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

Techniques

ASSIFICATION OF DEMAND FORECASTING

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.

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 coke.
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.

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

DRAWBACKS OF THE MARKET EXPERIMENT

1)The test experiments are that

they are very costly and much
time consuming.
2)If in a test market prices are
raised, consumer may switch to
the competitors products.
3)It may be difficult to regain lost
customers even if the price is
reduced to the previous level.
Moreover, it is often difficult to

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.
They are 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

BAROMETRIC ANALYSIS
DEFINITION:- The prediction of turning
points In one economic time series
through the use of Observations on
another time series called the Barometer
of the Indicator.
It can be divided into three groups
1)Leading indicators.
2)Coincident indicators.
3)Lagging indicators.

LEADING INDICATORS

It compares the existing data

available. In this Index includes
such as things as average
weekly hours worked and
claims for insurance,
manufacturers new orders,
stock prices, orders for plant
and equipment, index of
consumer expectations, etc.

Composite Of Leading
Indicators
It is useful in understanding the
business cycle. CLL Is primarily intended
to identify changes in the direction of
the economy. Components of the Index
of Coincident Indicators are employees
on nonagricultural payrolls, industrial
production,
Personal income minus transfer
payments, manufacturing and trade
sales.

LAGGING INDICATORS
The lagging indicator composite includes
changes in labour costs per unit, ratio of
inventory to sales, and figures on
installment credit and loans, among other
items, In Practical attempts to forecast the
future, these indices are among the most
important tools available to most
organizations, including the government.
These indicators provide signals of changes
in economic activities like national income
or national product, the level of
employment and the rate of inflation.

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