Question

Forecasting Market Demand at NBC NBC Universal, a subsidiary of General Electric Company, owns and operates the most profitable television network in the United States with revenues of over $14 billion. Over 60% of these revenues were generated by on-air advertising time on its television networks and stations. The major television networks announce their new programming schedules for the upcoming season (which starts in late September) in mid-May. NBC begins selling their advertising time very soon after the new schedule is announced in May, and 60 to 80% of their airtime inventory is sold in the following two- to three-week period (to approximately 400 advertisers), known as the upfront market. Immediately following the announcement of their new season schedule in May, NBC forecasts ratings and estimates market demand for their shows.The ratings forecasts are estimates of the number of people in several demographic groups who are expected to watch each airing of the shows in the schedule for the entire year, which are, in turn, based on such factors as a show’s strength, historical time slot ratings, and the ratings performance of adjacent shows. Total market demand depends primarily on the strength of the economy and the expected performance of the network’s schedule. Based on this ratings forecast and market demand, NBC develops pricing strategies and sets the prices for commercials on their shows.Forecasting the upfront market has always been a challenging process for NBC. In the past the network used historical patterns, expert knowledge, and intuition to forecast demand; then later it used time-series forecasting models based on historical demand. However, these models were unsatisfactory because of the unique nature of NBC’s demand population of advertisers. NBC ultimately developed a unique approach to forecasting its upfront market for demand, which includes a combination of the Delphi technique and a “grass roots” forecasting approach. The Delphi technique seeks to develop a consensus (or at least a compromise) forecast from among a group of experts, while a grass roots approach to forecasting asks the individuals closest to the final customer, such as salespeople about the customer’s purchasing plans.In their forecasting approach NBC used its (over 100) account executives, who interact closely with the network’s (over 400) advertisers, to build a knowledge base in order to estimate individual advertiser’s demand, aggregate this demand into a total demand forecast, and then continuously and iteratively update demand estimates based on the account executives expertise. Previous forecasting methods resulted in forecast errors of 5 to 12%, whereas this new forecasting process resulted in a forecast error of only 2.8%, the most accurate forecast NBC had ever achieved for its upfront market. Question: Why do you think NBC’s forecasting approach was more effective than a traditional time series forecasting model based on historical demand?

Answer 1

Climate is the average weather in a given area over a longer period of time. A description of a climate includes information on, e.g. the average temperature in different seasons, rainfall, and sunshine. Also a description of the (chance of) extremes is often included.