Demand Forecasting

Meaning of Demand Forecasting

• A Forecasting is a prediction or estimation of future situation under given conditions.

• Demand forecasting means expectation about the future course of the market demand for product. Demand forecasting is essentially reasonable judgment of future probabilities of the future demand. It cannot be 100% precise.

• Demand estimation tries to find our expectation on present sales level, given the present state of demand determinants.

Importance of Demand Forecasting

1. For planning and Production analysis

2. Sales Forecasting

3. Control of Business

4. Inventory Control

5. Long term Investment Programs

6. Maintain Stability

7. Helpful for Planners and Policy Makers

Methods of Demand Forecasting

Survey Methods1. Survey of Buyer’s Intention : the consumers are contacted

personally to disclose their future purchase plans.

A. Census Method: All consumers are contacted to know their preferences for the products in future.

B. Sample Method: method a sample of consumers is selected for interview.

2. Survey of Sales Forces : The company elicits the opinion of its sales force regarding the future demand for the product given an outline of its features and prices

Collective Opinion Techniques

Delphi Techniques

Statistical Techniques1. Trend Projection Method: Based on analysis of past sales

patterns. These method dispense with the need for costly market research because the necessary information is often already available in the company (Last Five months data to determine)

2. Barometric Technique : one set of data is used to predict another set. A relevant indicator is used as a barometer of future demand.

3. Simultaneous Equations Method : All the variables are simultaneously considered as it is assumed that every variable influences the other variables in an economic environment

4. Correlation and Regression Method: Which speak about the nature of relationship and extent of relationship respectively between two given variables, one is dependent and the other one is independent.

Other Methods

1. Expert Opinion: An Expert, who is associated with the insights of the industry as a whole, is invited to suggest about the future of a particular product or services.

2. Test Marketing: Releasing the product on a test basis in a well chosen, limited, but representative market.

3. Controlled Experiments: The company can experiment different homogeneous markets releasing its product with different types of appeal as different prices, packaging, models and so on

4. Judgement Approach: to use one’s judgement, where none of the above methods are suitable to assess demand for a particular product or service.

Demand Forecasting

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