PRESENTATIONTO OUR

Market and Demand Analysis

Group- 02Sl.No. Name ID Program

1. Md. Samiul Islam Chowdhury 10105063 BSEEE

2. Abul Kalam 10105019 BSEEE

3. Md. Masud Rana 10105059 BSEEE

4. Md. Ashraful Haque 10105033 BSEEE

5. Md.Rezaul Karim 09105087 BSEEE

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.

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Key Step in Market & Demand Analysis and Their Inter-relationship

Situational Analysis and Specifications of Objectives

Collection of Secondary Information

Conduct of Market Survey

Characterization of the Market

Demand Forecasting

Market Planning

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.

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

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Conduct of Market SurveyThe 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– Analyze and interpret the Information 8

Conduct of Market Survey

Some Problems:– Heterogeneity of the Country– Multiplicity of the Languages

– Design of Questionnaire

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Characterization of the Market Effective Demand in the Past and Present Production + Imports – Exports – Change in stock levelBreakdown of Demand

– Nature of Product– Consumer Groups– Geographical Division

PriceMethods of Distribution and Sales PromotionConsumersSupply and CompetitionGovernment Policy

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ForecastingPredicting the futureQualitative forecast methods

– subjectiveQuantitative forecast methods

– based on mathematical formulasDepend on

– time frame– demand behavior– causes of behavior

Demand ForecastingQualitative 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

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Jury of Executive Opinion MethodRationale

– 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 GroupMain advantages

– Combine knowledge and expertise from various functional areas

– People who have best information on future developments generate the forecasts

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Jury of Executive Opinion MethodMain 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

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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

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Delphi Method

Approach

Coordinator Sends Initial Questionnaire

Each expertwrites response(anonymous)

Coordinatorperformsanalysis

Coordinatorsends updatedquestionnaire

Coordinatorsummarizesforecast

Consensusreached?

YesNo

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Delphi MethodMain advantages

– Generate consensus– Can forecast long-term trend without availability of

historical dataMain drawbacks

– Slow process – Experts are not accountable for their responses– Little evidence that reliable long-term forecasts can be

generated with Delphi or other methodsTypical application

– Long-term forecasting– Technology forecasting

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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

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Advantages• It uses all observations• The straight line is derived by statistical procedure• A measure of goodness fit is available

Disadvantages• More complicated• The results are valid only when certain conditions are

satisfied

Trend Projection Method

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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 et

Where Ft + 1 = forecast for year )α = smoothing parameter et = error in the forecast for year t = St = Ft

Solution of problem for Exponential Smoothing

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 +1

Ft + 1 = n

where Ft + 1 = forecast for the next periodSt = sales for the current periodn = period over which averaging is done

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Weighted Moving Average

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WMAn = i = 1 Wi Di

where

Wi = the weight for period i, between 0 and 100 percent

Wi = 1.00

Adjusts moving average method to more closely reflect data fluctuations

n

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Weighted Moving Average Example

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MONTH WEIGHT DATA

August 17% 130September 33% 110October 50% 90

WMA3 = 3

i = 1 Wi Di

= (0.50)(90) + (0.33)(110) + (0.17)(130)

= 103.4 orders

November Forecast

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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

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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

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Chain Ratio Methods

Market Potential for heated coats in the U.S.:Market Sales Potential = U x A x M x I x C x S x F x E x Y= 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

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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.

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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 yearQ2 = quantity demanded in the following yearI1 = income level in the base year I2 = income level in the following year

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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 year30

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

End Use Method

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End Use Method

This method forecasts the demand based on the consumption coefficient of the various uses of the product.

Projected Demand for IndchemConsumption

CoefficientProjected Output

in Year XProjected Demand for

Indchem in Year XAlphaBetaKappaGamma

2.01.20.80.5

10,00015,00020,00030,000Total

20,00018,00016,00015,00069,000

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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.

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Econometric MethodAn 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 Nt

WhereDt = demand for a certain product in year t.Pt = price of the product in year t.Nt = income in year t.

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Econometric Method2. Simultaneous equation method

GNPt = Gt + It + Ct

It = a0 + a1 GNPt

Ct = b0 + b1 GNPt

• WhereGNPt = gross national product for year t. Gt = Governmental purchase for year t. It = Gross investment for year t.

Ct= Consumption for year t.35

Advantages• 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

Econometric Method

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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

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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

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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

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Market planningCurrent marketing situation

- Market, Competition, Distribution, PEST.Opportunity and issue analysis - SWOTObjectives- Break even, % market share…Marketing strategy- target segment,

positioning, 4 PsAction program- Quarter 1, Q2, Q3….

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Thank You