This document discusses demand forecasting techniques. It describes short term and long term demand forecasting and their objectives. Short term forecasting relates to periods under a year and is used for production, sales, pricing and target policies. Long term forecasting refers to forecasts over longer periods for business, manpower and financial planning. Demand forecasting requires market research, data analysis, coordination and management decisions. Key techniques include surveys, opinion polls, market studies and experiments.

1. Managerial Economics
Demand Forecasting

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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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