Market and demand analysis 2


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Market and demand analysis 2

  2. 2. Market and Demand Analysis
  3. 3. Group- 02Sl.No. Name ID Program1. Md. Samiul Islam Chowdhury 10105063 BSEEE2. Abul Kalam 10105019 BSEEE3. Md. Masud Rana 10105059 BSEEE4. Md. Ashraful Haque 10105033 BSEEE5. Md.Rezaul Karim 09105087 BSEEE
  4. 4. Overview• Situational Analysis & Specifications of Objective. • Collection of Secondary Information. • Conduct of Market Survey. • Characterization of the Market. • Demand Forecasting. • Uncertainties in Demand Forecasting. • Market planning. 4
  5. 5. Key Step in Market & Demand Analysis and Their Inter-relationship Collection of Demand Secondary Forecasting Information Characterization ofSituational the MarketAnalysis andSpecifications ofObjectives Market Planning Conduct of Market Survey
  6. 6. SITUATIONAL ANALYSIS AND SPECIFICATIONS OF OBJECTIVES Get a “feel” for the relationship between the product and it’s market, the project analyst may informally talk to customers, competitors, middlemen and other in the industry. Look at the experience of the company to learn about the purchasing power of customer, action & strategies of competitors. The objectives of market & Demand analysis, to answer the following question : (for air coolers) Who are the buyers of air cooler? What is the total current demand for air coolers? What price will the customer be willing to pay for the improved air cooler. What price & warranty will ensure its acceptance? What are the prospects of immediate sales? etc.
  7. 7. Collection of Secondary Information Secondary Information is information that has been gathered in some other context and is already available. Secondary information provides the base and starting point for the market & Demand analysis. Also discussed on : General Sources of Secondary Information Industry Specific Sources of Secondary Information Evaluation of Secondary Information 7
  8. 8. Conduct of Market Survey The market survey may be a census survey or a sample survey. Census survey are employed principally for intermediate goods & investment goods when such goods are used by a small number of firms.• Steps in a Sample Survey – Define the Target Population – Select the Sampling Scheme and Sample Size – Develop the Questionnaire – Recruit and Train the Field Investigators – Obtain Information as Per the Questionnaire from the Sample of Respondents – Scrutinizes the Information Gathered 8 – Analyze and interpret the Information
  9. 9. Conduct of Market SurveySome Problems: – Heterogeneity of the Country – Multiplicity of the Languages – Design of Questionnaire 9
  10. 10. Characterization of the Market Effective Demand in the Past and Present Production + Imports – Exports – Change in stock level Breakdown of Demand – Nature of Product – Consumer Groups – Geographical Division Price Methods of Distribution and Sales Promotion Consumers Supply and Competition Government Policy 10
  11. 11. ForecastingPredicting the futureQualitative forecast methods – subjectiveQuantitative forecast methods – based on mathematical formulasDepend on – time frame – demand behavior – causes of behavior
  12. 12. Demand ForecastingQualitative Methods – These methods rely essentially on the judgment of experts to translate qualitative information into quantitative estimates – Used to generate forecasts if historical data are not available (e.g., introduction of new product) – The important qualitative methods are: • Jury of Executive Method • Delphi Method 12
  13. 13. Jury of Executive Opinion Method Rationale – Upper-level management has best information on latest product developments and future product launches Approach – Small group of upper-level managers collectively develop forecasts – Opinion of Group Main advantages – Combine knowledge and expertise from various functional areas – People who have best information on future developments generate the forecasts 13
  14. 14. Jury of Executive Opinion MethodMain drawbacks – Expensive – No individual responsibility for forecast quality – Risk that few people dominate the group – Subjective – Reliability is questionableTypical applications – Short-term and medium-term demand forecasting 14
  15. 15. Delphi Method Rationale – Eliciting the opinions of a group of experts with the help of mail survey – Anonymous written responses encourage honesty and avoid that a group of experts are dominated by only a few members 15
  16. 16. Delphi Method  ApproachCoordinator Each expert CoordinatorSends Initial writes response performsQuestionnaire (anonymous) analysis Coordinator No Coordinator sends updated Consensus Yes summarizes questionnaire reached? forecast 16
  17. 17. Delphi Method Main advantages – Generate consensus – Can forecast long-term trend without availability of historical data Main drawbacks – Slow process – Experts are not accountable for their responses – Little evidence that reliable long-term forecasts can be generated with Delphi or other methods Typical application – Long-term forecasting – Technology forecasting 17
  18. 18. Time Series Projection Methods• These methods generate forecasts on the basis of an analysis of the historical time series.• Assume that what has occurred in the past will continue to occur in the future• Relate the forecast to only one factor - timeThe important time series projection methods are: – Trend Projection Method – Exponential Smoothing Method – Moving Average Method 18
  19. 19. Trend Projection MethodAdvantages• It uses all observations• The straight line is derived by statistical procedure• A measure of goodness fit is availableDisadvantages• More complicated• The results are valid only when certain conditions are satisfied 19
  20. 20. Exponential Smoothing Exponential smoothing, forecasts are modified in the light of observed errors. If the forecast value for year t, Ft, is less than the actual value for year t, St, the forecast for the year t+1, Ft + 1 .. Ft + 1 = Ft + α etWhere Ft + 1 = forecast for year )α = smoothing parameteret = error in the forecast for year t = St = Ft
