Measuring and Forecasting Demand
Presented By:-
Babasab Patil
2/13/2014Babasabpatilfreepptmba.com1
What is forecasting?
Forecasting is a tool used for predicting
future demand based on past demand
information.
2/13/2014 B...
Why is forecasting important?
Demand for products and services is usually uncertain.
Forecasting can be used for…
• Strate...
What is forecasting all about?
Demand for Mercedes E Class
Time
Ja
n
Fe
b
Mar Apr Ma
y
Jun Jul Aug
Actual demand (past sal...
From the March 10, 2006 WSJ:
Ahead of the Oscars, an economics professor, at the request of
Weekend Journal, processed dat...
The Measures of Market Demand
Potential
Market
Penetrated
Market
Target
Market
Available
Market
2/13/2014 Babasabpatilfree...
Potential Market: PM is the set of consumers who
profess a sufficient level of interest in a market offer
Available Market...
Ninety Types of
Demand Measurement
2/13/2014 Babasabpatilfreepptmba.com 8
Vocabulary for Demand Measurement
 Market demand- Marketing opportunities is to estimate
total market demand in defined g...
Market Demand Functions
2/13/2014 Babasabpatilfreepptmba.com 10
Measuring Current Market Demand
 Marketers will want to estimate three different
aspects of current market demand
o Total...
Estimating Total market demand
 Q = n x q x p
Where,
Q = total market demand
n = number of buyers in the market
q = quant...
Estimating Area Market Demand
 Companies face the problem of selecting
the best sales territories and allocating
their ma...
Two major methods are available
o Market buildup method –Calls for identifying
all the potential buyers in each market and...
Market-Factor Index Method
 Identifies market factors that correlate with market potential
and combines them into weighte...
 The buying power index (BPI) for a specific area is given by
BPI = .2 x percentage of national population in the area
.5...
Actual sales and market shares
 Actual industry sales taking place in the
market.
 Identifying competitors and estimatin...
Estimating Future Demand
Sales Force
Opinions
Market Test
Method
Past Sales
Analysis
Buyer’s
Intentions
Expert
Opinions
2/...
Common Sales Forecasting
Techniques
Based On: Methods
What people say Surveys of buyers’ intentions
Composite sales force ...
Survey of Buyers’ Intentions
 One way to forecast what buyers will do is to ask them directly.
 Surveys are especially v...
Composite of Sales-force Opinions
 The company typically asks its salespeople to
estimate sales by product for their indi...
Expert Opinion
 Experts include dealers, distributors, suppliers,
marketing consultants, and trade associations.
 Dealer...
Delphi method
 Experts may be asked to supply their
estimates individually, with the company
analyst combining them into ...
Test Marketing
 Where buyers do not plan their purchases carefully
or where experts are not available or reliable, the
co...
Time-Series Analysis
 Breaking down past sales into its trend, cycle, season,
and erratic/unpredictable components, then
...
Conti…
 Season refers to a consistent pattern of sales
movements within the year.
 Erratic events include fads, strikes,...
Statistical Demand Analysis
 A set of statistical procedures used to discover the most
important real factors affecting s...
Thank You……
2/13/2014 Babasabpatilfreepptmba.com 28
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Measuring and forecasting demand module 4 mba 1st sem by babasab patil (karrisatte)

  1. 1. Measuring and Forecasting Demand Presented By:- Babasab Patil 2/13/2014Babasabpatilfreepptmba.com1
  2. 2. What is forecasting? Forecasting is a tool used for predicting future demand based on past demand information. 2/13/2014 Babasabpatilfreepptmba.com 2
  3. 3. Why is forecasting important? Demand for products and services is usually uncertain. Forecasting can be used for… • Strategic planning (long range planning) • Finance and accounting (budgets and cost controls) • Marketing (future sales, new products) • Production and operations 2/13/2014 Babasabpatilfreepptmba.com 3
  4. 4. What is forecasting all about? Demand for Mercedes E Class Time Ja n Fe b Mar Apr Ma y Jun Jul Aug Actual demand (past sales) Predicted demand We try to predict the future by looking back at the past Predicted demand looking back six months 2/13/2014 Babasabpatilfreepptmba.com 4
  5. 5. From the March 10, 2006 WSJ: Ahead of the Oscars, an economics professor, at the request of Weekend Journal, processed data about this year's films nominated for best picture through his statistical model and predicted with 97.4% certainty that "Brokeback Mountain" would win. Oops. Last year, the professor tuned his model until it correctly predicted 18 of the previous 20 best-picture awards; then it predicted that "The Aviator" would win; "Million Dollar Baby" won instead. Sometimes models tuned to prior results don't have great predictive powers. What’s Forecasting All About? 2/13/2014 Babasabpatilfreepptmba.com 5
  6. 6. The Measures of Market Demand Potential Market Penetrated Market Target Market Available Market 2/13/2014 Babasabpatilfreepptmba.com 6
  7. 7. Potential Market: PM is the set of consumers who profess a sufficient level of interest in a market offer Available Market: AM is a set of consumers who have interest, income, and access to a particular offers Target Market: TM is The part of the qualified available market the company decides to pursue. Penetrated Market: PM is the set of consumers who are buying the company’s product2/13/2014 Babasabpatilfreepptmba.com 7
  8. 8. Ninety Types of Demand Measurement 2/13/2014 Babasabpatilfreepptmba.com 8
  9. 9. Vocabulary for Demand Measurement  Market demand- Marketing opportunities is to estimate total market demand in defined geographical area, time, environment and marketing program.  Market forecast-  Market potential- Expected market demand  Company demand  Company sales forecast  Company sales potential 2/13/2014 Babasabpatilfreepptmba.com 9
  10. 10. Market Demand Functions 2/13/2014 Babasabpatilfreepptmba.com 10
