2.

DEMAND ANALYSIS AND FORECASTING-2

Dr. Rajesh Raut

MEANING & DEFINITION OF DEMAND

 Demand is an economic principle that describes a consumer's desire

and willingness to pay a price for a specific good or service.
Holding all other factors constant, an increase in the price of a good
or service will decrease demand, and vice versa.
In economics, demands refer to effective demand, which implies
three things:
1. Desire
2. Means to purchase
3. on willingness to use those means for that purchase
WANT AND DEMAND
WANT AND DEMAND
Want- Desire

Demand- Desire backed by purchasing power

 DEMAND FUNCTION
It shows how demand for a commodity, by an individual consumer in
the market, is related to its various determinants.
Dx= f(Px, Y, Po, T, Ef, N)
Px= Price of Commodity
Y= Income of consumer
Po= Price of related commodity (Substitutes ,complements)
T= Taste of consumer
Ef= Future expectations
N= Economic /Population growth
LAW

As price increases demand decreases

Why ?????
DEMAND- OTHER THINGS HELD CONSTANT
INCOME, TASTE….
YOU HAVE 75 RS ONLY
Demand for Coffee in Pune

Price (Y) Quantity

For 1 person (X)
15
20
25
30
38
DEMAND- OTHER THINGS HELD CONSTANT
INCOME, TASTE….
YOU HAVE 75 RS ONLY
Demand for Coffee in Pune

Price (Y) Quantity

For 1 person (X)
15 5
20 3
25 3
30 2
38 1
Demand curve
Quantity demanded - price

Demand of Coffee for 1 person

40

35

30

25
Price

20

15 Demand for 1 person

10

0
0 1 2 3 4 5 6

Quantity
DEMAND
Raise the price of the product = lower will be the quantity demanded
And vice versa
Coffee shop in Pune

Price Quantity 2+3+4 Quantity

(Y) For 1 consumer (X)
person
15 5 50000
20 3 40000
25 3 30000
30 2 15000
38 1 10000
TOTAL DEMAND
demand for Coffee
40

35

30

25

20
demand for tea

15

10

0
0 10000 20000 30000 40000 50000 60000
DEMAND
Only two people
Coffee shop in Pune

Price (Y) Quantity Quantity Market

For 1 person 2nd person demand
15 5 6 11
20 4 5 9
25 3 4 7
30 2 3 5
38 1 2 3
 MARKET DEMAND
Demand of tea for 1 demand for tea for market demand
person second person 40
40 40
35
35 35
30
30 30
25
25 25

20
Price

20 20

15 15
15

10 10 10

5 5 5

0 0 0
0 2 4 6 0 2 4 6 8 0 5 10 15
Quantity
CALCULATE MARKET DEMAND FOR VEGETABLE
AND DRAW GRAPH FOR MARKET DEMAND
Price Quantity Quantity (Kg)
(Y)/Kg (Kg) 2nd person
For 1 person
30 8 9
45 6 8
60 4 6
80 3 2
90 2 1
Consumers goods Producers goods
Consumer goods are Whereas producer goods are
those goods which are consumed those goods which are used
directly by the consumer after by producers as raw material
it's purchase. and which further undergo
certain processes in order to
Examples make a final or consumer good.
Car, Examples
Toothpaste, Raw material required for
Pen manufacturing product

Final goods and Intermediate Demands

 TYPES OF DEMAND
i) Direct and Derived Demands:
Direct demand of demand analysis individual demand for goods and services
that directly satisfy consumers desires. Consumers budget, product
characteristics, individuals preferences are all important determinants of
direct demand. it is the demand for consumers’ goods
Examples- Car, House

By contrast, derived demand refers to demand for goods which are needed
for further production; it is the demand for producers’ goods.
Example- raw material required for car(tyre, steel , plastic)
raw material required for house (Steel , cement, iron)
TYPES OF DEMAND
ii) Firm and Industry Demands
Firm Demand (company demand) denotes the demand for the product/s from
a particular firm. While Industry demand means the demand from the
product of a particular industry.

