DEMAND FORCASTING

Demand forecasting is predicting the future

demand for firm’s product.
Demand forecasting helps in following areas:-
1. Planning and scheduling production.
2. Acquiring inputs.
3. Making provision for finances.
4. Formulating pricing strategy.
5. Planning advertisement.
Steps in demand forecasting

Specifying the objective.

Determining the time perspective.
Making choice of method for demand
forecasting.
Collection of data and data
adjustment.
Estimation and interpretation of
results.
Techniques of demand
forecasting.
Consumer survey method- Direct
interviews-
1. Consumer Survey Method – Direct
Interviews
a.Complete enumeration
b.Sample survey
c.End-use method
1.Complete enumeration:-

1. In this, almost all the potential users of

the product are contacted and are
asked about their future plan of
purchasing the product in question

2. The quantity indicated by the consumers

are added together to obtain the
probable demand for the product.
2.Sample survey

Under this , only a sample of

potential consumers or users is
selected for interview.
Consumers to be surveyed are
selected from the relevant market
through a sampling method.
Method of survey may be direct
interview or mailed questionnaire to
the sample- consumers
3.End-use method

Ist stage :- Identify and list all possible users

of the product in question.
IInd stage :-fixing suitable technical ‘norms’
of consumption of the product under study.
IIIrd stage :- Application of the norms.
Final stage :- Aggregate the product- wise or
use-wise content of the item for which the
demand is to be forecast.
Opinion poll methods
1. Expert opinion method
2. Delphi method
3. Market studies and experiments
1.Expert opinion method

In this, sales representative of firms

assess the demand for the targeted
product in the areas, regions or cities
that they represent.
The estimates of demand thus
obtained form different regions are
added up to get the overall probable
demand for a product.
2.Delphi method

Under this method, the experts are

provided information on estimates of
forecasts of other experts along with
the underlying assumptions.
The experts may revise their own
estimate in the light of forecast made
by other experts.
Market studies and experiments

Under this method firms first select

some areas of the representative
markets having similar features.
Then they carry out market
experiments by changing prices,
expenditure and other controllable
variables in demand function.
Statistical methods

Trend projection methods

Barometric methods
Econometric method.
Trend projection methods

This methods is concerned with the

study of movement of variables
through time.
This requires long and reliable time
series data.
This is based on an assumption that
past trends will be continued to play
their part in same manner in future
Barometric methods

This construct an index of relevant

economic indicators and to forecast
future trends on the basis of
movements in the index of
economic indicators.
Indicators are:-
1. Leading indicators.
2. Coincidental indicators.
3. Lagging indicators
Contd…

Graphical Method
Fitting Trend Equation or least squares
Method
Box Jenkins Method
. Leading indicators :- it moves up & down
ahead of some other series.
E.g.., (i) index of net business investment,
(ii) change in the value of inventories: (iii)
index of prices of the materials .

Coincidental indicators :-
it moves up and down
simultaneously with the level of general
economic activities. e.g., (i) no.s of
employees in non agriculture sector : (ii)
rate of unemployment ;(iii) gross national
products at constant prices.
 Lagging indicators :-
it consist of those indicators that
follows a change after some time-
lag.
1. e.g., labour cost per unit of
manufactured output,
2. Lending rates for short term loans
Econometric method.

This method combines statistical tools

with economic theories to estimate
economic variables and to forecast
the intended economic variables.
Methods:-
Regression method
Simultaneous equation method