Extrapolation

Question 1

What is extrapolation?

Answer 1

• used to predict future sales based on previous data

- can be done visually or through calculations

Question 2

What’s the calculation method?

Answer 2

• have to calculate average increase per annum
• previous data increased by 500,000 in 4 yrs
• annual increase of 125,000 (500,000/4)
• 4 in this case = number of jumps between New Years
• calculation method adds the average annual increase to the previous level to predict next year

Question 3

What are differences in these methods?

Answer 3

Graph method - extended dotted line is only likely to be based on last section of growth not overall

Calculation method - rate of growth is different every year, but this method assumes it will be the same every time

Question 4

What are the benefits of these methods?

Answer 4

• past trends often carry into future
• predicting future helps to plan marketing strategies, budget and other areas that need preparation
• only need existing internal data
• quick and cost effective

Question 5

What are the drawbacks of these methods

Answer 5

• using past to predict future
• ok in slow markets, not in high tech ones with short life cycles
• doesn’t take PESTLE into account or product life cycle
• less reliable if there are seasonal/cyclical fluctuations