For example, demand for fiat car alone is a firm’s demand & demand for all
kinds of cars is industry’s demand.

Firm- Demand for Harrier,

Industry-Demand for SUV
 TYPES OF DEMAND
iii) Perishable and Durable Goods’ Demands
Both consumers’ goods and producers’ goods are further classified into
perishable/non-durable/single-use goods
and durable/non-perishable/repeated-use goods.

The former refers to final output like bread, vegetables raw material like
cement which can be used only once.
The latter refers to items like shirt, car or a machine which can be used
repeatedly.
 TYPES OF DEMAND
iv) New and Replacement Demands

If the purchase or acquisition of an item is meant as an

addition to stock, it is a new demand. If the purchase of
an item is meant for maintaining the old stock of
capital/asset, it is replacement demand.
examples
Buying new tv
I have tv and want to buy other with replacement
TYPES OF DEMAND
v) Final and Intermediate Demands
same as direct and derived .

vi) Individual and Market Demands

Individual Demand means quantity demanded of a good by an individual
consumer at various prices per time period.
Market Demand means the aggregate of the quantities demanded by all
consumers in the market at different prices per time period.
DEMAND FUNCTION
A demand function is a statement of the relation between the demand
for a product and all variables (factors) that affect demand.

Ceteris paribus or caeteris paribus is

a Latin phrase meaning "other things held
constant"

q= f(p)
LAW OF DEMAND
LAW OF DEMAND
 LAW OF DEMAND
Definitions:
Prof. Samuelson: “Law of demand states that people will buy more at lower
price and buy less at higher prices, others thing remaining the same.”
Ferguson: “According to the law of demand, the quantity demanded varies
inversely with price”.
Characteristics:
1. Inverse relationship.
2. Price independent and demand dependent variable.
3. Income effect & substitution effect.
Assumptions:
 No change in tastes and preference of the consumers.
 Consumer’s income must remain the same.
 The price of the related commodities should not change.
 The commodity should be a normal commodity
 Price (Y) Quantity
For 1 person (X)
Demand curve 15 5
Quantity demanded - price
20 4
25 3
30 2
38 1
Demand of Coffee for 1 person
40

35

30

25
Price

20

15

10

0
0 1 2 3 4 5 6

Quantity
 Price (Y) Quantity
For 1
Inc in demand person
Dec in demand (X)
15 5 10
20 4 8
25 3 6

Demand of Coffee for 1 person 30 2 4

40 38 1 2
35

30

25
Price

20

15

10

0
0 1 2 3 4 5 6

Quantity
REMEMBER

We r measuring impact of price on

quantity demand.

Quantity Demand is function of

price.
REMEMBER

There is difference
Between
Increase/ dec in demand
Inc/dec in quantity demanded

Q Demanded is function of price.

 DEMAND FUNCTION
It shows how demand for a commodity, by an individual consumer in
the market, is related to its various determinants.
Dx= f(Px, Y, Po, T, Ef, N)
Px= Price of Commodity
Y= Income of consumer
Po= Price of related commodity (Substitutes ,complements)
T= Taste of consumer
Ef= Future expectations
N= Economic /Population growth
INCOME EFFECT- INC IN EFFECT
Type of goods EXAMPLES

NORMAL LAPTOP, BYKE,

MOBILE
Necessity PETROL, SALT

Inferior SECOND HAND

MOBILE, CAR
 DEMAND FUNCTION- INC IN INCOME OF
CONSUMER
Income of Consumer: The demand for goods also depends upon the income of
consumers. With an increase in income, the consumer's purchasing power
increases, because he is in now in a position to buy more goods. Consequently,
the consumer's demand for goods increases.
There are three types of goods for each of which the effect of income differs:
Normal Goods: Increase in income has a +ve effect on the demand for goods.
Generally, income of the people is directly related to their demand.
Thus there is a direct relationship between income and demand of normal
goods.

Laptop, Bike, TV
DEMAND FOR NORMAL GOODS
DEMAND FOR NECESSITY GOODS
Necessity Goods: For certain goods called necessities, demand
is not related to income.

