role. And the trend of fashions, religious habits, social group influences etc., also carry weights. Also, The consumer is the one who pays something to consume goods and services produced. As such, consumers play a vital role in the economic system of a nation. Without consumer demand, producers would lack one of the key motivations to produce: to sell to consumers.
Industrial Behaviors:
Markets are full of similar products manufactured by different firms, which compete among themselves to increase the sales. As such, the pricing policy, design, advanced technological improvements, promotional activities etc., of similar industries must be carefully observed. A new firm may come up with products to the markets and naturally affect the market share of the existing firms. Unstable conditions—industrial unrest, government control through rules and regulations, improper availability of raw materials etc., directly affect the production, sales, and profits.
Changes within Firm:
Future sales are greatly affected by the changes in pricing, advertising policy, quality of products etc. A careful study in relation to the changes in the sales volume may be studied carefully. Sales can be increased by the price cut, enhancing advertising policies, increased sales promotions, concessions to customers etc.
Period:
The required information must be collected on the basis of the period—short run, medium run or long run forecasts. A period of sales depending on the market requires. For example, Some product sale short period. As well as medium or long periods all required, is product demands and supply.
Some Factors also Considered:
Following factors should be considered while making the sales forecast:
Market Competition: To assess demand, it is the main factor to know about the existing and new competitors and their future programme, the quality of their product, the sales of their product. The opinion of the customers about the products of other competitors with reference to the product manufactured by the firm must also be considered.
Technology Changes: With the advancement of technology, new products are coming in the market and the taste. The likings of the consumer’s changes with the advancement and change of technology.
An action of Government: When the government produces or purchases. Then depending upon the government policy and rules, the sales of the products are also affected.
Factors Related to the Concern Itself: These factors are related to the change in the capacity of the plant. Change in price due to the change in expenditure, change in product mix etc.
Accurate sales forecasting is essential for a business house to enable it to produce the required quantity at the right time. Further, it makes the arrangement in advance for raw materials, equipment’s, labor etc. Also, Many firms manufacture on the order basis. But in general, every firm produces the material in advance to meet future demand.
Explore the advantages and limitations of forecasting to enhance your decision-making. Gain insights into effective strategies for accurate predictions. As we know, What is Forecasting? It may not reduce the complications and uncertainty of the future. Forecasting is the process of making predictions of the future based on past and present data and most commonly by analysis of trends. A commonplace example might be an estimation of some variable of interest at some specified future date. However, it increases the confidence of the management to make important decisions. Forecasting is the basis of promising. Forecasting uses many statistical techniques.
The Concept of Business is explaining Forecasting for Company, in points of Advantages and Limitations or Disadvantages.
In this article, we will discuss Forecasting for Business Planning: First Advantages of Forecasting Methods, Advantages of Forecasting, after that Limitations of Forecasting, Basic Disadvantages of Forecasting, and finally discussing Steps in Forecasting. Usage can differ between areas of application: for example, in hydrology the terms “forecast” and “forecasting” are sometimes reserved for estimates of values at certain specific future times, while the term “prediction” is used for more general estimates, such as the number of times floods will occur over a long period.
Forecasting plays a vital role in the process of modern management. It is an important and necessary aid to planning and planning is the backbone of effective operations.
Forecasting by promoting the participation of the entire organization in this process provides opportunities for teamwork and brings about unity and coordination.
The making of forecasts and their review by managers, compel thinking ahead, looking to the future and providing for it.
Forecasting provides a way for effective coordination and control. Forecasting requires information about various external and internal factors. The information is collected from various internal sources. Thus, almost all units of the organization are involved in this process, which provides interactive opportunities for better unity and coordination in the planning process. Similarly, forecasting can provide relevant information for exercising control. Also, The managers can know their weakness in the forecasting process and they can take suitable action to overcome these.
A systematic attempt to probe the future by inference from known facts helps integrate all management planning so that unified overall plans can be developed into which divisional and departmental plans can mesh.
The uncertainty of future events can be identified and overcomes by effective forecasting. Therefore, it will lead to success in the organization.
#Limitations of Forecasting:
The following limitations of forecasting are listed below:
The basis of Forecasting:
The most serious limitations of forecasting arise out of the basis used for making forecasts. Top executives should always bear in mind that the bases of forecasting are assumptions, approximations, and average conditions.
Management may become so concerned with the mechanism of the forecasting system that it fails to question its logic. Also, This critical examination is not to discourage attempts at forecasting. But to sound caution about the practice of forecasting and its inherent limitations.
Reliability of Past Data:
The forecasting is made on the basis of past data and the current events. Although past events/data are analyzed as a guide to the future, a question is raised as to the accuracy as well as the usefulness of these recorded events.
Time and Cost Factor:
Time and cost factor is also an important aspect of forecasting. They suggest the degree to which an organization will go for formal forecasting. Also, The information and data required for forecast may be in highly disorganized form; some may be in qualitative form.
The collection of information and conversion of qualitative data into quantitative ones involves a lot of time and money. Therefore, managers have to tradeoff between the cost involved in forecasting and resultant benefits. So forecasting should be made by eliminating the above limitations.
#Disadvantages of Forecasting:
The primary disadvantage of forecasting is the same as that of any other method of predicting the future: No one can be absolutely sure what the future holds. Any unforeseen factors can render a forecast useless, regardless of the quality of its data. Also, some forecasting methods may use the same data but deliver widely different forecasts. For instance, one forecasting method can show that interest rates will rise, while another will illustrate that rates will hold steady or decline.
#Steps of Forecasting:
Procedure, stages or general steps involved in forecasting are given below:
The management can develop a sound foundation, for the future after considering available information, experience, type of business, and the rate of development.
Collecting and analyzing data:
Data collection is time-consuming. Only relevant data must be kept. Many statistical tools can be used to analyze the data.
Estimating future events:
The future events are estimated by using trend analysis. Trend analysis makes provision for some errors.
Comparing results:
The actual results are compared with the estimated results. If the actual results tally with the estimated results, there is nothing to worry. In case of any major difference between the actuals and the estimates, it is necessary to find out the reasons for poor performance.
Follow up action:
The forecasting process can be continuously improved and refined on the basis of past experience. Areas of weaknesses can be improved for the future forecasting. There must be regular feedback on past forecasting.
Above advantages and limitations, may be explained as you want to understating about Forecasting. Risk and uncertainty are central to forecasting and prediction; it is generally considered the good practice to indicate the degree of uncertainty attaching to forecasts. In any case, the data must be up to date in order for the forecast to be as accurate as possible. In some cases, the data used to predict the variable of interest is itself forecasted.
What is the Forecasting? It is a process of predicting or estimating the future based on past and present data. Business Forecasting can be broadly considered as a method or a technique for estimating many future aspects of a business or other operation. Planning for the future is a critical aspect of managing any organization, and small business enterprises are no exception. Forecasting provides information about the potential future events and their consequences for the organization. It may not reduce the complications and uncertainty of the future. However, it increases the confidence of the management to make important decisions.
The Concept of Planning is explaining Forecasting for Business, in points of Meaning, Definition, Elements, Importance, and Techniques.
In this article, we will discuss Forecasting for Business Planning: First Meaning of Forecasting, then Definition of Forecasting, after those Elements of Forecasting, Importance of Forecasting, and finally discussing Techniques of Forecasting. Forecasting is the basis of promising. Forecasting uses many statistical techniques. Therefore, it is also called a Statistical Analysis. Indeed, their typically modest capital resources make such planning particularly important.
In fact, the long-term success of both small and large organizations is closely tied to how well the management of the organization is able to foresee its future and to develop appropriate strategies to deal with likely future scenarios. Intuition, good judgment, and an awareness of how well the industry and national economy is doing may give the manager of a business firm a sense of the future market and economic trends.
Nevertheless, it is not easy to convert a feeling about the future into a precise and useful number. Such as next year’s sales volume or the raw material cost per unit of output. Forecasting methods can help estimate many such future aspects of a business operation.
