DEMAND FORCASTING

• Demand Forecasting refers to an estimate of

future demand for the product. It is an
“objective assessment of the future course of
demand
 Methods of Demand Forecasting
(Established Products )
A)Survey Method.
Under this method, surveys are conducted to collect information about the
future purchase plans of potential consumers.
Under this method, information about the desire of the consumers and
opinions of experts are collected by interviewing them. This can be divided
into four types;
1.Consumers Survey method or Consumers interview method: Under this
method ,consumers are interviewed directly and asked the quantity they would
like to buy. After collecting the data the total demand for the product is
calculated .Under this method ,either all consumers or selected few are
interviewed. When all the consumers are interviewed ,the method is known as
complete enumeration method .when only a selected group of consumers are
interviewed ,it is known as sample survey method.
2. Expert Opinion: Apart from salesmen and
consumers, distributors or outside experts
may also be used for forecast. Firms in
advanced countries like USA, UK etc...make
use of outside experts for estimating future
demand. This method is known as Delphi
method. Various public and private agencies
sell periodic forecast of short or long term
business conditions
3.Collective openion method: Under this
method the salesmen estimate the expected
sales in their respective territories on the basis
of previous experience. Then demand is
estimated after combining the individual
forecasts of the salesmen. This method is
known as sales force method.
4. Consumer Clinics:In this method some
selected buyers are given certain amount of
money and asked to buy the products . Then
the prices are changed and the consumers
are asked to make fresh purchase with the
given money. In this way the consumers
responses to price changes are observed.
Thus the behavior of the consumer is
studued.On this basis demand is estimated.
.
5.End use method:in this method, first a list of
end users (final consumers, individual
industries, exporters)is prepared. Then future
demand for the product is found is found
either directly from the end users or indirectly
by estimating their future growth. Then the
demand of all end users of the product is
added to get the total demand for the
product.
Statistical Methods
• It is used for long term forecasting. In this method,
statistical and mathematical techniques are used to
forecast demand. This method is relies on past data.
This includes;
• 1. Trent projection method: Under this method,
demand is estimated on the basis of analysis of past
data. This method makes use of time series (data
over a period of time). Here we try to ascertain the
trend in the time series. Trend in the time series can
be estimated by using least square method or free
hand method or moving average method or semi-
average method
2.Regression and Correlation: These methods
combine economic theory and statistical techniques
of estimation. in this method, the relationship
between dependant variables(sales) and
independent variables(price of related goods,
income, advertisement etc..) is ascertained. This
method is also called the economic model building.
3. Extrapolation: In this method the future demand
can be extrapolated by applying binomial expansion
method. This is based on the assumption that the
rate of change in demand in the past has been
uniform.
• 4. Barometric techniques: Under this, present events are
used to predict directions of change in the future. This is
done with the help of statistical and economic indicators
like:
• Prices of industrial meterial,
• Personal income
• Agricultural income
• Employment
• GNP
• Industrial production
• Bank deposit etc…
 Forecasting Demand for a New Product

• Joel Dean has suggested six approaches for forecasting the

demand for new products.

• 1. Evolutionary Approach: In this method, the demand for new product is estimated on
the basis of existing product. E.g. Demand forecasting of colour TV on the basis of
demand for black & white TV.
• 2. Substitute Approach: The demand for the new product is analyzed as substitute for the
existing product.
• 3. Growth curve Approach: On the basis of the growth of an established product, the
demand for the new product is estimated.
• 4. Opinion Polling Approach: In this approach, the demand for the new product is
estimated by inquiring directly from the consumers by using sample survey.
• 5. Sales Experience Approach: The demand is estimated by supplying the new product in
a sample market and analyzing the immediate response on that product in the market..
• 6. Vicarious Approach: Consumers reactions on the new products are fount out indirectly
with the help of specialized dealers.