Salt, Petrol, and LPG are considered necessity goods.

Demand for salt does not increase with the increase in income
and does not decrease with the decrease in income. It means that
it is irrespective of income.
DEMAND FOR NECESSITY GOODS
Will remain same
DEMAND FUNCTION
Inferior Goods: Goods are said to be inferior goods if
its demand falls with increase in income of the
consumer. Thus there is an inverse relationship between
income and demand of inferior goods. (unbranded
product).

Black and white TV, second hand car , second hand

bike
DEMAND FOR INFERIOR GOODS
INCOME EFFECT- INC IN EFFECT
Type of goods EXAMPLES effect

NORMAL LAPTOP, BYKE, Demand will

MOBILE
increase
Necessity PETROL, SALT Demand will
remain same
Inferior SECOND HAND Demand will
MONBILE, CAR
decrease
DEMAND FUNCTION
Price of other goods: Demand for a related commodity depends upon
the PR. There are two types of related commodities:
complimentary and substitute:
Complimentary Goods: If two goods are used together to satisfy a
want, they are said to be complimentary goods. For example: coffee
and sugar, automobiles and petrol, pens and refill.
What will happen to demand of coffee if price of sugar
(complements) increases

complimentary and substitute:

TEA /COFFEE/ SUGAR
DEMAND FUNCTION

Complimentary goods
A fall in price of a commodity raises the demand for its
complimentary goods.
Demand for a commodity is inversely related with price of
its complimentary goods.
COMPLIMENTARY GOODS
COFFEE=SUGAR
 DEMAND FUNCTION- SUBSTITUTE GOODS:
Substitute Goods: Those goods which can be used in place
of one another are called substitute goods.
For example: tea and coffee, scooter and motorcycle, etc.
For example, with an increase in the price of tea, the
demand for its substitute (coffee) increases. Demand for
commodity is directly related to the price of its substitute.
What will happen to demand of coffee if price of TEA
(complements) increases
SUBSTITUTE GOODS:
A fall in price of a commodity results in lowered demand for its
substitute, and an increase in the price of a commodity results in
increase in the demand of its substitute.
DEMAND FUNCTION
Taste and Preferences:
The Demand for goods and services depends upon the individual
taste and preferences. They include fashion, habit, custom etc.
Taste and Preferences of the consumer influenced by
advertisement, change in fashion, climate and new inventions
etc.
Expectation:
If the consumer expects that price in future will rise, he will buy
more quantity in present, at existing price. Likewise if the
consumer expects that price in future will fall, he will buy less
quantity in present, or may even postpone his demand
MARKET DEMAND
MARKET DEMAND
Market Demand refers to the “total volume that would be bought by a
defined consumer group in a defined geographical area in a defined
time period in a defined marketing environment under defined
marketing program”
 Market demand Curve
The Market demand curve is the total of the quantities demanded by
all individual consumers in an economy at each price.
The proposition that individual consumers will purchase more of a
good at lower prices that at higher prices. If this is true of individual
consumers, then it is also true of all consumers combined. i.e. called as
a Market demand
DETERMINANTS OF MARKET DEMAND
1. Price of the goods
2. Income of the Buyer
3. Prices of Related goods
4. Taste of the Buyers
5. Advertisement & Sales Promotion
ELASTICITY OF DEMAND
ELASTICITY OF DEMAND
ELASTICITY refers to how responsive the
quantity demanded is to a change in prices
An INELASTIC good will still sell about the same
quantity even if the price goes up or down

Price Elasticity = Proportionate change in quantity demanded

Proportionate change in price
MEANING & DEFINITION
Law of demand explain the direction of changes in demand. A fall in
price leads to an increase in quantity demanded & vice versa. But it
does not tell us the rate at which demand changes to change in price.
Elasticity of Demand was introduced by Marshall. This concept
explains the relationship between a change in price & consequent
change in quantity demanded.
Elasticity of demand can be defined as “the degree of
responsiveness in quantity demanded to a changes in price”
DEFINITION OF ELASTICITY OF DEMAND
Elasticity of demand may be defined as the percentage change in
quantity demanded to the percentage change in price. -- Alfred
Marshall

