Forecasting and Forecasting and Demand Demand

MeasurementMeasurement

Forecasting and Forecasting and Demand Demand

MeasurementMeasurement

Raju VargheseRaju Varghese

Why Study Demand?• Finance -The cash that is required for

operations and investments.• Operations – To establish capacity and

output levels.• Purchasing – To get the right amount of

supplies.• HR – To get the right number of workers• Marketing- To prepare Sales Forecasts

Wrong Sales Forecast • Excessive Inventories or

Inadequate Inventory.• Sales Forecasts are based on

estimates of Demand.

Demand Levels

Time Level Product Level

Space Level

Short Run All Sales World

Medium Run Industry Sales India

Long Run Company Sales

Region

Product Line Sales

Territory

Product Form Sales

Customer

Types of Markets• Potential Market: Set of consumers

who have income and access to the product offer.

• Available Market: Set of consumers who have interest, income and access to a particular product offer.

• Target Market: Part of the qualified available market the company decides to pursue.

Types of Markets• Penetrated Products: Is the set

of customers who are buying company’s products.

Market Demand• Market Demand for a product is the

total volume that would be bought by a• defined customer group in a • defined geographical area in a• defined time period in a• defined marketing environment under a • defined marketing programme

• defined geographical area in a

• defined time period in a• defined marketing environment under a • defined marketing programme

Market Demand Functions

Q1

Q2

Industry Marketing Expenditure

Mar

ket

Dem

and

Market Potential

Market Forecast

Market Minimum

Q2 - Q1 = Small / Non expansible Market

Q2 - Q1 = Big / Expansible Market

Market Penetration Index

• Low MPI = Substantial growth prospects for all firms.

• High MPI = High cost in attracting remaining prospects.

Share Penetration Index

• Share Penetration Index = Current Market

Share Potential Market

Share

Product Penetration Percentage

Sr. No.

Product Penetration %

1 TV 40

2 Motorcycles 6

3 Scooters 4

4 PC at Home 1

Product Penetration Percentage

• Lower the Product Penetration Index – Higher the Market Potential

Company Demand• It is the company’s estimated

share of market demand at alternative levels of company marketing effort at a given time period.

Company Demand • The company’s share of market

demand depends on how its products, services, etc are perceived in comparison to the competitor.

Estimating Current Demand

Company Sales Forecast

• It is the expected level of company sales based on a chosen marketing plan and an assumed marketing environment.

Total Market Potential• TMP = Potential Number of buyers * Average

Quantity Purchased by a buyer * The Price The maximum amount of sales that

would be available to all the firms in an industry in a given time period under a given level of industrial marketing efforts and environmental conditions.

Total Market Potential• Estimate the potential number of

buyers and then eliminate the groups that will not buy the product.

Area Market Potential• Market Build Up Method: Identify

all the potential buyers in each market and estimate their potential purchases.

• Ex.Pumps

Multiple Factor Index Method

• Customers for consumer products are numerous.

• Hence predicting demand will be a problem.

• Hence such companies use existing indices.

• MICA rural Market Ratings• RK Swamy- BBDO Guide

Multiple Factor Index Method