Measuring and forecasting demand module 4 mba 1st sem by babasab patil (karrisatte)

Measuring and Forecasting Demand

Presented By:-

Babasab Patil

2/13/2014 Babasabpatilfreepptmba.com 1

What is forecasting?

Forecasting is a tool used for predicting

future demand based on past demand

information.


Why is forecasting important?

Demand for products and services is usually uncertain.

Forecasting can be used for…

• Strategic planning (long range planning)

• Finance and accounting (budgets and cost controls)

• Marketing (future sales, new products)

• Production and operations


What is forecasting all about?

Demand for Mercedes E Class

Time Jan

Feb

Mar Apr May

Jun Jul Aug

Actual demand (past sales)

Predicted demand

We try to predict the

future by looking back

at the past

Predicted

demand

looking back

six months


From the March 10, 2006 WSJ:

Ahead of the Oscars, an economics professor, at the request of

Weekend Journal, processed data about this year's films

nominated for best picture through his statistical model and

predicted with 97.4% certainty that "Brokeback Mountain"

would win. Oops. Last year, the professor tuned his model until

it correctly predicted 18 of the previous 20 best-picture awards;

then it predicted that "The Aviator" would win; "Million Dollar

Baby" won instead.

Sometimes models tuned to prior results don't have great

predictive powers.

What’s Forecasting All About?


The Measures of Market Demand

Potential

Market

Penetrated

Market Target

Market

Available

Market


Potential Market: PM is the set of consumers who

profess a sufficient level of interest in a market offer

Available Market: AM is a set of consumers who

have interest, income, and access to a particular offers

Target Market: TM is The part of the qualified

available market the company decides to pursue.

Penetrated Market: PM is the set of consumers who

are buying the company’s product 2/13/2014 Babasabpatilfreepptmba.com 7

Ninety Types of

Demand Measurement


Vocabulary for Demand Measurement

Market demand- Marketing opportunities is to estimate

total market demand in defined geographical area, time,

environment and marketing program.

Market forecast-

Market potential- Expected market demand

Company demand

Company sales forecast

Company sales potential 2/13/2014 Babasabpatilfreepptmba.com 9

Market Demand Functions


Measuring Current Market Demand

Marketers will want to estimate three different

aspects of current market demand

o Total market demand

o Area market demand

o Actual sales and market shares


Estimating Total market demand

Q = n x q x p

Where,

Q = total market demand

n = number of buyers in the market

q = quantity purchased by an average buyer per year

p = price of an average unit


Estimating Area Market Demand

Companies face the problem of selecting

the best sales territories and allocating

their marketing budget optimally among

these territories.


Two major methods are available

o Market buildup method –Calls for identifying

all the potential buyers in each market and

estimating their potential purchases. used

primarily by business goods firms

o Market-factor index method – used primarily

by consumer goods firms.


Market-Factor Index Method

Identifies market factors that correlate with market potential and combines them into weighted index.

A manufacturer of men’s dress shirts wishes to evaluate its sales performance relative to market potential in several major market areas.

Total national potential $2 billion per year.

The company current nationwide sales are $140 million, about 7% of the total potential market.

Its sales in New York are $1,100,000.


The buying power index (BPI) for a specific area is given by

BPI = .2 x percentage of national population in the area

.5 x percentage of effective buying income in the area

.3 x percentage of national retail sales in the area

New York should account for .5935 percent of the nation’s total potential demand for dress shirts.

Total potential equals $2 billion x .005935 = $11,870,000.

Company’s sales (NY) $1,100,000/$11,870,000 = 9.3 percent. Which is quite high than company national share i.e. 7 percent.


Actual sales and market shares

Actual industry sales taking place in the market.

Identifying competitors and estimating their sales.

Then company can evaluate its performance


Estimating Future Demand

Sales Force Opinions

Market Test Method

Past Sales Analysis

Buyer’s Intentions

Expert Opinions


Common Sales Forecasting

Techniques

Based On: Methods

What people say Surveys of buyers’ intentions

Composite sales force opinions

Expert opinion

What people do Test markets

What people have

done

Time-series analysis

Leading indicators

Statistical demand analysis 2/13/2014 Babasabpatilfreepptmba.com 19

Survey of Buyers’ Intentions

One way to forecast what buyers will do is to ask them directly.

Surveys are especially valuable if the buyers have clearly

formed intentions, will carry them out, and can describe them to

interviewers.

Purchase probability scale

Do you intend to buy an automobile within the next six months?

0 .1 .2 .3 .4 .5 .6 .7 .8 .9 1.0

No Slight Fair Good Strong For certain

chance


Composite of Sales-force Opinions

The company typically asks its salespeople to estimate sales by product for their individual territories.

It then adds up the individual estimates to arrive at an overall sales forecast.

Salespeople are biased observers. They may understate demand so that the company will set a low sales quota.

After participating in the forecasting process, the salespeople may have greater confidence in their quotas and more incentive to achieve them. 2/13/2014 Babasabpatilfreepptmba.com 21

Expert Opinion

Experts include dealers, distributors, suppliers, marketing consultants, and trade associations.

Dealer estimates are subject to the same strengths and weaknesses as salesforce estimates.


Delphi method

Experts may be asked to supply their estimates individually, with the company analyst combining them into single estimate.

Finally, they may supply individual estimates and assumptions that are reviewed by a company analyst, revised, and followed by further rounds of estimation


Test Marketing

Where buyers do not plan their purchases carefully or where experts are not available or reliable, the company may want to conduct a direct test market.

A direct test market is especially useful in forecasting new-product sales or established product sales in a new distribution channel or territory.


Time-Series Analysis

Breaking down past sales into its trend, cycle, season, and erratic/unpredictable components, then combining these components to produce a sales forecast.

Trend is the long-term, underlying pattern of growth or decline in sales resulting from basic changes in population, capital formation, and technology.

Cycle captures the medium-term, wavelike movement of sales resulting from changes in general economic and competitive activity.


Conti…

Season refers to a consistent pattern of sales movements within the year.

Erratic events include fads, strikes, snow storms, earthquakes, fires, and other disturbances.


Statistical Demand Analysis

A set of statistical procedures used to discover the most important real factors affecting sales and their relative influence.

The most commonly analyzed factors are prices, income, population, and promotion.

Q = f(X1, X2, … ,Xn), where sales Q is dependent

Using multiple regression technique, various equation forms can be statistically fitted to the data in the search for the best predicting factors and equation.

Soft-drink company: Q = -145.5+6.46X1–2.37X2


Thank You……


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Measuring and forecasting demand module 4 mba 1st sem by babasab patil (karrisatte)