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Demand

forecasting

Meaning
Importance
Methods

Why demand
forecasting?

Planning and scheduling production


Acquiring inputs
Making provision for finances
Formulating pricing strategy
Planning advertisement

Steps

Specifying the objective


Determining the time perspective
Making choice of method
Collection of data
Estimation and interpretation of results

CLASSIFICATION OF DEMAND
FORECASTING Techniques
QUALTITATIVE
TECHNIQUES

1)EXPERT OPINION
Delphi method.
2)SURVEY
3)MARKET EXPERIMENT
Test marketing
Controlled
experiments.

QUANTITATIVE
TECHNIQUES
1)Time Series Analysis.
2)Barometric Analysis.
a) leading
indicators
b)Coincident
indicators
c) lagging
indicators.

Expert Opinion
The expert opinion method, also known as EXPERT
CONSENSUS METHOD, is being widely used for demand
forecasting.
This method utilizes the findings of market research and
the opinions of management executives, consultants, and
trade association officials, trade journal editors and sector
analysts. When done by
An expert, qualitative techniques provide reasonably
good forecasts for a short term because of the experts
familiarity with the issues and the problems involved.
DELPHI METHOD:- The Delphi method is primarily used to
forecast the demand for NEW PRODUCTS.

SURVEY
A firm can determine the demand for its products through a
market survey. It may launch a new products, if the survey
indicates that there is a demand for that particular product in the
market.
For example, Coke in India expanded its product range beyond
carbonated drinks, after the company conducted a nationwide
survey.
The survey revealed that about 80% of the youth
preferred to drink tea or coffee rather than carbonated drinks at
regular intervals. The remaining 20% preferred to have milk
products while only 2% preferred to drink carbonated drinks like
coffee.
The company is now trying to bring tea and coffee brands to India
by installing vending machines. It is also planning to introduce a
coconut flavored drink in kerala and a black currant in Tamilnadu
named Portello.
Collective opinion of sales force

Market Experiment

Market Experiment can help to overcome the survey


problems as they generate data before introducing a
product or implementing a policy.

Market Experiments are two types:1) Test marketing:2) Controlled experiments:-

Test marketing
In this case, a test area is selected, which should be a
representative of the whole market in which the new product is
to be launched. A test area may include several cities and towns,
or a particular region of a country or even a sample
of consumers.
More than one test area can be selected if the firm wants to
assess the effects on demand due to various alternative
marketing mix.
Advertising or packaging can be done in various market areas.
Then the demand for the product can be compared at different
levels of price and advertising expenditure. In this way,
consumers response to change in price or advertising can be
judged.

DRAWBACKS OF THE MARKET


EXPERIMENT
1)
2)
3)

The test experiments are that they are very


costly and much time consuming.
If in a test market prices are raised, consumer
may switch to the competitors products.
It may be difficult to regain lost customers
even if the price is reduced to the previous
level. Moreover, it is often difficult to select an
area, which accurately represents the
potential market.

Controlled experiments
Controlled experiments are conducted to the test
demand for a new product launched or to test
the demands for various brands of a product.
Some selected some consumers.

DRAWBACKS OF THE CONTROLLED


EXPERIMENTS
1) The consumers may be biased in the process of
selection of a sample of consumers on which
experiments is to be performed.
2)The selected consumers may not respond
accurately If they come to know that they are a
part of an experiment being conducted and their
behavior is being recorded.

Time Series Analysis


The time series analysis is one of the most
common quantitative method used to predict
the future demand for a product. Here the past
sales and demand are taken into considerations.
TIME SERIES ANALYSIS IS DIVIDED INTO FOUR
CATEGORIES:
1)TREND
2)SEASONAL VARIATIONS.
3)CYCLICAL VARIATIONS.
4)RANDOM FLUCTUATIONS.

METHODS OF TIME SERIES ANALYSIS

1)TREND:- Past data is used to predict the future


sales of firm trend is a long term increase
or decrease in the variable.
2)SEASONAL VARIATIONS:- It is taken into
account the Variations in demand during
different seasons.
Eg:- The sale of cotton dresses increases in
summer. The sale of Woolen clothes
increases in winter.
3)CYCLICAL VARIATIONS:- This variations in
demand due to the fluctuations in the
business cycle Boom, recession and
depression.
4) RANDOM FLUCTUATIONS:- It may happen due
to Natural calamities like flood,
earthquake, etc. Which cannot be predicted
accurately.

Conclusion
Accurate demand forecasting requires
Product knowledge
Knowledge about the customer
Knowledge about the environment