Unit II

Demand forecasting

A.Latha .,MBA., M.Phil

G2 & G5 September

Demand Forecasting
Demand forecasting is a tool to
scientifically predict the likely
demand of a product in the future
Demand forecasting is an estimate of
sales in dollars or physical units for a
specified future period under a
proposed Marketing Plan
American Marketing association
2

Categorisation
[level , Time & Nature of
Goods]

Firm Level [ Micro]

Industry level
Economy [ Macro level]
Short term forecasting [a year]
Long term forecasting [5 7 yrs to 10
20 Yrs]
Consumer Goods
Capital Goods
3

Techniques of Demand
Forecasting
What do people say?
What do People Do?
What have people Done ?
A.Latha .,MBA., M.Phil

G2 & G5 September

Factors determining
Forecasting Methods

Immediate objectives of forecasting

Cost involved
Time perspective
Complexity of the technique
Nature & quality of available data

Subjective methods of
Forecasting
Consumer Opinion survey
[senses survey, Sample survey, stratified
sampling, Questionnaire , Interview
schedule ]
Sales Force Composite
Experts Opinion method [ Group
Discussion & Delphi Techniques]
Market simulation
Test Marketing
6

Quantitative Methods of
Demand Forecasting
Trend Projection
[ General Pattern of change in
the long run]

A.Latha .,MBA., M.Phil

G2 & G5 September

Trend Projection
Secular Trend [ change occurs
during the long [period ]
Seasonal Trend [seasonal variations
with in a year]
Cyclical Trend [cyclical movement of
the demand]
Random Events [ Random Variations]

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Methods of Trend Projection

Graphical Method
Least square Method
ARIMA [ Box Jenkins Method]

11

GRAPHICAL METHOD

Year
1995

SALES IN
CRORES
40

1996

50

1997

44

1998

60

1999

54

2000

62
12

Graphical Method

13

Smoothing Techniques
Moving Average
Weighted Average
Exponential smoothing

14

Simple Moving Average

Jan

Feb

Marc April May

h

June

July

Agu

Sept

Oct

180

200

100

80

120

150

90

120

110

50

Find the Moving Average for 3 & 5

Months

15

Other techniques
Barometric Techniques
Simultaneous Equation method

16

Barometric Techniques
Construct an index of relevant
economic indicators & forecast
future trends on the basis of these
Indicators.

17

Barometric Techniques
The leading series [Baby powder]
Concurrent series
The lagging series

18

Econometric Techniques
It can be defined as the social
Science in which the tools of
economic theory , Mathematics &
Statistical Inference are applied to
the analysis of economic Phenomena

19

Econometric Techniques
[ Regression Analysis , Multiple
Regression Analysis ]
It attempts to assess the relationship
between at least two variables (one or
more independent and one dependent),
Quantum of Sales = (Price)a +
(Advertising)b+ (Price of the rival
products) c + (Personal disposable
income Y + u
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Limitations of Demand
Forecasting

Change in fashion
Consumer psychology
Uneconomical
Lack of Experts
Lack of past data

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