Introduction to Management Science 12th Edition by Bernard Taylor

Exercise 8

In Problem, one of the new products in the GreenClean line that Klorax is ready to introduce is an all-purpose cleaner, and Klorax is attempting to forecast what demand might be like 5 years into the future. However, it has no historical demand data to use to develop a forecast model. The marketing department has made its own estimate of first-year sales and has acquired estimates for the new cleaner from four other sources-top management, the sales force, a cleaning products trade association, and an independent marketing firm. Top management estimates first-year sales to be 34,000 units; the marketing department's estimate is 47,000 units; the sales force suggests 41,000 units; the trade association estimates that first-year sales will be 28,000 units; and the independent marketing firm estimates sales will be 51,000 units. Using these estimates and the demand data and forecast model for the detergent in Problem, develop a forecast for planning purposes for year 5 for the new cleaner.
Problem
In order to take advantage of the burgeoning public interest in sustainability, Klorax has developed a nonsynthetic line of natural cleaning products called GreenClean. One of the first sustainable products Klorax introduced was a natural cold-water detergent. The company has now gathered several years' worth of sales data for this product in order to develop various forecast models. The company's marketing department believes that sales increase when there are several major environmental (i.e., "green") episodes in the national media, such as a government energy report, an increase in gasoline or energy prices, an oil spill, a pollution episode, a company getting positive press for undertaking a major green project, and so on. Therefore, the marketing department wants to develop a linear regression forecasting model that relates the number of green episodes reported monthly in the national media to monthly sales of the detergent. The marketing department had several staff members go through various media sources for the past 2 years and count the number of major national green episodes reported on, which with monthly sales, is shown in the following table:
Develop a linear regression model and determine the sales forecast if three green episodes are reported in the media next month. Discuss the value and usefulness of this type of relational forecast for Klorax.