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Demand Forecasting

Demand Forecasting

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Published by: princepoh009 on Jan 27, 2012
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Managerial Economics

By-Komal Gupta

` ` . such as educated guesses. It may be used in making pricing decisions. and quantitative methods.` Demand forecasting is the activity of estimating the quantity of a product or service that consumers will purchase. such as the use of historical sales data or current data from test markets. or in making decisions on whether to enter a new market. in assessing future capacity requirements. It involves techniques including both informal methods.

Helps in arriving at suitable price for the product. Helps in saving resources.` Short run forecastHelps in preparing suitable sales policy and proper scheduling of output. ` . Planning long run financial requirements. Long run forecastHelpful in capital planning. Deciding about modifications in advertising and sales technique.

Identification of objectives Determining the nature of goods under consideration Selecting a proper method of forecasting Interpretation of results .

` . training etc. Seasonal factors like weather conditions bring fluctuations in the demand pattern in the market. Main feature is Trend which has implications for subjects like employee recruitment.` Short -run forecasting: Generally refers to a period up to 3 months. Medium-term forecasting: Generally refers to a period between 3 months and a year. Factors such as internal (quality improvement) and external policies (government·s tax policy) are considered.

Variables included are related to socio-psychological aspects-in particular an analysis of the inter-relationship of economic. psychological and sociological factors determining consumer behavior. . Reliance is usually placed on Statistical techniques.` Long-run forecasting Refers to a period of more than a year.

` Non durable consumer goods: Disposable income Price Size and characteristics of population .

Saturation limit of the market. Income levels of consumer. Consumer credit outstanding. Existing stock of the good. Tastes and preferences of consumers. . new demand.` Consumer durables: Changes in size and characteristics of population. Replacement demand vs.

Norm of consumption of capital goods.` Capital goods or Producers· goods: Growth possibilities of industry using capital goods. Excess capacity in the industry using producers· goods. Rate of obsolescence. . Availability of funds. Prices of substitutes and complimentary goods.

economic intelligence. Used for short run forecasting ` Use past experience as a guide and by analyzing past trend to estimate the level of future demand.` Obtain information about the intention of consumers by means of market research. survey. Used for long run forecasting .

Approaches vary in sophistication from scientifically conducted surveys to intuitive hunches about future events. therefore are useful for new products/services. Do not require a demand history for the product or service. The approach/method that is appropriate depends on a product·s life cycle stage.` Usually based on judgments about causal factors that underlie the demand of particular products or services. ` ` ` .

Analysis of the past demand pattern provides a good basis for forecasting future demand.` Based on the assumption that the ´forcesµ that generated the past demand will generate the future demand. i. Majority of quantitative approaches fall in the category of time series analysis.e. ` ` .. history will tend to repeat itself.

lagging and coincident indicators Sample survey and test marketing Least squares linear regression Diffusion indices End-use Time series analysis Moving average and annual difference Exponential smoothing ARIMA method .Methods of forecasting Opinion polling methods Statistical methods Consumers¶ survey method Sales force opinion method Experts¶ opinion method Trend projection method Barometric techniques Regression method Simultaneous equation method Complete enumeration survey Fitting trend line by observation Leading.

Not tracking the accuracy of the forecasting models ` ` ` ` ` . Not selecting an appropriate forecasting method. Not recognizing that forecasting is integral to business planning. Not recognizing that forecasts may be wrong. Not forecasting the right things.` Not involving a broad cross section of people.

` Forecasting for these businesses can be difficult for the following reasons: Not enough personnel with the time to forecast Personnel lack the necessary skills to develop good forecasts Such businesses are not data-rich environments Forecasting for new products/services is always difficult. even for the experienced forecaster .

` ` ` ` ` ` ` ` Consumer Confidence Index Consumer Price Index (CPI) Gross Domestic Product (GDP) Index of Leading Economic Indicators Personal Income and Consumption Producer Price Index (PPI) Purchasing Manager·s Index Retail Sales .

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