“The elasticity of demand is a measure of the relative change in

quantity to a relative change in price”. -- J. M. Keynes
TYPES OF ELASTICITY OF DEMAND
1. Price Elasticity of Demand
2. Income Elasticity of Demand
3. Cross Elasticity of Demand
PRICE ELASTICITY OF DEMAND
Price elasticity of demand measures the change in quantity
demanded to a change in price.
It is the ratio of percentage change in quantity demanded to
a percentage change in price.
Formula of Price Elasticity:

Price Elasticity = Proportionate change in quantity demanded

Proportionate change in price
PRICE ELASTICITY OF DEMAND
Formula of Price Elasticity:

Ep= (Q2 – Q1) / Q1

Where, (P2 – P1) / P1

Q1 = Quantity demanded before price change

Q2 = Quantity demanded after price change
P1 = Price charged before price change
P2 = Price change after price change
WHAT IS ELASTIC???
 TYPES OF PRICE ELASTICITY OF DEMAND
Price inelastic – a change in price causes a smaller %
change in demand.
Price elastic – a change in price causes a bigger %
change in demand.

1. Perfectly Elastic Demand (infinitely Elastic) :

2. Perfectly inelastic Demand
3. Relatively Elastic Demand
4. Relatively Inelastic Demand
5. Unit Elasticity Demand
FIGURE 1 THE PRICE ELASTICITY OF DEMAND
Perfectly Elastic Demand: (Elasticity Equals Infinity)

Ep= (Q2 – Q1) / Q1

(P2 – P1) / P1

Price

4 Demand

0 10 20 Quantity

Ep= (20-10)/10 /( 4-4)/4 =1/0 =∞

 PERFECTLY ELASTIC DEMAND:
(ELASTICITY EQUALS INFINITY)

Vegetable/ Fruit Vendors located on a street. –

So here all these vendors have to keep an almost same
price to get the demand; if any of them would
increase their price people would tend to move to
another vendor.

So such vendor faces a perfectly elastic demand curve.

 Perfectly Inelastic Demand: (Elasticity Equals 0)

Ep= (Q2 – Q1) / Q1

(P2 – P1) / P1

Price
Demand

P2=120

P1=100

0 100 Quantity

Ep= (100-100)/100 /( 120-100)/100 =0/0.2 =0

PERFECTLY INELASTIC DEMAND:
(ELASTICITY EQUALS 0 )

Emergency services, drugs and essential food item have perfectly

inelastic demand. The price of food item may increase or decrease;
there will be no change in the demand for goods

Examples- Medicine, Electricity

RELATIVELY ELASTIC DEMAND: (ELASTICITY IS
GREATER THAN 1)
Ep= (Q2 – Q1) / Q1
(P2 – P1) / P1
Price

P2=5

P1=4 Demand

0 40 100 Quantity

Ep= (40-100)/100 /( 5-4)/4 = -0.6/0.25= -2.4=2.4

RELATIVELY ELASTIC DEMAND:
(ELASTICITY IS GREATER THAN 1)
air-travel for vacationers is very sensitive to price. An increase in the
air fare will lead the vacationer to choose another mode of
transportation like car or lead him to postpone the vacation plan for
the time being.

elastic goods and services include furniture, motor vehicles,

instrument engineering products, professional services, and
transportation services.
RELATIVELY INELASTIC DEMAND: (ELASTICITY IS
LESS THAN 1
Ep= (Q2 – Q1) / Q1
(P2 – P1) / P1

Price

4
Demand

0 90 100 Quantity

Ep= (100-90)/90 /( 4-5)/5 = 0.11/-0.2=-0.55

RELATIVELY INELASTIC DEMAND:
(ELASTICITY IS LESS THAN 1
Inelastic goods include gas, electricity, water, drinks, clothing,
tobacco, food, and oil.
UNIT ELASTIC DEMAND: (ELASTICITY EQUALS 1)
Ep= (Q2 – Q1) / Q1
(P2 – P1) / P1

