Demand Forecasting

Definition Of Demand Forecasting

• Accord to American Marketing Association Demand Forecasting is an estimate of sales in dollars or Physical units for a specified Future period under a proposed marketing Plan.

• Demand Forecasting is the tool to scientifically predict the likely demand of a product I the future.

Salient Features of a Good Forecasting Demand.

Plausibility :Should give accurate result.oly them mgmt will have confidence in the techniques adopted.

Simplicity : Should be simple & understandable. Elaborate mathematical & econometric procedures are not desirable.

Economy : Should be less costly. Is of very little importance in the business there

is no need to spend large amount of money.

Categories Of Demand Forecasting

• The Level of forecasting. – Firm (Micro) level ,Industry level & Economy (macro)Level.

• By Time Period. – Short term & Long Term• By Nature Of Goods. – Consumer Goods &

Capital Goods.

Scientific Approach to Forecasting

Objectives of forecasting should be clearly stated. Appropriate method of forecasting should be

selected based upon the Objectives of forecasting . Identifying the factors affecting the demand for the

product data should be collected. Making use of Statistical techniques , the relation

between dependent & independent variables should be determined.

Based upon the forecast , the firm can estimate the share of market.

Methods Of Forecasting

Survey Method

• Information about the desire of the consumer & opinion of experts are collected by interviewing them.

• Opinion Survey Method : Also known as sales –force-composite method or collective opinion Method.

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Merits & Demerits Of Survey Method

Merits : Is less costly as customer survey is avoided. Involves Min. statistical work. No need for technical skills. Its realistic as it is based on personal & first hand Knowledge

of salesmen.

Demerits : Useful oly for a period of one year. It is not useful for long term production planning. Salesmen may not be aware of the changes tat affect future

demand.

Expert Opinion

• Apart fro salesmen & consumers , distributors or outside consultants may also be used for forecasting.

• Firms in advanced countries make use of outside experts for estimating future demand.

• Various public & private agencies sell periodic forecasts of short or long term business conditions.

Merits & Demerits of Expert Opinion

Merits: Forecast can be made relatively quickly & cheaply. Case of new products : Data may not be available or

may be difficult to collect.

Demerits : Opinions are subjective & hence not satisfactory. Good & bad estimates are given equal weights.

Delphi Method

A variant of the survey method is Delphi method. Sophisticated statistical method to arrive at a consensus. A panel is selected to give suggestions to solve the

problems in hand. Both Internal & External experts can be the members of

the panel. Panel members are kept apart from each other &

express their views in an anonymous manner. There is also a coordinator who acts as an intermediary

among the panelists.

Consumers Interview Methods

consumers are contacted personally to know about their plans & preferences regarding the consumption of the product.

A list of potential buyers would be drawn & approached & asked how much he plans to buy the listed products in future.

Would be asked the proportion I which he intends to buy.

Method seems to be more ideal method for forecasting demand.

Complete Enumeration Method : All the consumers of the product are interviewed based on

which forecast is made. As first hand information is collected this method is free from

bias. This method is impracticable as the consumers are numerous

& scattered.

Sample Survey Method : A sample of consumers is selected for interview. Sample may be random or stratified Sampling. Method is easy ,less costly & also highly useful. Correct Sampling & cooperation of the consumers are

essential for the success of this method.

End-Use Method : The demand for the product from different

sectors such as industries , consumers , export & Import are found out.

Data helps in changing the future course of demand.

Industries should provide their production plans & input – output coefficients.

Statistical Methods.

Demand Forecasting For a New Product

• Evolutionary Approach.• Substitute Approach.• Opinion Poll Approach.• Sales Experience Approach.• Growth Curve Approach.• Vicarious Approach.

Limitation Of Demand Forecasting

• Change In Fashion.• Consumer’s Psychology.• Uneconomical.• Lack Of Experts.• Lack Of Past Data.