2. What is demand?
Demand is the quantity of a commodity that a consumer
is willing and able to buy at each possible price during
the period of time.
Goods are demanded because they have the capacity
to satisfy our wants. But every want of a consumer
cannot be called demand. There must be ability to pay
and a strong desire for the product.
Forecasting..
A forecasting is a prediction or estimation of future
demand under given conditions. It is done to minimize
the risk arising out of an uncertain future. The risks
associated with uncertain future can be neglected if one
tries to make reasonable assumptions about the course
that the future is likely to take.
3. Demand Forecasting..
It refers to making estimations about future customer
demand using historical data and other information.
Proper demand forecasting gives business valuable
information about their potential in the current market
and other market, so that managers can make informed
decisions about their pricing, business growth strategies
and market potential.
Different levels of Forecasting..
Micro level: Forecasting is restricted to a particular
brand or specific product like the demand for Oneida
microwave. In this focus is restricted to the brand name
only.
Meson level: A firm attempts to project the demand for
a product group like the demand for washing machine.
In this focus is not on brand name.
Macro level: when a firm attempts to examine the future
demand for all automobiles or TV sets rather the
demand for a particular brand name or product group.
4. Classification of Demand Forecasting
1. Qualitative techniques.
2. Quantitative techniques.
Quantitative techniques
It is used when there is not a lot of data available to
work with, such as for a relatively new business or when
a product is introduced to the market. This technique is
based on the opinion and judgement of consumers and
experts. These forecasting are not just guesses, they
include interpretation of data combined with the
professional expertise you have developed during years
on the job.
Quantitative techniques
They are appropriate to use when past numerical data is
available and when it is reasonable to assume that
some of the patterns in the data are expected to
continue into the future. Quantitative forecasts use
historical data such as previous sales, and revenue
figures, production and financial reports. Looking at
seasonal sales data for example, can help you plan next
year’s production.
5. Qualitative methods:
1. Buyers intension survey:
Investigation designed to discover buyer’s future plans
in respect of purchasing a particular good or service.
Such a survey is undertaken to enable a firm to
produce more realistic forecasts of the anticipated
future demand for their product. Surveys are generally
carried out by interviewers or direct mail
questionnairs.
2. Experts opinion method:
In this method, a panel of experts is individually
presented a series of questions pertaining to the
forecasting problem. Responses acquired from the
experts are analysed by an independent party that will
provide the feedback to the panel members and the final
decision is based on majority, reached from experts
forecasts.
3. Delphi method:
The Delphi method is a forecasting process framework
based on the results of several rounds of questionnairs
sent to a panel of experts. There is a coordinator who
acts as an intermediary among the panellists. Several
rounds of questionnairs are sent out and the anonymous
responses are aggregated and shared with the group
after each round. Since multiple rounds of questions are
asked and the panel is told what the group think as a
6. whole. The Delphi method seeks to reach the correct
responsible through concensus.
4. Market experimentation:
A group of target customers are selected and market
experiment is carried out. In this group of target
customers are provided with certain amount of money
and are requested to shop in a store which is a
simulated one. The purchases made by customers are
recorded. During the experiment changes may be made
in prices, promotional measures and packaging of the
products to see the responses of the consumers to such
changes and these also are recorded for the purpose of
the forecast. And accordingly, demand for the product
may be forecast.
5. Collective opinion method:
This method is also known as “sales force opinion”
method. Under this method, the responsibility for
estimating the expected sales is placed on salesman.
Salesman being closest to the customers have the
knowledge of the requirements of the customers, their
reactions to the product. These estimates of individual
salesman are consolidated to find out the total estimated
sales.
7. Quantitative techniques:
1. Trend projection method:
This method is based on the assumption that the factors
liable for the past trends in the variables to be projected
shall continue to play their role in future in the same
manner and to the same extent as they did in the past
while determining the variable’s magnitude and
direction. In predicting demand for a product, the trend
projection method is applied to the long time series data.
A long standing firm can obtain such data from its
departments such as sales and the books of accounts.
It includes:
1. Graphical method
2. Box Jenkins method