#Meaning and Definition of Forecasting:
As we know planning is:
“A systematic economic and rational way of making decisions today that will affect tomorrow.”
Then forecasting becomes an integral part of the planning process, especially, strategic planning which is long-range in nature.
Lyndall Unrwick defined forecasting as it is involved to some extent in every conceivable business decision. The man who starts a business is making an assessment of future demand for its products. Also, The man who determines a production programme for the next six months or twelve months is usually also basing it on some calculation of future demand. The man, who engages staff, and particularly Young staff, usually have an eye to future organizational requirements.
Business forecasting refers to a systematic analysis of past and present conditions with the aim of drawing inferences about the future course of events.
Louis Allen defines forecasting as,
“A systematic attempt to probe the future by inference from known facts.”
Neter and Wasserman have defined forecasting as:
“Business forecasting refers to the statistical analysis of the past and current movement in the given time series so as to obtain clues about the future pattern of those movements.”
Perfect accuracy is not obtainable,” warned Richard Brealey and Stewart Myers in Principles of Corporate Finance.
“If it were, the need for planning would be much less. Still, the firm must do the best it can. Forecasting cannot be reduced to a mechanical exercise. Naive extrapolation or fitting trends to past data are of limited value. It is because the future is not likely to resemble the past that planning is needed. To supplement their judgment, forecasters rely on a variety of data sources and forecasting methods.”
For example, forecasts of the economic and industry environment may involve the use of econometric models. Which take account of interactions between economic variables. In other cases, the forecaster may employ statistical techniques for analyzing and projecting time series. Forecasts of demand will partly reflect these projections of the economic environment. But they may also be based on formal models that marketing specialists have developed for predicting buyer behavior or on recent consumer surveys to which the firm has access.
#Elements of the Forecasting:
The following elements of the forecasting process:
These are:
Prepare the groundwork.
Create a future business.
Comparing actual with estimated results, and.
Refining the forecasts.
Now, explain each one:
Prepare the Groundwork:
The group work preparation requires a thorough study, investigation, and analysis of the company, its products, its market share, its organizational structure, and the industry. The investigation will involve the past performance of all these factors. Their growth over a period of time and the extent of their inter-relationships and inter-dependence. The aim is to build a foundation on which future estimates can be based.
Create a Future Business:
The future expectancy of the business can be reasonably computed from the past data as well as the input from the key executives of the organization, sales personnel, and other specialists. This forecast is developed with the participation of the key personnel and is officially communicated to all. Thus all these people assume responsibility for meeting these forecasts and accountability for any deviations from this forecast.
Comparing Actual with Estimated Results:
The forecast estimates over the future years provide benchmarks against which the actual growth and results can be measured and compared. If there are significant variations between the two, one way or another, the reasons for such deviations can be investigated and analyzed.
Refining the Forecasts:
In the light of any deviations found, the forecast can be refined to be more realistic. If some conditions have changed during the periodic evaluation, then the new values of the variables can be incorporated into the estimates.
Thus, these constant revisions and refinements and improvements would add to the experience and skill in forecasting, since proficiency in forecasting can only be gained through practice and experience. The above elements indicate a systematic approach to the problem of forecasting. As to materiality, these elements are found in any research procedure.
#Importance of Forecasting:
Importance of forecasting involves the following key points:
Forecasting provides relevant and reliable information about the past and present events and the likely future events. This is necessary for sound planning.
It gives confidence to the managers for making important decisions.
It is the basis for making planning premises, and.
It keeps managers active and alert to face the challenges of future events and the changes in the environment.
#Techniques of Forecasting:
The following Forecasting technique can be classified into two major categories:
Qualitative Techniques:
The following techniques three types:
Jury or executive opinion
Salesforce estimates.
Customer expectations.
Now, Explains:
Jury or Executive Opinion:
The jury of expert opinion sometimes referred to as the Dolphi technique; involves soliciting opinions or estimates from a panel of “experts” who are knowledgeable about the variable being forecasted. In addition to being useful in the creation of a sales or demand forecast, this approach is used to predict future technological developments. This method is fast less expensive and does not depend upon any elaborate statistics and brings in specialized viewpoints.
Sales Force Estimates:
This approach involves the opinion of the sales force and these opinions are primarily taken into consideration for forecasting future sales. The sales people, being closer to consumers, can estimate future sales in their own territories more accurately. Based on these and the opinions of sales managers, a reasonable trend of the future sales can be calculated.
These forecasts are good for short-range planning since salespeople are not sufficiently sophisticated to predict long-term trends. This method known as the “grassroots” approach lends itself to easy breakdowns of product, territory, customer etc., which makes forecasting more elaborate and comprehensive.
Customer Expectations:
This type of forecasting technique is to go outside the company and seek subjective opinions from customers about their future purchasing plans. Also, Sales representatives may poll their customers or potential customers about the future needs for the goods and services the company supplies. Direct mail questionnaires or telephone surveys may be used to obtain the opinions of existing or potential customers.
This is also known as the “survey method” or the “marketing research method” where information is obtained concerning. Customer buying preferences, advertising effectiveness and is especially useful where the target market is small such as buyers of industrial products, and where the customers are co-operative.
Quantitative Techniques:
Quantitative techniques are based on the analysis of past data and its trends. These techniques use statistical analysis and other mathematical models to predict future events.
Some of these techniques are:
Time series analysis.
Economic models.
Regression analysis.
Now, Explains:
Time Series Analysis:
Time series analysis involves decomposition of historical series into its various components, viz., trend, seasonal variations, cyclical variations, and random variations. Also, Time series analysis uses index numbers but it is different from barometric technique. In the barometric technique, the future is predicted from the indicating series, which serve barometers of economic change.
In time series analysis, the future is taken as some sort of an extension of the past. When the various components of a time series are separated, the variations of a particular phenomenon, the subject under study stay say price, can be known over the period of time and projection can be made about future.
A trend can be known over the period of time, which may be true for the future also. However, time series analysis should be used as a basis for forecasting when data are available for a long period of time and tendencies disclosed by the trend and seasonal factors are fairly clear and stable.
Economic Models:
Utilize a system of interdependent regression equations that relate certain economic indicators of the firm’s sales, profits etc. Also, Data center or external economic factors and internal business factors interpreted with statistical methods. Often companies use the results of national or regional econometric models as a major portion of a corporate econometric model.
While such models are useful in forecasting, their major use tends to be in answering “what if”? Questions. These models allow management to investigate and in major segments of the company’s business on the performance and sales of the company.
Regression Analysis:
Regression Analysis is statistical equations designed to estimate some variables such as sales volume, on the basis of one or more ‘independent’ variables believed to have some association with it.
Explore business forecasting with insights on its meaning, definition, types, and the need of forecasting for strategic planning and informed decision-making. What is Business Forecasting? It is an estimate or prediction of future developments in business such as sales, expenditures, and profits. Given the wide swings in economic activity and the drastic effects these fluctuations can have on profit margins. It is not surprising that business forecasting has emerged as one of the most important aspects of corporate planning.
The Concept of Management explains Business Forecasting in the points of Meaning, Definition, Types, and Need.
In this article discussingBusiness Forecasting: First Meaning of Business Forecasting, then the second Definition of Business Forecasting, the third Types of Business Forecasting, and finally Need of Business Forecasting. Forecasting has become an invaluable tool for business people to anticipate economic trends and prepare themselves either to benefit from or to counteract them.
If, for instance, business people envision an economic downturn, they can cut back on their inventories, production quotas, and hiring. If, on the contrary, an economic boom seems probable, those same business people can take the necessary measures to attain the maximum benefit from it. Good business forecasts can help business owners and managers adapt to a changing economy.
Meaning of Business Forecasting:
Business forecasting is an act of predicting the future economic conditions on the basis of past and present information. It refers to the technique of taking a perspective view of things likely to shape the turn of things in the foreseeable future. As the future is always uncertain, there is a need for an organized system of forecasting in business.
