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Prepared by :

Dr. K. BARANIDHARAN
PROF.MBA
SRI SAIRAM INSTITUTE OF TECHNOLOGY
CHENNAI

Sri Sairam Institute of Technology 2
Engineering
Economics& Financial
Accounting
3 9 August 2014
Methods of demand forecasting
METHODS OF DEMAND FORECASTING
1.consumer opinion survey:
Survey of consumers or buyers intentions
rests on the belief that the best and the
most obvious way to gauge the demand for
a commodity is to take opinion of the users
of the product.
In consumers opinion survey buyers asked
about their future buying intention of
product, their and brand preferences and
quantities of purchases.
i) CENSUS method:involves contracting each
and every buyer , but this very time taking and
costly and its often not desirable.
Ii) SIMPLE method: involves survey of only
representative sample of buyers.
Merits:
Simple, result obtained are realistic,
Demerits:
Expenses, unsuitable long term forecast
SALES FORCE COMPOSIT
SALESPERSON are in direct contact with
the customers and hence are in a better
position to F demand for any product.
Salesperson are asked about their
estimated sales targets in the
respective sales territories in a given
period of time.
The sum of total of such estimates
forms the basis of forecast demand.
Merits:
Simple, it is very cost effective as no
additional cost is incurred on
collection of data, estimated figures
are more reliable
Demerits;
Result is bias, salesperson unaware
economic environment, short-term
only not long-term forecast
EXPERTS OPINION METHOD
Fdis essentially based on the
opinion of experts, either internal
or external to the firm.
GROUP DISSCUSSION;
Expert meet as a group to findout
future demand level. Meetings,
conference.
DELPHI TECHNIQUE:
Collecting opinion is by Delphi technique,
originally developed by the Rand
Corporation at the beginning of the Cold
War, to forecast the impact of technology on
warfare.
Delphi is a way of getting the opinion of
experts without their face to face interaction.
Carefully selected independent experts
anwers questionnaries in two or more
rounds,
Merits:
Decisions are enriched with the experience of
component experts.
The firm need not spend time and resources in
collection of data by survey.
Very useful when the product is absolute new to
all the markets.
Demerits:
The techniques relies more on the experience of
experts than on available data, and may thus
involve some amount of bias.
Risk and loss of confidential
MARKET SIMULATION
It is like Laboratory testing of consumer
behaviour.
Laboratory experiment can be useful is ascertaing
consumers, reactions to changes in price,
packaging etc.,
Merits;
Market experiments often provide useful
New product is best
Demerits:
Amount, time, money, spend
People behaviour entirely different
TEST MARKETING
In test marketing the product is actually
sold in certain segment of the market,
regarded as test market.
Merits:
Most reliable
Very suitable for new product
Less risk
Demerits:
costly
QUANTITATIVE METHODS
the methods should be used only
when past data is not available, as
in the case of new products, new
price, and new market.
Past data is available it is advisable
that firms use statistical tools, as
they are more scientific and cost
effective.
Trend Projection
A classical method trend projection is a
powerful statistical tool that is frequently
used to predict future values of a a
variable on the basis of Time series data.
Components of Time series data:
Secular trend
Seasonal trend
Cyclical trend
Random events
Merits:
Simple to apply
It is reliable in forecasting demand
Demerits:
The accuracy of trend projection
method depends on the availability of
time series data; the longer the series,
the better the result
Past data not available
Methods of trend projection
A) Graphical method: very simple but provides a
general indication and fails to predict future
value of demand.
B) Least square method:Least squares estimation
is based on the minimisation of squared
diviations between the best fitting line and the
original observation given.
C) ARIMA method:Auto Rrgressive Integrated
Moving Average, method has been given by Box
and Jenkins, therefore this method is also known
as Box Jenkins method.
SMOOTHING TECHNIQUES
Smoothing techniques are used
when the time series data exhibit
little trend or seasonal variations ,
but the great deal or irregular or
random variations.
The basic idea is to smoothen:
these variations and then proceed
with forecasting of future values
Moving average:
Weighted moving average
Exponential smoothing: assigns greater weights to
the more recent data.
Barometric techniques:
In barometric forecasting we construct an index of
relevant economic indicators and forecast future
trends on the basis of the indicators.
Merits: macro and micro economics- less costly
Demerits: it may not applicable for LTF

ECONOMETRIC METHODS
Econometrics the social science in which
the tools of economic theory,
mathematics and statistical inference are
applied to the analysis of economic
phenomena.
Two methods:
1. Regression Analysis
2. Correlation
CONTROLLED EXPERIMENTS
Refers To Such Exercises where
some of major determinants of
demand are manipulated to suit
to the customers with different
taste and preferences, income
groups, and such others.
JUDGEMENTAL APPROACH
Directly related to the given product or
service, the management has no alternative
other than using its own judgment.
Even when the above methods are used the
forecasting process is supplemented with the
factor of judgment for the following reasons:
Historical data for significantly long period is
not available.
Sales fluctuations are wide and significant.