Price

4
Demand

0 9 18 Quantity

Ep= (9-18)/18 /( 6-4)/4 = -0.5/0.5=1

 Unit Elastic Demand: (Elasticity Equals 1)
The price of digital cameras increases by 10%, the
quantity of digital cameras demanded decreases by
10%. The price elasticity of demand is (unitary elastic
demand).
PROBLEM 1
Suppose the quantity demanded of coconut is initially 800 units at a
price of Rs 10 and increases to 1000 units when price falls to Rs 8.
Calculate price elasticity of demand?
PROBLEM 1
Suppose the quantity demanded of coconut is initially 800 units at a
price of Rs 10 and increases to 1000 units when price falls to Rs 8.
Calculate price elasticity of demand?

(1000-800)/800/ (8-10)/8 =200/800 /-2/10 =-1.25

PROBLEM 2
Suppose the quantity demanded of coconut is initially 500 units at a
price of Rs 20 and increases to 700 units when price falls to Rs 15.
Calculate price elasticity of demand?
PROBLEM 2
Suppose the quantity demanded of coconut is initially 500 units at a
price of Rs 20 and increases to 700 units when price falls to Rs 15.
Calculate price elasticity of demand?

(700-500)/500/ (15-20)/15 =200/500 /-5/15 =-1.21

Source : https://cdn.economicsdiscussion.net/
INCOME ELASTICITY OF DEMAND
Income elasticity of demand measures how much the quantity
demanded of a good responds to a change in consumers’ income.

It is computed as the percentage change in the quantity demanded

divided by the percentage change in income.

Percentage change
in quantity demanded
Income elasticity of demand =
Percentage change
in income
 INCOME ELASTICITY DEMAND
Income Elasticity
 Types of Goods
 Normal Goods
 Inferior Goods
 Normal goods are any goods for which demand increases when
income increases, and falls when income decreases but price
remains constant, i.e. with a positive income elasticity of demand.
Examples: Holidays, Cars, diamonds, branded fashions, hi-tech
products etc.
 Inferior good is a good that decreases in demand when consumer
income rises (or rises in demand when consumer income decreases).
Ex. Cheaper Car, Rather than air or rail prefer bus transport, off
brand product
DEMAND FOR NORMAL GOODS

If your income goes up will u buy more???

Color TV – Normal Good

Black and White TV – Inferior Good
DEMAND FOR NORMAL GOODS
DEMAND FOR INFERIOR GOODS
INCOME EFFECT- INC IN EFFECT
Type of goods EXAMPLES effect

NORMAL LAPTOP, BYKE, Demand will

MOBILE
increase
Necessity PETROL, SALT Demand will
remain same
Inferior SECOND HAND Demand will
MONBILE, CAR
decrease
 CROSS ELASTICITY DEMAND

A measure of how much the quantity demanded of one good

responds to a change in the price of another good, computed as the
percentage change in quantity demanded of the first good divided
by the percentage change in the price of the second good

%change in quantity demanded of good 1

Cross - price elasticity of demand 
%change in price of good 2

For example, if, in response to a 10% increase in the price of fuel, the demand of
new cars decreased by 20%, The cross elasticity of demand would be:
{{-20%} / {10%}} = -2
 CROSS ELASTICITY DEMAND
Sita buy 15 bananas when its price is Rs. 5 per banana. when the price increases to
Rs. 7 per banana, she reduces his demand to 12 bananas. And Ranu buy 30
mangoes when its price is Rs. 10 per Mango. when the price increases to Rs. 14 per
Mango. , she reduces his demand to 24 Mangos.
Calculate Cross elasticity of demand
%change in quantity demanded of good 1
Cross - price elasticity of demand 
%change in price of good 2

Change in demand =12-15/12 x 100 = -25%

Change in price=14-10/14 x 100 =28.57%

Cross elasticity of demand =-25 %/28.57 % = -0.87

IMPORTANCE OF ELASTICITY OF DEMAND
Useful for Business
Fixation of Prices
Fixation of Wages
In the sphere of International Trade
Significant for government economic policies
DETERMINANTS OF ELASTICITY OF
DEMAND
Range of prices
Income level
Nature of commodity
Availability of substitute
Variety of uses
Urgency of demand
Amount of money spend on the commodity
Durability of commodity
Purchase frequency of a product
FORECASTING
ECONOMY OR SOCIETY’S PROBLEMS

What is produced and in what

quantities?

