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Demand Estimation and Forecast

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The power point presentation will help you understand Demand Estimation and Forecast in nutshell. It covers:
1) Estimation and its Methods
2) Forecast and its purpose
3) Steps to Forecast
4) Scope of Forecasting
5) Determinants for Demand Forecast

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Demand Estimation and Forecast

  1. 1. Demand Estimation and Forecast
  2. 2. Demand Estimation It is the process that involves coming up with an estimate of the amount of demand for a product or a service. It is confined to a particular period of time.
  3. 3. Methods Market Experimentation Actual Market Market Stimulation Survey of Consumers’ Intentions Census Sample Regression Analysis Identifying Demand Function Collecting Historical Data Select an Appropriate Function Estimation of Selected Function Analyzing the Estimated Demand Function
  4. 4. Actual Stimulation  Shops are opened in different localities and then consumer behavior is observed.  Reaction to the price changes can be observed from consumer’s income, cast, religion, gender, taste etc.  Disadvantages- expensive, small scale, non controllable variables.  It provides token money to a set of consumers.  Reaction to price changes can be observed from prices of various goods, packaging, quality etc.  Disadvantages- consciousness of the consumer. Demand Estimation Market Experiment
  5. 5. Census Method Survey Method  All the consumers are contacted.  Disadvantages – costly, hesitant to disclose the plan because of personal/commercial privacy.  A few consumers out of the whole population are contacted.  Disadvantages – costly to carry the test marketing, selection of test area, rival action. Demand Estimation Survey of Consumers’ Intention
  6. 6. Regression Analysis is a statistical process for estimating the relationships among variables.  Simple Regression Analysis – is used when the quantity demanded is taken as a function of a single independent variable.  Multiple Regression Analysis – is used to estimate demand as a function of two or more independent variables that vary simultaneously.
  7. 7. Specification of Variable Data Collection Demand Estimation Choice of a Functional Form Interpretation Steps for Regression Analysis
  8. 8. Demand Forecast It is predicting future demand for the product. The prediction of probable demand for a product or a service on the basis of the past events and prevailing trends in the present.
  9. 9. Forecast are broadly classified into two categories-  Passive forecast - prediction about future is based on the assumption that the firm does not change the course of its action.  Active forecast - prediction is done under the condition of likely future changes in the actions, by the firms.
  10. 10. Purposes of Forecasting  Purposes of short-term forecasting Seasonal Patterns are of prime importance. a. Appropriate production scheduling. b. Determining appropriate price policy c. Evolving a suitable advertising and promotional campaign. d. Forecasting short term financial requirements.  Purposes of long-term forecasting Helpful in Capital Planning a. Planning of a new unit or expansion of an existing unit. b. Planning long term financial requirements. c. Planning man-power requirements.
  11. 11. Identify the objective. Determine the nature of goods. Select a proper method. Interpret the result. Steps in Forecasting
  12. 12. Scope of Forecasting  Period of forecast.  Levels of forecast.  General Purpose or specific purpose forecast.  Forecast of established or new products.  Type of commodity for which forecast is to be undertaken.  Miscellaneous factors to be included or not.
  13. 13. Short term forecasts refers to a period up to 3 months. • Seasonal factors are the ingredients of short run forecasts. Medium term forecasts refers to a period of 3 months to one year. • It is forecasted by trends. Long term forecasts refers to a period above one year. • Statistical techniques are used to judge the long run forecasts. Period of Forecasts
  14. 14. i. Macro Economic Forecasts – concerned with the business conditions all over the world. ii. Industry Demand Forecasts – gives indication to a firm regarding direction in which the whole industry will be moving. iii. Firm Demand Forecasting – a big firm will do forecasting of its own products independent of the rest of the firms. iv. Product Line Forecasting – to decide which product should have the priority. Levels of Forecasts
  15. 15. General/Specific Purpose – general forecast is broken into specific forecasts. Forecasts of Established/New Product – for established, past sale trends and competitive conditions are used. Type of Commodity – capital goods, consumer durable and non-durable goods. Miscellaneous Factors – inclusion of sociological and psychological factors.
  16. 16. Determinants for Demand Forecasts  Replacement VS New Demand  Change in size and characteristic of population.  Saturation limit of market.  Existing stock of good.  Income level of consumers.  Consumer credit outstanding.  Taste and preference of consumers. Consumer Durable Goods
  17. 17.  Disposable Income.  Price  Size and characteristic of population. Non-Durable Consumer Goods
  18. 18.  Growth possibilities.  Extent of excess capacity.  The forecasts of demand for the good which producers’ good help producing.  Existing stock.  Age distribution of existing stock.  Rate of obsolescence.  Availability of funds.  Nature of tax provision.  Prices of substitute and complementary goods.  Market structure. Capital Goods

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