Demand forecasting Demand forecasting

Course: MBA-1Subject: ME

Unit:1.3

• Meaning • Importance• Methods

Why demand forecasting?

• Planning and scheduling production

• Acquiring inputs• Making provision for finances• Formulating pricing strategy• Planning advertisement

Steps • Specifying the objective• Determining the time perspective• Making choice of method• Collection of data• Estimation and interpretation of

results

Techniques

CLASSIFICATION OF DEMAND FORECASTING

QUALTITATIVE TECHNIQUES

1)EXPERT OPINIONDelphi method.

2)SURVEY3)MARKET EXPERIMENT

Test marketingControlled experiments.

QUANTITATIVETECHNIQUES

1)Time Series Analysis.2)Barometric Analysis.

a) leading indicatorsb)Coincident indicatorsc) Taste indicators.

Expert Opinion• The expert opinion method, also known as “EXPERT

CONSENSUS METHOD”, is being widely used for demand forecasting.

• This method utilizes the findings of market research and the opinions of management executives, consultants, and trade association officials, trade journal editors and sector analysts. When done by

• An expert, qualitative techniques provide reasonably good forecasts for a short term because of the expert’s familiarity with the issues and the problems involved.

• DELPH I METHOD:- The Delphi method is primarily used to forecast the demand for “NEW PRODUCTS”.

SURVEYA firm can determine the demand for its products through a market survey. It may launch a new products, if the survey indicates that there is a demand for that particular product in the

market.

For example, Coke in India expanded its product range beyond carbonated drinks, after the company conducted a nationwidesurvey. The survey revealed that about 80% of the youthpreferred to drink tea or coffee rather than carbonated drinks atregular intervals. The remaining 20% preferred to have milkproducts while only 2% preferred to drink carbonated drinks likecoffee.

The company is now trying to bring tea and coffee brands to India by installing vending machines. It is also planning to introduce a coconut flavored drink in Kerala and a black currant in Tamilnadu named portello.

Market Experiment

• Market Experiment can help to overcome the survey problems as they generate data before introducing a product or implementing a policy.

• Market Experiments are two types:-1) Test marketing:-2) Controlled experiments:-

Controlled experiments• Controlled experiments are conducted to the test

demand for a new product launched or to test the demands for various brands of a product.

• They are selected some consumers.

Time Series Analysis• The time series analysis is one of the most

common quantitative method used to predict the future demand for a product. Here the past sales and demand are taken into considerations.

• TIME SERIES ANALYSIS IS DIVIDED INTO FOUR CATEGORIES:

1)TREND2)SEASONAL VARIATIONS.3)CYCLICAL VARIATIONS.4)RANDOM FLUCTUATIONS.

METHODS OF TIME SERIES ANALYSIS•

1)TREND:- Past data is used to predict the future sales of firm trend is a long term increase or decrease in the variable.

2)SEASONAL VARIATIONS:- It is taken into account the Variations in demand during different seasons.

Eg:- The sale of cotton dresses increases in summer. The sale of Woolen clothes increases in winter.

3)CYCLICAL VARIATIONS:- This variations in demand due to the fluctuations in the business cycle – Boom, recession and depression.

4) RANDOM FLUCTUATIONS:- It may happen due to Natural calamities like flood, earthquake, etc. Which cannot be predicted accurately.

Conclusion • Accurate demand forecasting

requires– Product knowledge– Knowledge about the customer– Knowledge about the environment