Meaning of Demand Forecasting

Demand forecasting is the scientific

and analytical estimation of demand
for a product (service) for a
particular period of time.
It is the process of determining how
much of what products is needed
when and where.
Elements of a Good Forecast

Timely

Reliable Accurate

Meaningful Written Easy to use

Criteria for a good forecasting

Accuracy
Simplicity
Economy
Availability
Durability
Techniques of Demand Forecasting
 Subjective (Qualitative) methods: rely
on human judgment and opinion.
Buyers’ Opinion
Sales Force Composite
Market Simulation
Test Marketing
Experts’ Opinion
Techniques of Demand Forecasting
Quantitative methods: use
mathematical or simulation models
based on historical demand or
relationships between variables.
Trend Projection
Smoothing Techniques
Barometric techniques
Econometric techniques
Subjective Methods of Demand Forecasting
Consumers’ Opinion Survey
 Buyers are asked about future buying
intentions of products, brand preferences
and quantities of purchase, response to an
increase in the price, or comparison with
competitor’s products.
Census Method: Involves contacting
each and every buyer
Sample Method: Involves only
representative sample of buyers
 Subjective Methods of Demand
Forecasting Contd…

Opinion Survey
Salespersons are in direct contact
with the customers. Salespersons
are asked about estimated sales
targets in their respective sales
territories in a given period of time.
 Subjective Methods of Demand Forecasting
Contd….

Test Marketing
Involves real markets in which
consumers actually buy a product
without the consciousness of being
observed.
product is actually sold in certain
segments of the market, regarded as
the “test market”.
Choice and number of test market(s)
and duration of test are very crucial to
the success of the results.
 Quantitative Methods of Demand Forecasting

Trend Projection
Statistical tool to predict future values of a variable on
the basis of time series data.
 Time series data are composed of:
Secular trend (T): change occurring consistently
over a long time and is relatively smooth in its path.
Seasonal trend (S): seasonal variations of the data
within a year
Cyclical trend (C): cyclical movement in the
demand for a product that may have a tendency to
recur in a few years
 Quantitative Methods :
Barometric TechniquesContd….

Barometric Technique alerts businesses

to changes in the overall economic
conditions.
Helps in predicting future trends on the
basis of index of relevant economic
indicators especially when the past data
do not show a clear tendency of
movement in a particular direction.
 Limitations of Demand Forecasting

Change in Fashion
Consumers’ Psychology
Lack of Past Data
Uneconomical
Lack of Experienced Experts