Thus, scientific business forecasting involves:
Analysis of the past economic conditions, and.
Analysis of the present economic conditions; so as to predict the future course of events accurately.
In this regard, business forecasting refers to the analysis of the past and present economic conditions with the object of drawing inferences about the future business conditions.
Definition of Business Forecasting:
In the words of Allen,
“Forecasting is a systematic attempt to probe the future by inference from known facts. The purpose is to provide management with information on which it can base planning decisions.
Leo Barnes observes,
“Business Forecasting is the calculation of reasonable probabilities about the future, based on the analysis of all the latest relevant information by tested and logically sound statistical econometric techniques, as interpreted, modified and applied in terms of an executive’s personal judgment and social knowledge of his own business and his own industry or trade.”
In the words of C.E. Sulton,
“Business Forecasting is the calculation of probable events, to provide against the future. It, therefore, involves a ‘look ahead’ in business and an idea of predetermination of events and their financial implications as in the case of budgeting.”
According to John G. Glover,
“Business Forecasting is the research procedure to discover those economic, social and financial influences governing business activity, so as to predict or estimate current and future trends or forces which may have a bearing on company policies or future financial, production and marketing operations.”
The essence of all the above definitions is that business forecasting is a technique to analyze the economic. Social and financial forces affecting the business with an object of predicting future events on the basis of past and present information.
No business is completely independent and hence general business forecast is undertaken. It helps to read the future conditions for business and to predict the probable changes in business conditions that are likely to occur in the near future. Every business is affected by the conditions of the c community in which it is located.
We should not be under the impression that only business conditions influence the general business. Political conditions, fiscal policy, controls, population, and national income etc. have a direct bearing on the business. So, it is necessary for the manager to take into consideration all these factors. While forecasting the prospects of his enterprise.
Sales Forecast:
This type of forecasting decides the fate of the organization as the sales determine the success of the company. Therefore, sales forecasting should be undertaken with due care and precaution. So as to see that whatever planning department has decided is carried out to promote the sales. It is from this point of view only that sales forecasting has been deemed to be as a guiding factor in planning an important aspect of the organizational setup.
In this connection O’ Donnell points out that,
“It is the sales forecast that must set the stage for internal planning, business expenses, capital outlays. Policies of all kinds are made the purpose ordinarily of maximizing profits obtainable from expected sales, whether this forecast is for a period of months or for a period of years; it is the key to future business plans.”
Capital Forecast:
Every business enterprise will have to think of its financial plans. It should be determined so as to meet the needs of the company. With this object in view, forecasting of capital requirements has become a necessity and is taken as a primary step in the organization.
In every business concern, the capital is required not only to meet fixed and working capital. But also for depreciation, replacement, development, reorganization etc. Thus accurate forecasting helps the organization to employ its capital to the fullest extent and can get the optimum returns on its investment.
The Need for Business Forecasting:
Some of the important needs of business forecasting are listed below:
Production Planning:
The rate of producing the products must be matched with the demand which may be fluctuating over the time period in the future. Since its time consuming to change the rate of output of the production processes, so production manager needs medium range demand forecasts to enable them to arrange for the production capacities to meet the monthly demands which are varying.
Financial Planning:
Sales forecasts are driving force in budgeting. Sales forecasts provide the timing of cash inflows and also provide a basis for budging the requirements of cash outflows for purchasing materials, payments to employees and to meet other expenses of power and utilize etc. Hence forecasting helps finance manager to prepare budgets taking into consideration the cash inflow and cash outflows.
Economic Planning:
Forecasting helps in the study of macroeconomic variables like population, total income, employment, savings, investment, general price-level, public revenue, public expenditure, the balance of trade, the balance of payments and a host of other macro aspects at national or regional levels.
The forecasts of these variables are generally for a long period of time ranging between one year to ten or twenty years ahead. Much would depend on the perspective of planning, longer the perspective longer would be period of forecasting. Such forecasts are often called as projections. These are helpful not only for planning and public policy making. But they also include likely economic environment and aid formulation of business policies as well.
Workforce Scheduling:
The forecast of monthly demand may further be broken down to weekly demands and the workforce may have to be adjusted to meet these weekly demands. Hence, forecasts are needed to enable managers to get tuned with the workforce changes to meet the weekly production demands.
Decisions Making:
The goal of the forecaster is to provide information for decision making. The purpose is to reduce the range of uncertainty about the future. Businessmen make forecasts for the purpose of making profits. In business, the forecast has to be done at every stage.
A businessman may dislike statistics or statistical theories of forecasting, but he can not do without making forecasts. Business plans of production, sales, and investment require predictions regarding demand for the product, the price at which the product can be soled and the availability of inputs. The forecast for demand is the most crucial.
Operating budgets of various departments of a company have to be based upon the expected sales. Efficient production schedules, minimization of operating cost and investment in fixed assets is when accurate forecasts recording sales and availability of inputs are available.
Controlling Business Cycles:
It is commonly believed that business cycles are always very harmful in their effects. Abrupt rise and fall in the price level injurious not only to businessmen. But to all types of persons, industries, trade, agriculture. All suffer from the painful effects of depression.
Trade cycle increase the risk of business; create unemployment; induce speculation and discourage capital formation. Their effects are not confined to one country only. Business forecasting reduces the risk associated with business cycles.
Prior knowledge of a phase of a trade cycle with its intensity and expected period of happening may help businessmen, industrialist, and economists to plan accordingly to reduce the harmful effects of trade cycle’s statistics is thus needed for the purpose of controlling the business-cycles.
Explore L’Oréal’s SWOT analysis to gain insights into its strengths, weaknesses, opportunities, and threats, shaping its future in the cosmetics sector. Before the establishment of facial cosmetics, L’Oréal can be identified as a hair-color formula that has been introduced by a French chemist known as Eugene Schueller in 1907. It was then known as ”Aureole”. Poster presentation on L’oreal Luxury Cosmetic. Schueller formulated and manufactured his own products which were sold to Parisian hairdressers.
It was only in 1909 that Schueller registered his company as “Societe Francaise de Teintures Inoffensive pour Cheveux”, the future L’Oréal. Schuller began exporting his products, which was then limited to hair-coloring products. It focuses to engage in the field of Production and Marketing of concentrating on hair colors, skincare, perfumes, and fragrances, makeup, and styling products.
The Concept of L’Oréal SWOT Analysis, Why? L’Oréal is the world’s biggest cosmetics and beauty products company.
There were 3 chemists employees in 1920. In 1950, the research teams increased to 100 and reached 1,000 by 1984. Today, research teams number to 2,000 and still expect to increase shortly. Through agents and consignments, Schuller further distributed his products in the United States of America, South America, Russia, and the Far East. The L’Oréal Group is present worldwide through its subsidiaries and agents. L’Oréal started to expand its products from hair-color to other cleansing and beauty products.
The L’Oréal Group today markets over 500 brands and more than 2,000 products in the various sectors of the beauty business. Such include hair colors, permanents, styling aids, body and skin care, cleansers, and fragrances. Indeed, the L’Oréal Group has reached the peak that all cosmetic brands sought after. Many factors contribute to the success of the Company. Since L’Oréal was known to be France’s leading beauty company, it was international presence was so limited that many believed and had a conception of Parisian beauty as being expensive and high culture.
What is SWOT Analysis?
S.W.O.T. is an acronym that stands for Strengths, Weaknesses, Opportunities, and Threats. A SWOT analysis (Dell swot) is an organized list of your business’s greatest strengths, weaknesses, opportunities, and threats.
Existing businesses can use a SWOT analysis, at any time, to assess a changing environment and respond proactively. In fact, I recommend conducting a strategy review meeting at least once a year that begins with a SWOT analysis.
New businesses should use a SWOT analysis as a part of their planning process. There is no “one size fits all” plan for your business, and thinking about your new business in terms of its unique “SWOTs” will put you on the right track right away, and save you from a lot of headaches later on.
