Demand forecasting

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Demand forecasting

  1. 1. Managerial EconomicsDemand Forecasting
  2. 2. Demand Forecasting It means expectation about future course of the market demand for a product based on statistical data about past behavior and empirical relationships of demand determinants Types/Objectives of Demand Forecasting  Short term  Long term
  3. 3. Short Term Forecasting It normally relates to a period not exceeding a year Benefits of Short term forecasting  Drafting of Production Policy  Evolving a Sales Policy  Determining Price Policy  Fixation of Sales Target
  4. 4. Long Term Forecasting It refers to the forecasts prepared for long period during which the firm’s scale of operations or the production capacity may be expanded or reduced.  Benefits of Long term forecasting  Business Planning  Manpower Planning  Long-Term Financial Planning
  5. 5. COMPONENTS OF DEMAND FORECASTING SYSTEM Market research operations to procure relevant and reliable information about the trends in market. A data processing and analysing system to estimate and evaluate the sales performance in various markets. Proper co-ordination of steps (i) and (ii) above Placing the findings before the top management for making final decisions.
  6. 6. Significance /Use/ Importance of Demand Forecasting Production Planning Sales Forecasting Control of Business Inventory Control Growth and Long Term Investment Program Economic Planning and Policy Making Avoiding Surplus and Inadequate Production
  7. 7. Sources of Data Primary: which are collected for first time for purpose of analysis Secondary : are those which are obtained from someone’s else records
  8. 8. Techniques of Demand Forecasting Survey Methods Consumer Survey Opinion Poll Methods Market Studies Complete Expert &Enumeration Opinion Experiments Sample Delphi Survey Method Market Test Laboratory Test
  9. 9. Consumer Survey Methods Complete enumeration Method: All potential users of product are contacted and are asked about their future plan of purchasing the product in question Limitations  Very expensive in case of widely dispersed market  Consumers may not know their actual demand and may br unable to answer query  Their plans may change with a change in factors not included in questionnaire
  10. 10. Contd.… Sample Survey: Only a few potential consumers and users selected from relevant market are surveyed Method is simpler, less costly and less time consuming. Surveys are done to understand market demand, tastes ad preferences, Consumer expectations etc
  11. 11. Opinion Poll Method Aim at collecting opinions of those who are supposed to possess the knowledge of the market e.g sales representatives, sales executives, consultants and professional marketing experts This method includes Expert opinion Delphi method
  12. 12. Expert opinion Under this method each expert is asked independently to provide a confidential estimate and results could be averaged. Experts may include executives directly involved in the market such as suppliers, distributors or dealers or marketing consultants, officers of trade association etc. Advantage is that there is no danger that group of experts develop a group- think mentality. Moreover, forecasting is done quickly and easily without need of elaborate need of statistics.
  13. 13. Delphi Method This method is an attempt to arrive at a consensus on some issues by questioning a group of experts repeatedly until the responses appear to converge along a single line or the issues causing disagreement are clearly defined. Generally a panel consisting 9 to 12 experts A coordinator is required for the process
  14. 14. Market Experimentation Test marketing  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 having similar features i.e. population, income levels, cultural and social background, choice and preferences of consumers  Market experiments are carried out by changing prices, advertisement expenditure and other controllable variables influencing demand  After such changes are introduced in the market, consequent changes in demand over a period of time are recorded.
  15. 15. Contd.… Experiments in laboratory or consumer clinic method  Under this method consumers are given some money to buy in a stipulated store goods with varying prices, packages, displays etc.  They are also requested to fill a questionnaire asking reasons for the choices they have made  The experiment reveals the consumers responsiveness to the changes made in prices, packages and displays.
  16. 16. Limitations of market experiment methods Very expensive Being costly, carried out on a scale too small to permit generalization with a high degree of reliability Based on short term and controlled conditions which may not exist in an uncontrolled market Tinkering with price increases may cause a permanent loss of customers to competitive brands

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