How are these goods produced?

For whom are these goods produced?

INTRODUCTION AND MEANING OF
FORECASTING
Accurate demand forecasting is essential for a firm to enable it to
produce the required quantities at the right time & to arrange well in
advance for the various factors of production.

For example : An individual may forecast his job prospects, a consumer

may forecast an increase in his income and therefore purchases, similarly
a firm may forecast the sales of its product.

Demand Forecasting means predicting or estimating the future demand

for a firm’s product or products .
OBJECTIVES OF DEMAND FORECASTING
1. Short Term Objective (Manufacturing 500 bottles a day)
The short term objectives are as follows :
I. Formulation of Production policy : helps to overcome the problem of
over production and under production.
II. Regular Availability of Labour : helps to properly arrange skilled and
unskilled labour.
III. Regular supply of Raw Material : helps in predicting requirement
of raw material in future .
IV. Arrangement of funds : enables to estimate the financial
requirements .
V. Price policy formulation : enables the management to evolve a
suitable price strategy
 OBJECTIVES OF DEMAND FORECASTING
2. Long Term Objective ( Launching new product)
If the period of forecasting is more than one year then it is termed as
long term forecasting .

The long term objectives are as follows :

I. Labour requirements : helps in arranging skilled labour .

II. Arrangement of funds : enables to arrange long term finances on

reasonable conditions.
III. To decide about Expansion :enables to plan for a new project as
well as expansion and modernization of existing unit .
IV. Manufacturing 5000 bottles a day)
LEVEL OF DEMAND FORECASTING
1. Micro level Forecasting: It refers to demand forecasting by
individual business firm for estimating the demand for its product
like the demand for Microwave Oven or Marti cars.
2. Industry level: It refers to the demand estimate for the product of
the industry as whole. It relates to market demand as whole.
3. Macro level: It refers to the aggregate demand for the industrial
output by nation as whole. It is based on the national income or
aggregate expenditure of the country.
CRITERIA FOR GOOD DEMAND FORECASTING

????
CRITERIA FOR GOOD DEMAND
FORECASTING
1. Accuracy:
Accuracy is the most important criterion of a demand forecast, even
though cent percent accuracy about the future demand cannot be
assured.
2. Plausibility:
The techniques used and the assumptions made should be realistic.

3.Simplicity:
It should be simple, reasonable and consistent with the existing
knowledge..
CRITERIA FOR GOOD DEMAND FORECASTING
4. Durability:
Durability of demand forecast depends on the relationships of the variables
considered and the stability underlying such relationships. as for instance,
the relation between advertisement and sales,
5. Flexibility:
There should be scope for adjustments to meet the changing conditions. This
imparts durability to the technique
6. Availability of data:
Immediate availability of required data is of vital importance to business. It
should be made available on an up to date basis. There should be scope
for making changes in the demand relationships as they occur.
CRITERIA FOR GOOD DEMAND
FORECASTING
7. Economical:
It should involve lesser costs as far as possible. Its costs must be compared
against the benefits of forecasts
8. Quickness:
It should be capable of yielding quick and useful results. This helps the
management to take quick and effective decisions.
TYPES OF FORECASTING MODELS

Qualitative (technological) methods:

 Forecasts generated subjectively by the forecaster

Quantitative (statistical) methods:

 Forecasts generated through mathematical modeling
 QUALITATIVE METHODS

Type Characteristics Strengths Weaknesses

Executive A group of managers Good for strategic or One person's opinion
opinion meet & come up with new-product can dominate the
a forecast forecasting forecast