SWOT Analysis for L’Oréal:
The SWOT analysis framework involves analyzing the strengths as “S” and weaknesses as “W” of the L’Oréal’s internal factors, and the opportunities as “O” and threats as “T” of its external factors of performance.
Through this analysis, the weaknesses and strengths within L’Oréal can correspond to the opportunities and threats in the business environment so that effective strategies can be developed. It follows from this, therefore, that an organization can derive an effective strategy by taking advantage of its opportunities by using its strengths and neutralize its threats by minimizing the impact of its weaknesses.
Moreover, SWOT analysis can be applied to both a whole company as well as a specific project within a company to identify new company strategies and appraise project feasibility. Here is you’ll understand the SWOT Analysis for the L’Oréal Paris cosmetic company.
Strengths of L’Oréal:
The ongoing success of the L’Oréal Group is without if not for the ingenuity of the concept of their vision as a team. L’Oréal Chairman and CEO Lindsay Owen-Jones consider passion as the key to the well-renowned accomplishment of the said Company.
The primary strength of the Company is the continuing research and innovation in the interest of beauty which assures that L’Oréal Cosmetics offers the best to their consumers.
Their dedication to their continuous research makes them the leader in the growing cosmetics industry despite the competition in the market. The strength of the L’Oréal Groups is the developed activities in the field of cosmetics as well as in the dermatological and pharmaceutical fields to put more concentration in their particular activities.
The cosmetics activities of L’Oréal divide into five groups. First is the Consumer Product Division which encompasses all the brands distributed through mass-market channels, ensuring that L’Oréal quality is available to the maximum number of consumers. The Luxury Products Division includes the prestigious international brands selectively distributed through perfumeries, department stores, and duty-free shops.
Professional Strengths of L’Oréal:
The Professional Products Division offers specific hair care products for use by professional hairdressers and products sold exclusively through hair salons. The Active Cosmetics Department creates and markets products for selective distribution through pharmacies and specialist health and beauty outlets. The L’Oréal Group’s dermatological activities are linked with Galderma. Which is basically a dermatological firm that contributes to the innovation of L’Oréal Group’s products.
The pharmaceutical activities of L’Oréal also handle by Sanofi-Aventis. These divisions and subdivisions ensure the quality that the L’Oréal Group offers to its customers. To further add to the enumerated strengths of the company. L’Oréal’s advertising strategy also plays a major part in its growth. Through adapting to the culture of their target market as the main tool of their advertisement. The Company brought L’Oréal products within reach of other women from different parts of the world.
Weaknesses of L’Oréal:
Perhaps one of the weaknesses that a big company faces is the decentralized organizational structure. This is also part of the difficulties that L’Oréal is facing. Due to the many subdivisions of the Company, there is also the difficulty in the control of L’Oréal. This slows down the production of the Company because of the need for giving reference to the other Board members and directors of the Company. L’Oréal will also have difficulty in finding out what division is accountable for the possible pitfalls of the Company. Another weakness that L’Oréal faces is its profit.
The profit margin of L’Oréal is comparably low than that of the other smaller rivals. While L’Oréal projects a certain rise in digits as their profit, the result does not usually meet the expectations. Perhaps, this is also due to the high-end advertising and marketing as well as the width of the Company. Finally, the coordination and the control of the activities. And, the image in the worldwide market also view as a weakness on the part of L’Oréal. Due to its worldwide marketing strategy, there are also dissimilarities brought about in the campaign of L’Oréal products as to what image they are to project.
Opportunities for L’Oréal:
The L’Oréal Company concentrates on cosmetic products that enhance women of all ages. The growing demand for beauty products allows L’Oréal to focus on their field of specialization, particularly on hairstyling and color, skincare, cosmetics, and perfumeries. Being the leading cosmetic brand gives them the edge for their well-known image.
The opportunity also emanates from their growing market that ranges from the affluent, the aging, and also the masses of the developed countries. Another opportunity that L’Oréal must take advantage of is its greater market share. Because of the numerous patents registered by the Company. This enables them to have the top-of-the-line products only to their name. Therefore would lead customers only to them for they could not find any of the said cosmetics in other brands.
Threats for L’Oréal:
A threat to the L’Oréal group is also the growing competition within the field of cosmetic brands. Due to the ongoing addition to the field of cosmetics. There is still the danger that other brands could surpass the profit of L’Oréal. Another threat to the Company is the economic downturn that is quite evident in other countries. Such could thus hurt the possibility of higher profit for the company. Most products of L’Oréal are within the reach of the citizens of developed countries. But, L’Oréal may have problems reaching out even to the average people from under-developing countries.
Also, a threat to the L’Oréal Group is the spending habits of the consumer. The economic crunch that most countries are experiencing as of present. While the L’Oréal Group may be producing the best of its line. People may find that their products are not of their basic needs and would skip buying L’Oréal products. However, with the growth of the market, the damage could be far from taking place.
L’Oréal International Marketing Strategy;L’Oréal is the world’s biggest cosmetics and beauty products company. Basically, it’s a French-based company and is headquartered in Paris. Poster presentation on L’oreal Luxury Cosmetic; It focuses on engaged in the field of Production and Marketing of concentrating on hair colors, skincare, perfumes, and fragrances, makeup, and styling products. L’Oréal products are also based on dermatological and pharmaceutical fields. Their products are made for Individual and professional customers. So, what discusses is: L’Oréal International Marketing Strategy explains their Case Study.
The Concept of L’Oréal explains their Case Study by International Marketing Strategy.
This company operates in over 130 countries like Asia, America, East, and West Europe through 25 international brands. The success of L’Oréal lies in the fact that the company succeeded in reaching out to the customers of different countries of the world; across different income ranges and cultural patterns; giving them the appropriate product they are worthy of. The area of expertise of L’Oréal being that it succeeded almost in every country that it entered. The strategies of L’Oréal was varied enough to help it and stop itself from restricting itself to a single country.
L’Oréal sold its product based on customer demand and country want rather than keeping the product identical across the globe. It built an ample number of brands or mammoth brands entrenched to the restricted culture and which appealed to a variety of segment of the universal market instead of generalizing the brand and edible in innumerable culture. L’Oréal went on to be a local product in every international market. The brand extension of L’Oréal also came in the same sector or the same segment of the market.
L’Oréal believed in growing its expertise in the segment it is conscious of rather than going into a completely new sector of the market.
The international marketing strategy is more in-depth and broadened in one sense of the term. It is simply a principle of marketing however on a global scale. The setup of the global marketing strategy has a lot to do with understanding the nature of the global market itself; and, most importantly the environment. The business environment across the globe has different economic, social, and political influences. Thus, it is believing that selecting a global market target for examples when strategizing is a good idea. The international marketing strategy of L’Oréal is concentrating on a cross-cultural arena spanning four market destinations.
They are namely:
1) the Asian Market.
2) European Market.
3) North America Market, and.
4) The African, Orient, and Pacific Region.
L’Oréal in Asia Market:
At present L’Oréal is one of the best companies in the whole world in the field of cosmetic products. The cosmetic products of L’Oréal are widely used; and, especially the hair color which was introduced by L’Oréal a few years ago. L’Oréal is very famous in Asia and its products in Asia are very cheaper; than the other companies and are used by the majority of people in China, Thailand, Japan, etc. It is famous and very successful because of its global marketing strategies; which are very helpful and also distinct from the strategies used by other companies in this field.
L’Oréal in Asia,
Uses the sustainable strategy that is of growing the company as the demands of cosmetic products in countries like China, Thailand, etc are in great amount. This company uses the strategy of suspicious brand management; and, they also brought the strategy of more suspicious acquisitions. The main problem that a company like L’Oréal faces in Asia is the competition given by the other companies dealing with cosmetic products. To overcome this problem in Asia these companies use the strategy of selling good quality products at cheaper rates than the other companies.
One of the best strategies of L’Oréal in Asia is the diversification of the brand; and, the main reason behind this strategy by L’Oréal is to make them palatable in the local cultures. L’Oréal in Asia aims at the management of the global brands with local variations; and, this means that their main aim is of becoming a local and not a foreign company in Asia.
