Managerial Economics 2

MANAGERIAL ECONOMICS
Subjective Methods of Demand

Forecasting
Biplab Sarkar
Department of Management Studies
Subjective Methods of Demand

Forecasting
Biplab Sarkar
Subjective Methods of Demand Forecasting
Consumer’s Opinion Survey

Subjective Methods of
Demand Forecasting
Salesforce Composite Method
Experts Opinion Method
Market Simulation
Test Marketing
Objective
Questionnaire
Survey Method
Future buying intentions of products

Questionnaire Includes
Brand preferences
Quantities of purchase
Response to price increase
Probable change in products’ feature
Comparison with competitors product

Apparel
Census Manufacturing
Method Firm
Sampling Automobile
Method Manufacturing
Firm
Consumer’s Opinion Survey: Merits
Merits of Consumer’s Opinion Survey
✓ Simple to administer and comprehend.
✓ The results obtained are realistic, as they are based on

the direct opinion of buyers.
✓ Suitable for short-term decisions regarding product and

promotion.
Consumer’s Opinion Survey: Demerits
Demerits of Consumer’s Opinion Survey
✓ Surveying is often an expensive proposition both in

terms of resources and time.
✓ Not suitable for long-term forecasting.
✓ Buyers may not often reveal their real buying intentions

and may even give incorrect responses.
✓ Investigators' bias regarding the choice of sample and

questions cannot be fully eliminated.
Salesforce Composite Method
✓ In the salesforce composite method, salespersons are

asked about their estimated sales targets in their
respective sales territories in a given time.
✓ The total of such estimates forms the basis of forecasted

demand. Estimates arrived by a survey of sellers, sales
representatives, sales managers, dealers, distributors,
etc.
Salesforce Composite Method: Merits
Merits of Salesforce Composite Methods
✓ This method is simple to administer.
✓ It is very cost-effective as no additional cost is incurred

on the collection of data.
✓ Such estimated figures are more reliable, as they are

based on the notions of salespersons who are in direct
contact with their customers.
Salesforce Composite Method: Demerits
Demerits of Salesforce Composite Methods
✓ The result may be conditioned by the basis of the

optimism (or pessimism) of the salesperson.
✓ The salesperson may be unaware of the economic

environment of the business and thus, may make wrong
estimates by ignoring impending economic changes.
✓ This method is only suitable for short term forecasting.

Experts’ Opinion Method
Group Discussion Delphi Technique

Experts’ Opinion Method: Merits
Merits of Experts’ Opinion Method
✓ Decisions are enriched with the experience of

competent experts.
✓ The firm need not to spend time and resources in the
collection of data by a survey.
✓ Very useful when the product is new to all the markets.

Experts’ Opinion Method: Demerits
Demerits of Experts’ Opinion Method
✓ This technique relies more on the experience of experts

than on available data, and may, thus, involve some
amount of bias.
✓ In case external experts are invited for opinion, the firm

may be exposed to the risk of loss of confidential
information to rival firms.
Market Simulation
Laboratory testing of consumer behaviour

Market Simulation
Create an artificial market
Kind of laboratory experiments
Superior to market survey
Grabor-Granger test
Market Simulation: Merits
Merits of Market Simulation
✓ Market experiments often provide useful information on

consumer behavior regarding a proposed change in any
of the determinants of demand.
✓ Experiments are very useful in case of a new product of

which consumers had never heard before.
Market Simulation: Demerits
Demerits of Market Simulation

✓ Experiments may take a considerable amount of time
and money to be conducted.
✓ In the Grabor-Granger test, consumers may not quote

the price they may pay for a product.
✓ It has been established that people behave differently

when they are being observed, hence, their behavior
may not be very reliable.
Test Marketing
Product is sold in few real markets
Choice of test markets

Test Marketing
Number of test markets
Duration of the test
Costlier among all demand forecasting methods

Test Marketing: Merits
Merits of Test Marketing
✓ It is the most reliable among qualitative methods as it is

based on real sales proceeds.
✓ It is very suitable for new products.
✓ It is considered less risky than launching the product

across a wide region.
Test Marketing: Demerits
Demerits of Test Marketing

✓ It is very costly as it requires actual production of the
product, and in the event of failure of the product, the
entire cost of administering the test is sunk.
✓ It is time-consuming to observe the actual buying pattern
of consumers, particularly in the case of durables.
✓ Especially in a country like India, which has widely

varying markets across its geographical regions, a product
that may perform well in one region may not perform
equally well in other markets. Extrapolation of figures for
calculating demand in such a case may not give accurate
results.
THANK YOU
Biplab Sarkar
biplabsarkar@pes.edu
+91 80 6666 3333 Extn 337

Managerial Economics 2

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MANAGERIAL ECONOMICS

Subjective Methods of Demand

Subjective Methods of Demand

Consumer’s Opinion Survey

Salesforce Composite Method

Experts Opinion Method

Future buying intentions of products

Response to price increase

Probable change in products’ feature

Comparison with competitors product

Merits of Consumer’s Opinion Survey

✓ Simple to administer and comprehend.

✓ The results obtained are realistic, as they are based on

✓ Suitable for short-term decisions regarding product and

Demerits of Consumer’s Opinion Survey

✓ Surveying is often an expensive proposition both in

✓ Buyers may not often reveal their real buying intentions

✓ Investigators' bias regarding the choice of sample and

✓ In the salesforce composite method, salespersons are

✓ The total of such estimates forms the basis of forecasted

Merits of Salesforce Composite Methods

✓ This method is simple to administer.

✓ It is very cost-effective as no additional cost is incurred

✓ Such estimated figures are more reliable, as they are

Demerits of Salesforce Composite Methods

✓ The result may be conditioned by the basis of the

✓ The salesperson may be unaware of the economic

✓ This method is only suitable for short term forecasting.

Group Discussion Delphi Technique

Merits of Experts’ Opinion Method

✓ Decisions are enriched with the experience of

✓ Very useful when the product is new to all the markets.

Demerits of Experts’ Opinion Method

✓ This technique relies more on the experience of experts

✓ In case external experts are invited for opinion, the firm

Laboratory testing of consumer behaviour

Create an artificial market

Kind of laboratory experiments

Superior to market survey

Merits of Market Simulation

✓ Market experiments often provide useful information on

✓ Experiments are very useful in case of a new product of

Demerits of Market Simulation

✓ In the Grabor-Granger test, consumers may not quote

✓ It has been established that people behave differently

Product is sold in few real markets

Choice of test markets

Number of test markets

Duration of the test

Costlier among all demand forecasting methods

Merits of Test Marketing

✓ It is the most reliable among qualitative methods as it is

✓ It is very suitable for new products.

✓ It is considered less risky than launching the product

Demerits of Test Marketing

✓ Especially in a country like India, which has widely

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