Market Uses surveys & Good determinant of It can be difficult to

research interviews to identify customer preferences develop a good
customer preferences questionnaire

Delphi Seeks to develop a Excellent for Time consuming to

method consensus among a forecasting long-term develop
group of experts product demand,
technological
changes, and
QUANTITATIVE /STATISTICAL METHODS
Time Series Models/ Extrapolative
 Assumes the future will follow same patterns as the past

Causal Models:
 Explores cause-and-effect relationships
 Uses leading indicators to predict the future
TIME SERIES

Naive Forecasting
Simple Mean
NAIVE FORECASTING
Next period forecast = Last Period’s actual:

Ft 1  At
FOR RETAIL SHOP-
CALCULATE SALES /PRODUCTION FOR DAY 2 USING NAIVE FORECASTING

Month Orders Naive Forecast Actual Sales

1 122
2 122 100
3 100 80
4 80
SIMPLE AVERAGE (MEAN)
Next period’s forecast = average of all historical data

At  At 1  At  2  .............
Ft 1 
n
FOR RETAIL SHOP-
CALCULATE SALES/ PRODUCTION FOR DAY 5 USING SIMPLE MEAN

Period/ Days Sales Simple average

1 120
2 100
3 150
4 130
=120+100+150+130)/4
=125
CAUSAL MODELS-REGRESSION METHOD
Causal models build on these cause-and-effect relationships
A common tool of causal modeling is linear regression:

Y  a  bx
Y=Forecast for demand for period X
X=time period
a= Intercept and b=slope
 CAUSAL MODELS-REGRESSION METHOD

Q) A company want to predict its demand of its product for 6th day.
From the past data values of a and b ate 180 and 0.2 respectively. Calculate
forecast.

Y  a  bx
Y=180+0.2 x6
Y=180 +1.2
Y=181.2
 METHODS OF DEMAND FORECASTING FOR
A NEW PRODUCT
Demand forecasting for new products is a challenging task.
Here, there is no reliable data to base demand calculations.
Experiences of other firms also are not available.

Therefore, firms introducing new products will have to rely

on new techniques of demand forecasting. The important
methods of demand forecasting for new products are the
following:
 METHODS OF DEMAND FORECASTING FOR A NEW PRODUCT

1)Test marketing :
This is a proven method of demand forecasting for new products Test
marketing involves marketing the new products as a test case in some
chosen markets. For test marketing, the product is either produced in
small quantities , or imported. If test marketing is successful, then
method forecasting is done on the basic of the data obtained in test
marketing. There have been many instances where certain products with
were successful in some countries did not succeed in other countries. That
is why test marketing is done to forecast demand.
e.g. Tooth paste
 METHODS OF DEMAND FORECASTING FOR A NEW PRODUCT
2. Opinion poll :
If the new products is a capital good with a few potential customers,
instead of test marketing, the potential buyers can be directly approached
and asked whether they would be interested in buying the products, Since
the opinion of the potential buyers is polled in this approach, it is called
opinion poll approach.

e.g. Projector, Machine

 METHODS OF DEMAND FORECASTING FOR A NEW PRODUCT
3. Evolutionary approach :
In the evolutionary approach, as the name implies,
the new product is seen as evolution from an existing
product.
In computers, the lap top is an evolution from desk
top and the tablet is an evolution is an evolution from
lap top.
Examples???
 METHODS OF DEMAND FORECASTING FOR A NEW PRODUCT
4. Substitute approach :
Substitute approach of demand forecasting is used
when the new products is a substitute for an existing
products.

For example : liquid soap is a substitute for toilet

soap cake , liquid mosquito vaporizer is a substitute
for mosquito coil.

Examples???
 METHODS OF DEMAND FORECASTING FOR A NEW PRODUCT
5. Vicarious approach :
Vicarious approach relies on gut feeling. This
approach relies on the product knowledge and
experience of the dealers of products. Since dealers
come into contact with thousands of customers. they
know from experience dealer with be in a position to
say whether a new product.

Examples????Like customer is interested in led

bulb or yellow bulb
THANK YOU