  11. 11. Measuring Current Market Demand  Marketers will want to estimate three different aspects of current market demand o Total market demand o Area market demand o Actual sales and market shares 2/13/2014 Babasabpatilfreepptmba.com 11
  12. 12. Estimating Total market demand  Q = n x q x p Where, Q = total market demand n = number of buyers in the market q = quantity purchased by an average buyer per year p = price of an average unit 2/13/2014 Babasabpatilfreepptmba.com 12
  13. 13. Estimating Area Market Demand  Companies face the problem of selecting the best sales territories and allocating their marketing budget optimally among these territories. 2/13/2014 Babasabpatilfreepptmba.com 13
  14. 14. Two major methods are available o Market buildup method –Calls for identifying all the potential buyers in each market and estimating their potential purchases. used primarily by business goods firms o Market-factor index method – used primarily by consumer goods firms. 2/13/2014 Babasabpatilfreepptmba.com 14
  15. 15. Market-Factor Index Method  Identifies market factors that correlate with market potential and combines them into weighted index.  A manufacturer of men’s dress shirts wishes to evaluate its sales performance relative to market potential in several major market areas.  Total national potential $2 billion per year.  The company current nationwide sales are $140 million, about 7% of the total potential market.  Its sales in New York are $1,100,000. 2/13/2014 Babasabpatilfreepptmba.com 15
  16. 16.  The buying power index (BPI) for a specific area is given by BPI = .2 x percentage of national population in the area .5 x percentage of effective buying income in the area .3 x percentage of national retail sales in the area  New York should account for .5935 percent of the nation’s total potential demand for dress shirts.  Total potential equals $2 billion x .005935 = $11,870,000.  Company’s sales (NY) $1,100,000/$11,870,000 = 9.3 percent. Which is quite high than company national share i.e. 7 percent. 2/13/2014 Babasabpatilfreepptmba.com 16
  17. 17. Actual sales and market shares  Actual industry sales taking place in the market.  Identifying competitors and estimating their sales.  Then company can evaluate its performance 2/13/2014 Babasabpatilfreepptmba.com 17
  18. 18. Estimating Future Demand Sales Force Opinions Market Test Method Past Sales Analysis Buyer’s Intentions Expert Opinions 2/13/2014 Babasabpatilfreepptmba.com 18
  19. 19. Common Sales Forecasting Techniques Based On: Methods What people say Surveys of buyers’ intentions Composite sales force opinions Expert opinion What people do Test markets What people have done Time-series analysis Leading indicators Statistical demand analysis 2/13/2014 Babasabpatilfreepptmba.com 19
  20. 20. Survey of Buyers’ Intentions  One way to forecast what buyers will do is to ask them directly.  Surveys are especially valuable if the buyers have clearly formed intentions, will carry them out, and can describe them to interviewers.  Purchase probability scale Do you intend to buy an automobile within the next six months? 0 .1 .2 .3 .4 .5 .6 .7 .8 .9 1.0 No Slight Fair Good Strong For certain chance 2/13/2014 Babasabpatilfreepptmba.com 20
  21. 21. Composite of Sales-force Opinions  The company typically asks its salespeople to estimate sales by product for their individual territories.  It then adds up the individual estimates to arrive at an overall sales forecast.  Salespeople are biased observers. They may understate demand so that the company will set a low sales quota.  After participating in the forecasting process, the salespeople may have greater confidence in their quotas and more incentive to achieve them.2/13/2014 Babasabpatilfreepptmba.com 21
  22. 22. Expert Opinion  Experts include dealers, distributors, suppliers, marketing consultants, and trade associations.  Dealer estimates are subject to the same strengths and weaknesses as salesforce estimates. 2/13/2014 Babasabpatilfreepptmba.com 22
  23. 23. Delphi method  Experts may be asked to supply their estimates individually, with the company analyst combining them into single estimate.  Finally, they may supply individual estimates and assumptions that are reviewed by a company analyst, revised, and followed by further rounds of estimation 2/13/2014 Babasabpatilfreepptmba.com 23
  24. 24. Test Marketing  Where buyers do not plan their purchases carefully or where experts are not available or reliable, the company may want to conduct a direct test market.  A direct test market is especially useful in forecasting new-product sales or established product sales in a new distribution channel or territory. 2/13/2014 Babasabpatilfreepptmba.com 24
  25. 25. Time-Series Analysis  Breaking down past sales into its trend, cycle, season, and erratic/unpredictable components, then combining these components to produce a sales forecast.  Trend is the long-term, underlying pattern of growth or decline in sales resulting from basic changes in population, capital formation, and technology.  Cycle captures the medium-term, wavelike movement of sales resulting from changes in general economic and competitive activity. 2/13/2014 Babasabpatilfreepptmba.com 25
  26. 26. Conti…  Season refers to a consistent pattern of sales movements within the year.  Erratic events include fads, strikes, snow storms, earthquakes, fires, and other disturbances. 2/13/2014 Babasabpatilfreepptmba.com 26
  27. 27. Statistical Demand Analysis  A set of statistical procedures used to discover the most important real factors affecting sales and their relative influence.  The most commonly analyzed factors are prices, income, population, and promotion.  Q = f(X1, X2, … ,Xn), where sales Q is dependent  Using multiple regression technique, various equation forms can be statistically fitted to the data in the search for the best predicting factors and equation.  Soft-drink company: Q = -145.5+6.46X1–2.37X2 2/13/2014 Babasabpatilfreepptmba.com 27
  28. 28. Thank You…… 2/13/2014 Babasabpatilfreepptmba.com 28
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