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• 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 .
. 2)SURVEY 3)MARKET EXPERIMENT Test marketing Controlled experiments. QUANTITATIVE TECHNIQUES 1)Time Series Analysis. 2)Barometric Analysis. a) leading indicators b)Coincident indicators c) lagging indicators.CLASSIFICATION OF DEMAND FORECASTING QUALTITATIVE TECHNIQUES 1)EXPERT OPINION Delphi method.
• This method utilizes the findings of market research and the opinions of management executives. • DELPH I METHOD:.• The expert opinion method. 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. is being widely used for demand forecasting. trade journal editors and sector analysts. Expert Opinion . consultants. also known as “EXPERT CONSENSUS METHOD”.The Delphi method is primarily used to forecast the demand for “NEW PRODUCTS”. and trade association officials.
SURVEY A firm can determine the demand for its products through a market survey. The survey revealed that about 80% of the youth preferred to drink tea or coffee rather than carbonated drinks at regular intervals. . Coke in India expanded its product range beyond carbonated drinks. The remaining 20% preferred to have milk products while only 2% preferred to drink carbonated drinks like coffee. if the survey indicates that there is a demand for that particular product in the market. It is also planning to introduce a coconut flavored drink in kerala and a black currant in Tamilnadu named portello. For example. The company is now trying to bring tea and coffee brands to India by installing vending machines. It may launch a new products. after the company conducted a nationwide survey.
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:- .
A test area may include several cities and towns. Advertising or packaging can be done in various market areas. In this way. which should be a representative of the whole market in which the new product is to be launched. consumer’s response to change in price or advertising can be judged. . or a particular region of a country or even a sample of consumers.Test marketing In this case. a test area is selected. More than one test area can be selected if the firm wants to assess the effects on demand due to various alternative marketing mix. Then the demand for the product can be compared at different levels of price and advertising expenditure.
2) 3) . it is often difficult to select an area. which accurately represents the potential market. Moreover. consumer may switch to the competitor’s products.DRAWBACKS OF THE MARKET EXPERIMENT 1) The test experiments are that they are very costly and much time consuming. It may be difficult to regain lost customers even if the price is reduced to the previous level. If in a test market prices are raised.
• They are selected some consumers.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. .
2)The selected consumers may not respond accurately If they come to know that they are a part of an experiment being conducted and their behavior is being recorded. .DRAWBACKS OF THE CONTROLLED EXPERIMENTS 1) The consumers may be biased in the process of selection of a sample of consumers on which experiments is to be performed.
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)TREND 2)SEASONAL VARIATIONS. 3)CYCLICAL VARIATIONS. . 4)RANDOM FLUCTUATIONS.
etc. 4) RANDOM FLUCTUATIONS:. recession and depression.Past data is used to predict the future sales of firm trend is a long term increase or decrease in the variable.It may happen due to Natural calamities like flood. The sale of Woolen clothes increases in winter. .This variations in demand due to the fluctuations in the business cycle – Boom. earthquake.The sale of cotton dresses increases in summer.It is taken into account the Variations in demand during different seasons. 3)CYCLICAL VARIATIONS:. 2)SEASONAL VARIATIONS:. Eg:. Which cannot be predicted accurately.METHODS OF TIME SERIES ANALYSIS • 1)TREND:.
. 2)Coincident indicators. It can be divided into three groups 1)Leading indicators.BAROMETRIC ANALYSIS • • • • • • • • DEFINITION:.“The prediction of turning points In one economic time series through the use of Observations on another time series called the Barometer of the Indicator”. 3)Lagging indicators.
. manufacturers new orders.LEADING INDICATORS • • • • • • • It compares the existing data available. and real M2 money supply. orders for plant and equipment. In this Index includes such as things as average weekly hours worked and claims for Unemployment insurance. index of consumer expectations. stock prices.
manufacturing and trade sales. CLL Is primarily intended to identify changes in the direction of the economy. . Personal income minus transfer payments. industrial production. Components of the Index of Coincident Indicators are employees on nonagricultural payrolls.Composite Of Leading Indicators • • • • • • • It is useful in understanding the business cycle.
the level of employment and the rate of inflation. and figures on installment credit and loans. these indices are among the most important tools available to most organizations. ratio of inventory to sales. In Practical attempts to forecast the future. among other items. including the government. These indicators provide signals of changes in economic activities like national income or national product. .LAGGING INDICATORS • The lagging indicator composite includes changes in labour costs per unit.
Conclusion • Accurate demand forecasting requires – Product knowledge – Knowledge about the customer – Knowledge about the environment .