DEMAND FORECASTING

TECHNIQUES

DEMAND FORECASTING

An activity of determining qty. of goods to be purchased in Future

Necessity for forecasting DemandStock EffectsMarket Response effects

Factors affecting Demand forecast

Factors involved in Demand Forecasting1. How far ahead?

a. Long term – eg., petroleum, paper, shipping. Tactical decisions. Within the limits of resources already available.

b. Short-term – eg., clothes. Strategic decisions. Extending or reducing the limits of resources.

2. Undertaken at three levels:

a. Macro-level

b. Industry level eg., trade associations

c. Firm level

3. Should the forecast be general or specific (product-wise)?

4. Problems or methods of forecasting for “new” vis-à-vis “well established” products.

5. Classification of products – producer goods, consumer durables, consumer goods, services.

6. Special factors peculiar to the product and the market – risk and uncertainty. (eg., ladies’ dresses)

SHORT TERM FORECAST Scheduling of production to avoid

problems of over production and under- production.

Proper management of inventories Evolving suitable price strategy to

maintain consistent sales Formulating a suitable sales strategy in

accordance with the changing pattern of demand and extent of competition among the firms.

Forecasting financial requirements for the short period.

LONG TERM FORECAST Planning for a new project, expansion

and modernization of an existing unit, diversification and technological up gradation.

Assessing long term financial needs. It takes time to raise financial resources.

Arranging suitable manpower. It can help a firm to arrange for specialized labour force and personnel.

Evolving a suitable strategy for changing pattern of consumption.

DETERMINANTS OF DEMAND1. Non-durable consumer goods:

1. Purchasing power – disposable personal income (personal income – direct taxes and other deductions). Published by C.S.O.

2. Price.

3. Demography:

2. Durable consumer goods:

4. Choice between using the goods longer by repairing it, or

5. disposing it off and replacing it with a new one.

6. Require special facilities for their use, eg., roads for automobiles.

7. Household demand vis-à-vis individual demand.

8. Family characteristics.

9. Total demand consists of a. New-owner demand and, b. Replacement demand

10. Price and credit conditions.

DETERMINANTS OF DEMAND3. Capital goods: – used for further production. Demand will depend

upon the specific markets they serve and the end uses for which they are bought.

Data required for estimating the demand for capital goods:

a. The growth prospects of the user industries.

b. The norm of consumption of capital goods per unit of installed capacity.

c. The velocity of their use.

METHODS OF DEMAND FORECASTING

Qualitative MethodsUnaided Judgments/ Expert Opinion/ Hunch

MethodCollective OpinionPrediction MarketsDelphi Technique Judgmental BootstrappingSimulated InteractionsConjoint analysisTest marketing

TEST MARKETING Buyers’ Intentions Consumer Clinics Neuro Science Market Experiments Virtual shopping and virtual

Management

QUANTITATIVE METHODS Time Series Moving averages Leading Indicator method Correlation and regression Equations Extrapolation