For example, L’Oréal in Thailand has given local names to their stores; and, most of the employees present in this company, are local people of Thailand. It is because of all these strategies, L’Oréal is very successful in the whole of Asia.
L’Oréal in European Market:
L’Oréal’s the only company that uses the strategies which also supports the people in many ways; and, not only in providing good quality products at cheaper rates. L’Oréal used different strategies of marketing in the European market like they used the strategy of nurturing the self-esteem of the people with beauty.
In France,
L’Oréal created programs like “Beauty from the heart” for helping the people made helpless by illness or any kind of negative life experiences. In countries like the UK and Germany, many of the women and also the young people regain their confidence; and, their self-image gradually by using the cosmetics provided by L’Oréal.
In European countries,
L’Oréal also used marketing strategies like taking the calculated amount of risk etc.; but, most of the strategies are related to the growth of the people mentally and not only for beauty or fashion purposes. L’Oréal launches various innovative treatment programs for the young people of European countries; and, this company also launches free skincare and make-up workshops for women who have cancer.
For example,
In France, a program named “La Vie, de Plus Belle” offers free skincare and makeup for cancer suffering women all over France. This helps them to cope with the treatment’s side effects; and, it also helps them to retain their self-esteem which is very important for a patient.
In the European countries, L’Oréal generally uses the strategy of the management of brand by which L’Oréal had made a large number of brands that rooted in the local culture; and, which all appeals to the various segments of the global market. By using these social types of strategies for the people of Europe has helped L’Oréal in expanding their business in the whole of Europe.
L’Oréal in North American Market:
North American markets are considering as a perfect place for companies like L’Oréal, Olay, ponds, etc. The best business of L’Oréal comes from the market of the US. The reason for this much success is that L’Oréal uses very good global marketing strategies in North America and other countries like Canada etc. One of the successful strategies of L’Oréal in the US market is brand extensions; which include the extensions of the brands after doing complete research.
For example 01,
When L’Oréal launched a shampoo for kids they first made complete research; and, also debated about the new launch or for an extension. In the US and Canada L’Oréal uses the strategy of frequent advertisements and promotions. As we know in the present scenario, proper advertisements and promotions are very important for any company because people follow the promotions; and, due to which the demands of the products like hair color increases at a very rapid rate. We can clearly understand the advertisement and the promotions of L’Oréal through their media budget. L’Oréal has the twelfth largest media budget in the world which is much more than the other companies in this field.
For example 02,
In the late 1990s, the expenditure of L’Oréal advertising and promotion was jumped from 37% to around 47% of the total amount of sales. The global ad spending of L’Oréal was increased to $1.25 billion which was on par with the company named coca-cola. The best thing about this company is that they have a separate and very distinct policy of promotion in the market of the US. Matrix is the number one brand of L’Oréal in the US and the main reason behind the success of the matrix is frequent; and, distinct advertisement and promotion of cosmetic and hair products.
The people of countries like Canada like to use new products that mean they like changes in their product after some interval of time. So by keeping this thing in mind, L’Oréal uses the strategies of modifications which means they modify their existing products according to the latest tastes and fashion of the local people. According to the latest surveys of the people of L’Oréal company; the majority of the profits of this company is because of the US and these perfect strategies used by this company in the US is the reason behind this type of success especially in the North American market (Helping vulnerable people).
L’Oréal in Africa, Orient and Pacific Region:
Like other countries in the world, L’Oréal is also very successful and equally famous in Africa and the Pacific region. L’Oréal entered into the market of India in the year 1997 and at that; there was not much awareness about the sniff of structure in the industry of hairdressing.
In countries like the UAE and Australia, proper and organized education was totally absent; and, perfect and well-trained hairdressers were also not present at that time. Despite all these problems, L’Oréal in India made some of the strategies; and, one of the best strategies of L’Oréal that they launch various technical training centers; and, they even opened a club of only the hairdressers.
In the UAE,
L’Oréal products which were professional began selling through Parisienne salons; while the other companies have begun retailing their range of hair color to power growth. L’Oréal uses a global marketing strategy for launching its successful brands all around the world.
For example in February of this year only, L’Oréal announced the arrival of the matrix which is the number one brand of L’Oréal in the US to India, UAE, etc with a reason for adding the range of hair products to their existing products at affordable prices. The main thing about this company is that they make strategies according to the local culture of different countries and not uses the same strategies in every country. Because of all these strategies, L’Oréal gains a huge profit from Europe every year.
The success of L’Oréal:
The success story can continue further because even today products of L’Oréal touch the cultural values instilled in the potential customer’s mind. L’Oréal just doesn’t sell the product it makes the customer buy the idea of dreaming big but remaining rooted to the core cultural values. it has carefully devised its global marketing strategy and customized it to the local needs; and, that’s the reason people from Africa to Europe and America to Australia are using the L’Oréal products.
The same reward schemes, motivational methods, desired working environments, etc; also cannot be the same for different employees working for the company in different nations; and, thus it also needs the understanding of different aspects of the impacts of the cultural differences. Proper analysis of the Macro and the Micro Environmental factors should do to study how much technological and economical; and, politically that country is sound to carry out a trade with them.
Whether it’s an Asian Market, European market, North American Market, or the Pacific Region, everywhere the culture differs in terms of varied factors. So it becomes the responsibility of the Company to do proper scanning of these factors to have their long stay in the region so that they can attain a Topmost Competitive position by adapting to various region’s cultural factors in their Global Marketing Strategies.
Therefore the major things that should keep in mind for L’Oréal while doing International business are to form an effective global strategy team for defining the trading policies to work in any country. The strategy of Globalization should encompass major factors like cultural differences, economic policies of the country, etc. moreover the varying lifestyles of the peoples and the rapidly changing economies even should also be kept in mind.
L’Oréal International Marketing Strategy explains their Case Study!
L’Oréal Global Branding Strategy; The L’Oréal group has been the market leader of cosmetics and the beauty industry. The products it mainly sells are in the fields of cosmetics including, hair color, makeup products, skincare products, perfumes, etc. Poster presentation on L’oreal Luxury Cosmetic; The company has also launched several products in the field of dermatology and pharmacy. The sales and profits maintain through its wide range of professional consumer luxury; and, active products showing a strong through it. So, what discusses is: L’Oréal Global Branding Strategy explains What? their Case Study.
The Concept of the study explains the Case Study of L’Oréal Global Branding Strategy.
It was founded in 1909 by Eugene Schueller and soon it grew into the world’s largest company in the industry. The turnover of the company has grown over 19 billion euros with over 11 percent of growth; which considerably indicates the success of marketing strategies of the L’Oréal group. The company market over 70 international brands along with several local brands made specifically for the country it is marketing with the same international standards; and, flexibility according to the local needs and requirements that are to sell to both men and women in over 150 countries.
The company has shown enough growth in the continents of North America and Western Europe with its outstanding performance of twice the market trend growth of the markets of Asia Pacific, Eastern Europe, Latin America, Africa, and the Middle East. The global marketing efforts of the company with its smart selling efforts brought a tremendous amount of success for it. The differences between the different cultures and the needs of the native people of those different cultures have been quite successfully understood by the company’s marketing personals.
Explain 01:
To understand and to answer the cosmetic requirement of the different types of people in the world the company has set up its five worldwide research; and, development center which establishes in different continents like 2 in France, 1 in the US, and 1 in Japan and 1 in China, to make the manufacturing of the product; managed according to the needs of a different culture. L’Oréal group has successfully projected itself as a nice example of a good multinational corporation that manages its profit with considerable success through the competitions in the market’s surrounded by the various geographical, social, economic, and cultural risks.
The company reached out to a variety of customers with different economic status and cultural background in overall different perception through its fine global branding strategies. Through its selling of different products, the company sold different genres of products like Italian elegance, New York street smarts, French beauty, etc through different global branding methods.
