It deals with meaning, objective, type, determinants and methods of demand forecasting

1. DEMAND FORECASTING

2. Meaning of Demand Forecasting...
• Forecasting is the basis of corporate
long-term planning.
• “Forecast” means to predict future.
Demand Forecasting refers to the
prediction or estimation of future
situation under given constraints.

3. Definition…
According to Prof. Norman Gaitheer
and Greg Frazier, “Forecasting is
estimating the future demand for
products and services and the
resources necessary to produce these
outputs”.

4. Objectives of Demand Forecasting…
A. Short term Objectives:
1. Regular availability of labour
2. Price policy formulation
3. Proper control of sales
4. Arrangement of finance
5. Regular supply of raw material
6. Formulation of production policy
B. Long term Objectives:
1. Labour requirements
2. Arrangement of finance
3. To decide about expansion

5. Types of Demand Forecasting…
1. Short term Demand Forecasting : It is concerned
with the short time period and is required for
current production scheduling.
2. Long term Demand Forecasting : It is needed for
capacity expansion i.e. growth of the firm,
recruitment, and diversification policies.
3. Medium term Demand Forecasting : Its need is felt
by a firm when the industry to which
the firm belongs, is subjected to the
trade cycle of a medium term.

6. DETERMINANTS…
1. Durable consumer goods :
A. Change in size and characteristics of population
B. Saturation limit of the market
C. Existing stock of the goods
D. Tastes and scales of preference of consumers
E. Income level of consumers
2. Non-durable consumer goods :
A. Disposable income
B. Price
C. Size and characteristics of population
3. Capital(producer’s) goods

7. METHODS
OR
TECHNIQUES
OF
DEMAND FORECASTING

8. This method uses the most direct approach to demand
forecasting by directly asking the consumers about their
future consumption plan.
In this method, the burden of forecasting goes to the
buyers.
This method is very simple and free from statistical
burden.

9. • It is of three types
1. Complete Enumeration Survey:- In the complete
enumeration survey, the probable demand of all the
consumer s for the forecast period are summed up
to have the sales forecast for the forecast period
2. Survey :The probable demand expressed by each
selected unit is summed up to get the total demand
of sample units in the forecast period
3. End Use Method :- the sale of the product under
consideration is projected on the basis of demand
survey of the industries using this
product as an intermediated product.

10. OPINION POLL METHOD
The opinion poll methods aims at collecting
opinions of those who are supposed to
process knowledge of all market
Eg:- Sales Representative, Sale Executives,
Professional Marketing Experts &
Consultants

11. The opinion method consists of
• Expert opinion method : In this method
expert’s opinion is sought on the future
demand for product
• Delphi method : It can make more realistic
forecast. A panel of experts are asked
sequential question and from responses new
questionnaire is produced.
• Market studies & experiments :

12. STATISTICAL METHODS
• In the theory of demand forecasting the
statistical techniques have proved to be useful.
• Statistical techniques are used to maintain
objectivity as well as precision in demand
forecasting
• Its explained which utilize historical & cross
section data for estimating long term
demand.

13. Its considered to be superior techniques
1. The element of subjectivity is minimum
2. Method of estimation is scientific
3. Estimation is based on the theoretical
relationship between the dependent &
independent variables
4. Estimation are relatively more reliable
5. Estimation involves smaller cost.

14. • Its consists of following techniques
1. Trend projection method :
-Graphical method
-Fitting trend equation least square method
-Box Jenkins method
2. Barometric method :
-Leading series
-Coincidental series
-Lagging series
3. Econometric method :
-Regression method
-Simultaneous equation method

15. Life cycle segmentation analysis : Each product has a life cycle of
Introduction, growth, maturity, saturation & decline. Since the
business tactics differ at each stage, we should know when the
product will be at one stage of cycle. But since total market also
has its segments, life cycle for same products may proceed at
different rates in different market segments. There are 5 stages in
product life cycle :-
a) Introduction
b) Growth
c) Maturity
d) Saturation
e) Decline

16. 1) Risk of entry by potential competitors : Potential competitors are
those firms which have the capacity to compete the business of existing
firms. Hence, established firms try their best to discourage potential
competitions because their entry into market reduces market share of
established firms by competing for price cutting or benefits at same price.
Risk of entry of potential competitors represents a threat when it is high.
Hence, company creates some barriers like :-
a) Brand Loyalty
b) Cost Advantage
c) Economies of scale
d) Policies of the Government
e) Developed channels of distribution

17. 2) Rivalry among established companies : The companies engaged
in producing & selling the same product are competing with each
other. They enjoy different roles as leader, challenger, niche-players.
If competitive force is strong, it is a threat. If it weak, it provides an
opportunity for the established company to raise product & earn
profits. EG : PEPSI & COCA-COLA.
Rivalry of firms depend on 3 factors :-
a) Industry Competitive Structure
b) Demand Conditions
c) Height of exit Barriers

18. 3) Bargaining Power of Buyers : Buyers are viewed as competitive
threat when they force down prices or ask for superior quality &
better after sale services. According to Porter, buyers are more
powerful in following situation :-
a) When buyers are composed of small firms & their number is
high and buyers are few in numbers & large in size.
b) When buyers purchase goods in bulk.
c) When suppliers are dependent on buyers for large orders.
d) When buyers purchase raw material from several companies.
e) When buyer can supply his own needs.

19. 4) Bargaining power of suppliers : When the suppliers are able to
force up the prices & the firm has to reduce the quality supplied, it
is more a threat. The suppliers are more powerful in following
situation :-
a) When the supplier’s product have a few substitutes.
b) When firms industry is not as substantial & significant.
c) When supplier’s product are differentiated widely & company
is dependent upon its suppliers.
d) When suppliers can integrate vertically forward into industry
& can do the business of buyer’s firm directly.
e) When buyer is not in a position to integrate vertically
backward & fails to produce raw materials at its own.

20. 5) Threats of close substitute : Substitute products are those products that serve
similar consumer needs. There are many good substitutes developed by modern
technology. The producer of juice from fruits & sold in bottles has the substitute
of cold drinks. Beverages like tea can be substituted by coffee. Existence of close
substitutes represents strong competitive threat that limits price fixation power
of the firm. The competitive weapons used are :-
a) Competing by Quality
b) Competing by Cost
c) Competing by Flexibility
d) Competing by speed
e) Competing by Location
f) Competing by Technology
g) Competing on HRM
h) Vertical Integration
I) Inventory system as Competitive Tool