DEMAND FORECASTING

METHODS
 Overview
A. Consumer survey method
B. Statistical methods
1. Trend Projections methods
2. Barometric method of forecasting
3. Econometric methods
1. Consumers’ survey method
– Complete enumeration survey- Probable demand of
all the consumers for the forecast period.
( X= x1+x2+ x3+…….+xn)
– Sample survey- demand expressed by each selected
units is summoned up.
– End-use method- The sale of the product under
consideration is projected on the basis of the
demand survey of the industries using this product
as the intermediate product.
2. Opinion Poll Methods
- aims at collecting opinions of those who are
supposed to posses knowledge of the market.
e.g.: Sales representatives, sales executives,
etc
Opinion poll consists of:-
a. expert opinion method
b. Delphi method
c. Market studies and experiments
a. Expert opinion method
• Firms having good network of sales representatives can assess
the demand through them.
• Being in close touch with consumers, they will be able to know:-
– Future purchase plans of the customer
– Reaction to the market changes
– Reaction to the introduction of new product
> And they can find an approximate estimate of demand in their
respective area.
> Estimate obtained from different area can be added up
together to get the overall probable demand for a product.
> Firms have not this facility, can gather information through
different professional market experts or consultants, thus also
known as “opinion poll method”.
b. Delphi Method
It is an extension of simple expert opinion poll method.
This method is used to consolidate the divergent expert
opinions and to arrive at a compromise estimate of future
demand.
c. Market studies and experiments
(Market experiment method)
-Select some areas of the representative markets having
similar features
-Then carry out experiments by changing price, advertisement
etc and other controllable variables in the demand function
under the assumption that other things remain same.
-the controlled variables may be changed over time or
simultaneously in all the market or in the selected market
 Statistical methods
1. Trend Projection methods- Firms of a long standing can use past
years data to assess the future demand
Graphical Method
Annual data on sales are plotted on a graph paper and
a line is drawn through the plotted points.
Graphical method
YEAR SALES OF BREAD
(‘000 TONNES)
1994 10
1995 12
1996 11
1997 15
1998 18
1999 14
2000 20
2001 18
2002 21
2003 25
Fitting trend equation or least square method
1. Linear trend
Y= a + b T
Where Y- annual sales, T- time (Years) and a and b are constants.
2. Exponential trend
When sales or any (dependent variable) have increased over the
past years at an increasing rate or at a constant percentage
rate, the exponential trend equation is used.
Box-Jenkins method ; Used only for short term predictions. It is used
where variations are monthly or seasonal or variations with some degree
of regularity.
3. Auto – regression model
4. Moving average model
5. Auto –regressive moving average model
2. Barometric method
Economists use economic indicators as barometer to forecast trends in business
activities
1.Leading series- Indicators move up or down ahead of other series

Eg; Index of net business (Capital) formation

New order for durable goods
New building permits
Change in the value of inventories
Index of the prices of the materials

2. Coincidental series- Indicators move up or down simultaneously with the level of

economic activity
Eg; Number of employees in the non –agricultural sector
Rate of unemployment
Gross national product at constant prices
Sales records
3.Lagging series- Indicators which follow a change after some time lag
Eg; Labour cost per unit of manufacturing output
Outstanding loans
Lending rate for short term loans
3. Econometric models
These models combine statistical tools with economic
theories to estimate economic variables and to
forecast economic events.
Two types
1. Regression method
Regression methods may be simple regression
analysis or multiple regression analysis
Simple regression analyses studies effect of single
independent variable(Price) on a variable like
Demand
Multiple regression analysis estimates demand as a
function of two or more independent variables
that vary simultaneously.
2. Simultaneous Equations method
(Complete systems approach)
• It involves simultaneous consideration of all variables.
• Because the every variable influences the other variable in an
economic decision environment.
• Thus set of equations equals number of dependent variable
 Demand forecasting of new product

1. Consumer surveys (survey of buyers’

intention)
2. Test marketing
3. Life cycle segmentation analysis
4. Bouncing curves method
1. Life cycle segmentation analysis
1.Introduction
2. Growth
3. Maturity
4. Saturation
5. Decline
 2. Bounding Curves Method
• Based on market share data
 Qualities of a good Demand Forecasting

1. Simplicity
2. Accuracy
3. Easy availability
4. Economy
5. Capacity to update forecasts
Importance of Demand Forecasting
1. Planning of production
2. Sales forecasting
3. Control of business
4. Control on business activities
5. Decision / policy making
6. Useful for stability