L’Oréal’s global branding strategy that’s doing wonders has been actively spearheaded by Owen Jones himself. Lindsey Owen Jones has been the CEO of L’Oréal for nearly two decades and an “Honorary President” now, and under his leadership; L’Oréal has really fine-tuned its global branding strategy. Interestingly some press reports tell us that he has been seen roaming around streets in foreign markets to understand the new and existing trends.
Explain 02:
And without any doubt, his interesting work style seems to work wonders. The branding strategy of L’Oréal has such an impact that L’Oréal seems to be the only global leader in every segment of the cosmetics industry; the right positioning of its products seems to be the key. Whatever it is trying to sell the French elegance or street smartness of America; is getting good response throughout the world and L’Oréal has been able to reach its consumers across the national and cultural boundaries. Owen Jones says: “We have this great strategy back in the head office of how we are going to do it worldwide.
But when you go out and look at what is happening, is there a big gap between your projections and the reality of what you see and hear? It is so important to have a world vision because otherwise decentralized consumer goods companies with many brands can fracture into as many little parts if somebody isn’t pulling it back the other way the whole time with a central vision.” This really explains why he prefers roaming in the streets for his strategy-making rather than sitting in the boardroom. Having said all that it’s quite evident that the global branding strategy of L’Oréal has paid huge dividends to the company overall.
Explain 03:
To understand this splendid growth story, we need to see how exactly L’Oréal applied their strategy to the countries that were entirely distinct as far as the lifestyle, spending pattern, and culture concern. L’Oréal was started in France, has a good brand value in the united states of America, is reaping good dividends from India, and has a remarkable presence in Japan. These are different complex societies with different needs; so how exactly L’Oréal managed to be equally successful in all these places? This question needs some fact-finding to be done based on country-specific products; and, strategies adopted by the cosmetics conglomerate.
That’s what exactly we will try doing in the next section of this case study. In India, 4 billion 7.5 ml sachets sell every year and that’s a staggering 66% of total shampoo consumption in India. Most of the urban Indian women (96%) use shampoo, however only 46% use foundation. For hair care, a huge 74% population of Indian women still rely on home remedies, 42% use henna, and 94% use hair oil, as far as L’Oréal’s sale per person in India concern is just 10 cents compared to 28 Euros per person in France. In India skin lightening creams (fairness creams) constitute more than 50% of the skincare market people seem to be crazy about getting fairer.
Explain 04:
These facts are self-explanatory about the nature of the Indian market; and, it’s clearly stating that the strategy used in the USA or any other European countries is not going to work in India. the USA is a mature market as far as cosmetics consumption concerns India is an emerging economy with most of the population below 35 years of age and a huge aspiring middle class. The cosmetics market is growing approximately at an annual rate of 16% in India, still a long way to go. The youth in urban centers very concern about the image but the larger section is still off the fashion map.
Interestingly even after the success story of corporate India, apparently it’s still a country that is very much community-oriented. The great Indian middle class is aspiring but still has the community-driven cultural values intact. L’Oréal has taken this fact very much into consideration while preparing the marketing strategy for India. A very good example would be the launch of Garnier Fructis shampoo in India. The concept was to rely on the idea rather than relying on advertising a brand. The idea of getting five times stronger hair was the central point that created the hype, through “word of mouth” or network marketing.
Initially, it was positioned as a product for young and teenagers; once the product was established in the market it tried to change or rather increase the target base by shifting gears. In a recent advertisement for Garnier hair color, a daughter is shown advising her mother to try the Garnier product and explaining the benefits. Again it relies on the concept of the idea getting spread by “word of mouth” to another customer segment. This is the best example of marketing in a closed &community driven society.
Explain 05:
There is one more remarkable thing about this entire campaign the catchline “take care”. It shifts the focus from the product to the core value of Indian society “caring about others”; and, the entire advertisement becomes more of good advice rather than publicity. China is the world’s most populated country in the world and that makes it very clear that it has the potential of being the biggest consumer market. These days Chinese women are spending an average of 10 to 15% of their income on cosmetics products, and urban Chinese ladies would use 2.2 cosmetics products on average every morning.
Evidently, most of them want to be fashionable and the L’Oréal punch line – ‘if you want to be fashionable, just choose Maybelline’, really seems to work. Masses are made to believe that this is something that represents America and it ought to be trendy. Maybelline is the product line for the masses and L’Oréal really uses the tendency of masses to look towards the USA that’s why the Maybelline products display against the backdrop of the shiny skyline of New York City Chinese women prefer skincare and beauty products.
Explain 06:
According to research by L’Oréal in China, women concern about the radiance of their skin; and, prefer skin nourishing lotions that protect their skin from skin-drying winters. Unlike us customers most Chinese women like skin whiteners rather than tanning products. It’s a sign of beauty for Chinese women. Also, the texture of Chinese hair is thicker and more course than typical US Caucasian hair. This requires different products, and really different skill set to effectively sell and get these products moving in China.
L’Oréal has dedicated research facilities for these and other issues and followed up with more innovations to suit the needs and preferences of Chinese consumers. There is one more very interesting fact about the Chinese cosmetics industry; Chinese women are very concerned about the ingesting of lipsticks. This is the most interesting food attitude about Chinese women.
Now following its global strategy L’Oréal even considered this and developed lipsticks containing vitamins; as soon as this was told to the women they were more comfortable in using the product. European countries are mostly developed, here L’Oréal has the liberty of publicizing the brand value rather than focusing on pricing, the benefit to L’Oréal in these markets is that it already well establish and the brand well knows so it can concentrate on grabbing the attention of individualistic feminist women.
Explain 07:
Pricing is not a concern in these markets so L’Oréal can afford to have punchlines like-“I am worth it” because these punchlines justify the high pricing of the products and fulfill the feeling of exclusivity of high-end clientele. Now let’s take another example from the European and our markets, L’Oréal brands in these markets are quite well established. L’Oréal products have been used there for few generations now; once young consumer of the L’Oréal brand has started aging and the same street-smart products could not position to them, they have started becoming the mature citizens; now their priorities have changed.
A recent market report suggests that the new target segment in the cosmetics industry is 40 plus women who once used teenage cosmetics products. The thrust is on anti-aging products because it not only adds the new customer base but retains the once teenage customer also. The customer from the baby boom generation reaches the retirement age and tries to maintain a healthy and youthful look and finds out that their favorite cosmetics brand is still making products for them. L’Oréal capitalized on their desire to look youthful and started marketing its anti-aging products, it has signed sixty-year-old Diane Keaton to represent the Age Perfect Pro-Calcium skincare line.
Explain 08:
Also, L’Oréal has signed Scarlett Johansson, Penelope Cruz, Eva Longoria, and Beyoncé Knowles to promote specific cosmetics lines according to the age groups. Now this tells us how L’Oréal used the desire of customers to position its products. The French conglomerate believes that only two different cultures as far as fashion concerns are dominant, represent by two flagship brands L’Oréal Paris and Maybelline New York. L’Oréal has been projected as a French origin with elegance, high-end presentation, and obviously high pricing.
Whereas the Maybelline product line represents the street-smart American babe who is looking for the value of the money. America seems to be the growth engine of the world, in the cosmetics industry as well. L’Oréal has understood this and they made a strategy based on the trends in the USA and that’s how Maybelline came into existence. Maybelline currently is the second-largest brand in the share of unit sales of cosmetics products and number one in makeup brands. It claims to be totally consistent with today’s confident woman. Maybelline products targets three customer segments; youngster (16 to 25), office lady (26-35), and career women (35 plus).
Explain 09:
The marketing mix for the Maybelline line of products consists of two main strategies; foreign consumer cultural positioning; and, symbolic New York City imagery that women can relate to everywhere. Maybelline promotion includes the different way of grabbing attention including promotional coupons; online advertising; sponsorship of fashion shows; signing fashion icons as spokesperson of the product; free makeup consultancy and providing scholarships, etc.; we can see as American cosmetic market is a mature market so L’Oréal tries to rely on mature marketing tactics. In the early 20th century, even American society was not very much open to makeup and skincare products.
