DEMAND ESTIMATION AND ITS METHODS

DEMAND ESTIMATION TECHNIQUES

QUALITATIVE TECHNIQUES

Consumer survey Market experiments Consumer clinics Virtual shopping

QUANTATIVE TECHNIQUES

Statistical techniques Regression

CONSUMER

SURVEYS

Gathering of information Surveys are conducted to assess consumers perception of various aspects Drawback of this method

MARKET

Qualitative techniques

EXPERIMENTATIONS

Seller of a product introduces variations and tries it out in a representative market High cost technique Advantage

CONSUMER CLINICS

Consumers are asked to act in a simulated situation These are laboratory experiments

VIRTUAL SHOPPING
A representative sample of consumers shop in a virtual store simulated on the computer screen Eliminates the high cost in terms of time and money Consumer reaction recorded

Demand forecasting

TECHNIQUES OF DEMAND FORECASTING

SIMPLE SURVEY METHODS

1) Experts Opinion Poll 2) Reasoned Opinion-Delphi Technique 3) Consumers Survey- Complete Enumeration 4) Consumer Survey-Sample Survey 5) End-user Method of Consumers Survey

COMPLEX STATISTICAL METHODS

1) Time series analysis or trend method 2) Barometric Techniques or Lead-Lag indicators method 3) Correlation and Regression

Simple Survey Method

EXPERTS OPINION POLL Experts are requested to give their opinion or feel about the product Number of such experts is large and their experience-based reactions are different
Also called the hunch method

REASONED OPINION - DELPHI TECHNIQUE

Relies on a panel of independent experts

Experts answer questionnaires in two or more rounds

Process is stopped after a pre-defined stop criterion and the mean or median scores of the final rounds determine the results

CONSUMERS SURVEY- COMPLETE ENUMERATION METHOD

Forecaster undertakes a complete survey of all consumers whose demand he intends to forecast
Principle merit of this method Not feasible where a large number of consumers are involved

CONSUMER SURVEY-SAMPLE SURVEY METHOD

Select a few consuming units out of the relevant population Total demand of sample units is finally blown up to generate the total demand forecast. Comparison to the former survey Sampling error can decrease with every increase in sample size

END-USER METHOD OF CONSUMERS SURVEY

Sales of a product are projected through a survey of its end-users

A product is used for final consumption Demands for final consumption and exports net of imports

TREND ANALYSIS Relies on historical data to predict the future The simplest form of forecasting using trend analysis is the projection into the future of the current value of an economic variable Advantage

Limitation
Appropriate for long-run forecasts, but inappropriate for short-run forecasts
E.g. One might forecast that next year sales would be a function of sales in the existing year or alternately next year sales would be a function of this years sales and the change in sales between this year and last year. Or a forecaster might predict next year sales based on sketching a line that appears to best fit the historical data

BAROMETRIC TECHNIQUES OR LEADLAG INDICATORS METHOD Use of current values of certain economic variable called indicators to predict the future values of other economic variable

leading indicator coincident variables lagging indicators

Ideally, changes in leading indicators consistently precede changes in values of other variables

EXAMPLE

REGRESSION AND CORRELATION Use of econometric methods to determine the nature and degree of association between/among a set of variables

Relationship between a dependent variable and one or more independent variables

The relationship may be expressed in the form of a demand function The principle advantage of this method Technique has got both explanatory and predictive value Use not only time-series data but also cross section data Only precaution

A SIMPLE LINEAR REGRESSION MODEL Case where demand is stated as that between the dependent variable and only one independent variable is a simple linear regression model Regression analysis attempts to fit the best possible linear relationship between the dependent and the independent variable

Y = a + BX + u Y is the dependent variable (Petrol consumption) X is the independent variable (distance traveled) a is the intercept ; b is the slope; u is the error term.

PROBLEMS IN REGRESSION

MULTICOLLINEARITY

IDENTIFICATION PROBLEM

SIMULTANEOUS EQUATIONS METHOD

Also known as the complete system approach or econometric model building It involves simultaneous considerations of all variables Normally used in macro-level forecasting for the economy Indeed very complicated Principle advantage The values of exogenous variables are easier to predict than those of the endogenous variables

EXAMPLE
Case examines the wide variation in the demand for call centers. Importance of demand forecasting for call centers Difficulties involved in estimating the demand for call centers Various strategies that can be adopted to overcome uneven demand conditions

NIYAZ QURESHI RAHAT ADENWALLA SAAD SYED SHEHNAZ SHAIKH SURAJ THAKUR VISHAL MANDOWARA

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