  21. 21. Solution of problem for Exponential Smoothing
  22. 22. Moving Average Naive forecast – demand in current period is used as next period’s forecast Simple moving average – uses average demand for a fixed sequence of periods – stable demand with no pronounced behavioral patterns Weighted moving average – weights are assigned to most recent data According to the moving average method St + S t – 1 +…+ S t – n +1Ft + 1 = nwhere Ft + 1 = forecast for the next period St = sales for the current period n = period over which averaging is done 22 12-22
  23. 23. Weighted Moving Average n Adjusts moving WMAn = i1 Wi Di = average method to where more closely Wi = the weight for period i, reflect data between 0 and 100 percent fluctuations  Wi = 1.00 23 12-23
  24. 24. Weighted Moving Average Example MONTH WEIGHT DATA August 17% 130 September 33% 110 October 50% 90 3 November Forecast WMA3 = 1 Wi Di i= = (0.50)(90) + (0.33)(110) + (0.17)(130) = 103.4 orders 24 12-24
  25. 25. Causal Methods Causal methods seek to develop forecasts on the basis of cause-effects relationships specified in an explicit, quantitative manner. – Chain Ratio Method – Consumption Level Method – End Use Method – Leading Indicator Method – Econometric Method 25
  26. 26. Chain Ratio Methods Market Potential for heated coats in the U.S.: – Population (U) = 280,000,000 – Proportion of U that are age over 16 (A) = 75% – Proportion of A that are men (M) = 50% – Proportion of M that have incomes over $65k (I) = 50% – Proportion of I that live in cold states (C) = 50% – Proportion of C that ski regularly (S) = 10% – Proportion of S that are fashion conscious (F) = 30% – Proportion of F that are early adopters (E) = 10% – Average number of ski coats purchased per year (Y) = .5 coats – Average price per coat (P) = $ 200 26
  27. 27. Chain Ratio Methods Market Potential for heated coats in the U.S.: Market Sales Potential = UxAxM xI xCxS xF xExY = 280 Million x 0.75 x 0.50 x 0.50 x 0.50 x 0.10 x 0.30 x 0.10 x200 = $7.88 Million 27
  28. 28. Consumption Level MethodThis method is used for those products that are directly consumed. This method measures the consumption level on the basis of elasticity coefficients. 28
  29. 29. Consumption Level Method Income Elasticity: This reflects the responsiveness of demand to variations in income. It is calculated as: E1 = [Q2 - Q1/ I2- I1] * [I1+I2/ Q2 +Q1]• Where E1 = Income elasticity of demand Q1 = quantity demanded in the base year Q2 = quantity demanded in the following year I1 = income level in the base year I2 = income level in the following year 29
  30. 30. Consumption Level MethodPrice Elasticity: This reflects the responsiveness of demand to variations in price. It is calculated as: EP = [Q2 - Q1/ P2- P1] * [P1+P2/ Q2 +Q1]• Where EP = Price elasticity of demand Q1 = quantity demanded in the base year Q2 = quantity demanded in the following year P1 = price level in the base year P2 = price level in the following year 30
  31. 31. End Use Method Suitable for estimating demand for intermediate products Also called as consumption coefficient methodSteps1. Identify the possible uses of the products2. Define the consumption coefficient of the product for various uses3. Project the output levels for the consuming industries4. Derive the demand for the project 31
  32. 32. End Use Method  This method forecasts the demand based on the consumption coefficient of the various uses of the product. Projected Demand for Indchem Consumption Projected Output Projected Demand for Coefficient in Year X Indchem in Year XAlpha 2.0 10,000 20,000Beta 1.2 15,000 18,000Kappa 0.8 20,000 16,000Gamma 0.5 30,000 15,000 Total 69,000 32
  33. 33. Leading Indicator Method This method uses the changes in the leading indicators to predict the changes in the lagging indicators. Two basic steps: 1. Identify the appropriate leading indicator(s) 2. Establish the relationship between the leading indicator(s) and the variable to forecast. 33
  34. 34. Econometric MethodAn advanced forecasting tool, it is a mathematical expression of economic relationships derived from economic theory.Economic variables incorporated in the model1. Single Equation Model Dt = a0 + a1 Pt + a2 NtWhere Dt = demand for a certain product in year t. Pt = price of the product in year t. Nt = income in year t. 34
  35. 35. Econometric Method2. Simultaneous equation method GNPt = Gt + It + Ct It = a0 + a1 GNPt Ct = b0 + b1 GNPt• Where GNPt = gross national product for year t. Gt = Governmental purchase for year t. It = Gross investment for year t. Ct= Consumption for year t. 35
  36. 36. Econometric MethodAdvantages• The process sharpens the understanding of complex cause – effect relationships• This method provides basis for testing assumptionsDisadvantages• It is expensive and data demanding• To forecast the behaviour of dependant variable, one needs the projected values of independent variables 36
  37. 37. Uncertainties in Demand Forecasting Data about past and present markets. – Lack of standardization:- product, price, quantity, cost, income…. – Few observations – Influence of abnormal factors:- war, natural calamity  Methods of forecasting – Inability to handle unquantifiable factors – Unrealistic assumptions – Excessive data requirement 37
  38. 38. Uncertainties in Demand Forecasting Environmental changes – Technological changes – Shift in government policy – Developments on the international scene – Discovery of new source of raw material – Vagaries of monsoon 38
  39. 39. Coping With Uncertainties Conduct analysis with data based on uniform and standard definitions. Ignore the abnormal or out-of-ordinary observations. Critically evaluate the assumptions Adjust the projections. Monitor the environment. Consider likely alternative scenarios. Conduct sensitivity analysis 39
  40. 40. Market planningCurrent marketing situation - Market, Competition, Distribution, PEST.Opportunity and issue analysis - SWOTObjectives- Break even, % market share…Marketing strategy- target segment, positioning, 4 PsAction program- Quarter 1, Q2, Q3…. 40
  41. 41. Thank You