People thought that only sinful women should wear makeup; but, eventually with the economic independence that the American women gained; makeup and cosmetics started coming into the mainstream. Cosmetics apparently became the symbol of new self-belief that the American women were beaming with; and remember even Maybelline claims to be totally consistent with today’s women; there are several other punchlines like ‘maybe she’s born with it’, ‘maybe it’s Maybelline’; all the punchlines keep the self-confidence of women in the center as if its not the makeup but its the attitude that has to be worn.
Explain 10:
That’s why women of every nationality and culture started identifying themselves with the product; and, this became the symbol of the 21st-century woman. The mindset and the lifestyle of the customer heavily impacted by the culture. Culture defines by different norms, values, interactions, language, and other personal components shared by groups of people across the world. It is a social phenomenon that defines people’s interests, thoughts, and other behaviors they may exhibit in social life.
From one country to another, humans have evolved and developed different types of expressions, beliefs, and behavior; which can be difficult to understand for someone who does not belong to the same culture. Culture is the way how the members of a particular group interact with each other on the sharing of the available means; now that determines what is going to be the need for a particular product in that society; that also decides whether a particular advertising strategy will work or not; and, how exactly that will interpret by the target customers.
Explain 11:
In different markets, consumer requirements and consumer behavior may vary. Cultural aspects deeply impact consumer behavior; the impact may be direct or indirect. The cultural distinction creates the consumer behavior difference, as it can notice between the Asian and European continents where the culture and the behaviors are very different. Being a global organization L’Oréal certainly needs to understand the cultural differences and position its products; accordingly, otherwise, the results may be far more different than they are at this moment. The thrust has to be on hitting the right customer with the right product.
This can be possible only if one has a deep knowledge of local culture and beliefs. A very interesting example would be lipstick use in China; according to research, only 3% of women use lipstick for makeup. The reason that was supposed to be behind this low percentage of lipstick use is even weirder; women in China have concerns about ingesting lipstick. L’Oréal surveyed to see whether this is just an age-old saying or it holds some truth; based on the findings it came up with a lipstick that had vitamins in it, and in turn, the demand for L’Oréal vitamin lipsticks increased. Another example could be really handy; in India long hair consider necessary for a woman to consider beautiful.
Explain 12:
L’Oréal considered this fact while launching its shampoo product in India; and, it focused on publicizing the fact that using the Garnier Fructis shampoo helps in getting long and strong hair. This strategy made the product very popular in India. In China or India, people like to have a fair complexion. In Asia, women take special care of their skin. People want radiant skins and lotions that can nourish their skin against the sun; whereas in the United States people would rather buy tanning cream.
On basis of this knowledge, L’Oréal can position their whitening creams in India; and, the interesting part is the way the advertisements could interpret; the way the advertisements for the fairness creams make in Asian countries can interpret as racial advertisements in the USA; but, in Asian countries that seem to be quite usual. Now that’s where the knowledge of the culture and beliefs comes in handy and helps to avoid unnecessary problems. From a business point of view; companies have to adapt themselves to the culture of each country in which they want to have a business. Because of the differences in culture between countries; companies need to adjust their products and services according to local demands.
This will help them to create and develop a brand image across the globe bases on a large number of globally-recognized products. L’Oréal was able to be successful in these markets; because it adapted to the ground realities of the particular market yet it followed a standardized strategy. If we consider the marketing mix of Maybelline, it has a two-pronged strategy; one for the foreign markets is the global street-smart image of the American chic.
Explain 13:
The global street-smart image of New York chick can admire in almost all the urban centers, be it India, China, or Brazil. However, there has to be the right mix of local flavor as well. The most important part of L’Oréal’s strategic plan is to opportunity hunting or the marketing of its products worldwide. From the initial days, it already started catering to the demands of women worldwide. To do that efficiently, they were expected to be well aware of the diversities of women across the globe.
Once they knew the diversities their job was to come up with a different line of products suitable to women from all parts of the world. Innovation has been the keyword for L’Oréal and this was made possible through constant research and development over the years. The group has already covered most parts of the world and still striving to cover more. To do so, the L’Oréal group has to keep respecting other people’s identity, ideas, and culture. L’Oréal has to keep valuing different cultures and nationalities to get their brand value up; and, it seems that they have been doing it really well.
The success story can continue further because even today products of L’Oréal touch the cultural values instilled in the potential customer’s mind. L’Oréal just doesn’t sell the product it makes the customer buy the idea of dreaming big; but, remaining rooted in the core cultural values. It has carefully devised its global marketing strategy and customized it to the local needs; and, that’s the reason people from Africa to Europe and America to Australia are using the L’Oréal products.
L’Oréal Global Branding Strategy explains What? their Case Study. Image credit from L’Oréal.
The article uses some aspects of the Hofstede’s cultural dimensions and Trompenaars’ research on organizational culture to compare the cultural difference between America and France, then find out three mistakes that the company made in managing its Euro Disney operation through the case study. Many of Businesses in America make detailed assumptions about the potential to expand their business to other countries and structural models of organizing which can be easily failed to consider the cultural differences. So, what are you going to discuss? – Failed Americanism? A Case Study for Eurodisney Failure.
Does the content explain how Failed Americanism? and analyze the Euro Disney failure case study.
One of the examples of the outcome to intercultural business is Disney Corporation’s European venture. Due to the lack of cultural information of France as well as Europe, further, on their inability to forecast problems, Disney acquired a huge debt. False assumptions led to a great loss of time, money and even reputation for the corporation itself.
Instead of analyzing and learning from its potential visitors, Disney chose to make assumptions about the preference of Europeans, which turned out that most of those assumptions were wrong. Also, study the Case Study on the Merger Between US Airways and American Airlines. Disney Company is one of the most successful operators of theme parks in the world, and their theme park in America and Japan achieved great success but the situation in Europe is not so good.
In the following sectors, the three lessons the company should have learned about how to deal with diversity based on its experience will be described. More rapid development in the trend of multinational companies, cross-cultural management has become a major part of the business. The purpose of this paper is to obtain some favorable factors for the future development of Euro Disney by the above analysis.
Three Mistakes by Euro Disney:
The following mistakes are below:
First Mistake:
In determining the target market did not take into account cultural differences Euro Disney’s choice of location focus on the aspects of financial and population, then the Eurodisney theme park located in populous central Europe. Disney executives did not see that Mickey Mouse and intellectuals in the region of the left bank of the Seine in Paris cannot live in harmony and France is serious about their intelligence.
In retrospect, Paris is not the best place to establish such a theme park, so the establishment of the Disney parks is a declaration of war to intellectuals of French. Disney’s manager stated publicly some of the criticism is “the nonsense of small number of Business” would not help them a favor. This may be well operated according to American culture, while the French pay more attention to their own cultural elite and regard this refute as an attack of national quality.
Second Mistake:
Having not adequately taken into account the habits of the French when arranging the service kinds Disney does not provide breakfast because they think that the Europeans do not eat breakfast. In addition, the Disney company does not provide alcoholic beverages within the park, but the French habits are different, they are used to drinking a cup while taking lunch, which aroused the anger of the French.
Disney executives did not estimate that the European are not interested in vacation in theme park so much, in the attitude of Disney Company the European will be happy about spending a few days in a theme park like the American and Japanese, but middle-class in Europe just want to “get away from everything around” and go to the coast or the mountains, and Euro Disney is the lack of such appeal.
Last Mistake:
No combination of French culture to the local staff management Disney has taken the global standard model as same as the Japanese business, they transplanted the American culture to France directly than doing this result with a serious clash of cultures.
The Disney Company use many measures that departed with the local culture, for example, in the Euro Disney, the France worker is requested to comply with the strict appearance code as the other theme parks in the United States and Japan do, the workers are asked to break their ancient cultural aversions to smiling and being consistently polite to the park guest even must mirror the multi-country makeup of its guest.
In addition, the Disney Company brought their U.S. Pop culture to France and fought hard for a greater “local cultural context”. The French people think that this is an attack on their native culture, so they adopted an unfriendly attitude toward to the arrival of the Disney, including the protest come from the intellectual and the local residents and farmers.
Three Lessons by Eurodisney:
The following lessons are below:
First Lessons:
Multinational companies should target market accurately even in the same country or regional market, the traditional culture makes different control power to different people. Multinational companies should be fully based on detailed market research to find the weak links in the market and make a breakthrough, use the “point to an area” model to expand.
For example, McDonald’s opened in the Chinese market, its target is no longer work for the busy working-class, but the children. The golden arches mark, the joyful atmosphere of the shop, the furnished toys, full of playful ads, as well as various promotional activities specifically carry out for children, these have a tremendous appeal to the target customers.
McDonald thinks that adult eating habits difficult to change, only those children whose taste not yet formed are the potential customers of Western fast-food culture, the McDonald received Broad market recognition and have huge market potential.
Second Lessons:
Multinational enterprises should pay full attention to the importance of the influence of cultural differences on marketing face to the new multiple culture environment, the multinational enterprise should take an objective to acknowledge about the cultural differences of the consumer demand and behavior and respect it, abandoning the prejudice and discrimination of culture completely.
Moreover, multinational enterprises should be good at finding out and using the base point of communication and collaboration of different cultures and regard this base point as the important consideration factor when the plan to enter the target country market.
After all, the fundamental criterion for a successful business enterprise is whether it can integrate into the local social and cultural environment. The multinational enterprises should improve the sensitivity and adaptability to the different cultural environment.
Last Lessons:
Multinational enterprises should make full use of the competitive advantages of cultural differences and promote international marketing. The objective of international cultural differences can also be the basic demand points of different competitive strategy.
In the international market, launching culture marketing activities and highlighting the exotic culture and cultural differences in the target market can open the market quickly. Companies should strive to build cross-cultural “two-way” communication channels, it is necessary to adapt to the host’s cultural environment and values and carry out the business strategy of localization to make it can be widely accepted by the host country local government, local partners, consumers, and other relevant stakeholders.
Effective cross-cultural communication, on the one hand, contributes to cultural integration but also can create a harmonious internal and external human environment for corporate management.
Euro Disney Calamity:
The following Calamity is below:
Until 1992,
The Walt Disney Company had experienced nothing but success in the theme park business. Its first park, Disneyland, opened in Anaheim, California, in 1955. Its theme song, “It’s a Small World After All,” promoted an idealized vision of America spiced with reassuring glimpses of exotic cultures all calculated to promote heartwarming feelings about living together as one happy family.
There were dark tunnels and bumpy rides to scare the children a little but none of the terrors of the real world . . . The Disney characters that everyone knew from the cartoons and comic books were on hand to shepherd the guests and to direct them to the Mickey Mouse watches and Little Mermaid records. The Anaheim park was an instant success.
In the 1970s,
The triumph was repeated in Florida, and in 1983, Disney proved the Japanese also have an affinity for Mickey Mouse with the successful opening of Tokyo Disneyland. Having wooed the Japanese, Disney executives in 1986 turned their attention to France and, more specifically, to Paris, the self-proclaimed capital of European high culture and style. “Why did they pick France?” many asked.
When word first got out that Disney wanted to build another international theme park, officials from more than 200 locations all over the world descended on Disney with pleas and cash inducements to work the Disney magic in their hometowns. But Paris was chosen because of demographics and subsidies. About 17 million Europeans live less than a two-hour drive from Paris. Another 310 million can fly there at the same time or less.
Also, the French government was so eager to attract Disney that it offered the company more than $1 billion in various incentives, all in the expectation that the project would create 30,000 French jobs. From the beginning, cultural gaffes by Disney set the tone for the project. By late 1986, Disney was deep in negotiations with the French government.
Disney team:
To the exasperation of the Disney team, headed by Joe Shapiro, the talks were taking far longer than expected. Jean-Rene Bernard, the chief French negotiator, said he was astonished when Mr. Shapiro, his patience depleted, ran to the door of the room and, in a very un-Gallic gesture, began kicking it repeatedly, shouting, “Get me something to break!”
There was also snipping from Parisian intellectuals who attacked the transplantation of Disney’s dream world as an assault on French culture; “a cultural Chernobyl,” one prominent intellectual called it. The minister of culture announced he would boycott the opening, proclaiming it to be an unwelcome symbol of American clichés and a consumer society.
Unperturbed,
Disney pushed ahead with the planned summer 1992 opening of the $5 billion parks. Shortly after Euro-Disneyland opened, French farmers drove their tractors to the entrance and blocked it. This globally televised act of protest was aimed not at Disney but at the US government, which had been demanding that French agricultural subsidies be cut. Still, it focused world attention on the loveless marriage of Disney and Paris.
Then there were the operational errors. Disney’s policy of serving no alcohol in the park, since reversed caused astonishment in a country where a glass of wine for lunch is a given. Disney thought that Monday would be a light day for visitors and Friday a heavy one and allocated staff accordingly, but the reality was the reverse.
Another unpleasant surprise was the hotel breakfast debacle. “We were told that Europeans ‘don’t take breakfast,’ so we downsized the restaurants,” recalled one Disney executive. “And guess what? Everybody showed up for breakfast. We were trying to serve 2,500 breakfasts in a 350-seat restaurant at some of the hotels. The lines were horrendous.
Moreover,
They didn’t want the typical French breakfast of croissants and coffee, which was our assumption. They wanted bacon and eggs.” Lunch turned out to be another problem. “Everybody wanted lunch at 12:30. The crowds were huge. Our smiling cast members had to calm down surly patrons and engage in some ‘behavior modification’ to teach them that they could eat lunch at 11:00 AM or 2:00 PM.”
There were major staffing problems too. Disney tried to use the same teamwork model with its staff that had worked so well in America and Japan, but it ran into trouble in France. In the first nine weeks of Euro-Disneyland’s operation, roughly 1,000 employees, 10 percent of the total, left.
One former employee was a 22-year old medical student from a nearby town who signed up for a weekend job. After two days of “brainwashing,” as he called Disney’s training, he left following a dispute with his supervisor over the timing of his lunch hour. Another former employee noted, “I don’t think that they realize what Europeans are like . . . that we ask questions and don’t think all the same way.”
One of the biggest problems,
However, was that Europeans didn’t stay at the park as long as Disney expected. While Disney succeeded in getting close to 9 million visitors a year through the park gates, in line with its plans, most stayed only a day or two. Few stayed the four to five days that Disney had hoped for. It seems that most Europeans regard theme parks as places for day excursions.
A theme park is just not seen as a destination for an extended vacation. This was a big shock for Disney. Also, study the Case Study of the Starbucks Mobile Payment Application. The company had invested billions in building luxury hotels next to the park-hotels that the day-trippers didn’t need and that stood half empty most of the time.
To make matters worse, the French didn’t show up in the expected numbers. In 1994, only 40 percent of the park’s visitors were French. One puzzled executive noted that many visitors were Americans living in Europe or, stranger still, Japanese on a European vacation! As a result, by the end of 1994 Euro-Disneyland had cumulative losses of $2 billion.
At this Point,
Euro-Disney changed its strategy. First, the company changed the name to Disneyland Paris in an attempt to strengthen the park’s identity. Second, food and fashion offerings changed. To quote one manager, “We opened with restaurants providing French-style food service, but we found that customers wanted self-service like in the US parks. Similarly, products in the boutiques were initially toned down for the French market, but since then the range has changed to give it a more definite Disney image.” Third, the prices for day tickets and hotel rooms were cut by one-third. The result was an attendance of 11.7 million in 1996, up from a low of 8.8 million in 1994.
Failed Americanism? A Case Study for Eurodisney Failure. Image credit from #Pixabay.
