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Demand Forecasting

Presented by:Zoha Rashid Vini PargainVaibhav Badukale Vipul MaheshawariGaurav Shah Jayendran B

What is Demand Forecasting?

•Demand forecasting is the activity of estimating the quantity of a product or service that consumers will purchase

Need of Demand Forecasting

•Measure and forecast the size, growth and profit potential of each market opportunity

•It helps marketers quantify, compare, and interpret marketing performance

•Demand forecasting may be used in making pricing decisions, in assessing future capacity requirements, or in making decisions on whether to enter a new market

Marketing Research

Marketing research is the systematic design, collection, analysis, and reporting of data and findings relevant to a specific marketing situation facing the company

Measures of Market Demand

Types of Market▫ Potential market

Consumers have some stated interest in a product or service.

▫ Available market Set of consumers who have the interest, income and access

to the product or services.▫ Qualified available market

Set of consumers who have the interest, income, access and qualifications for a particular product or service.

▫ Served or ‘target’ market Part of the qualified market that the company decides to

pursue.▫ Penetrated market

Set of consumers that have already bought a particular product or service.

Market Demand• DEFINITION:- Market demand for a product is the

total volume that would be bought by a defined customer group in a defined geographical area in a defined time period in a defined marketing environment under a defined marketing program.

• The combined demand of everyone willing and able to buy a good in a market. Market demand is one half of the market. The other is market supply. It is graphically represented by a negatively-sloped market demand curve, which can be derived by combining, or adding, the individual demands of every buyer in the market.

Market Demand

•Market demand captures the buying side of a market exchange. Guided by the law of demand, buyers are willing and able to purchase a larger quantity at a lower price. This relation is illustrated by a downward-sloping market demand curve.

Market Demand

•Market demand primarily focuses on the one-to-one relation between the demand price and the quantity demanded. The quantity demanded at higher prices is less than the quantity demanded at lower prices.

Market Demand Curve

•A representative market demand curve is illustrated in this exhibit. Note that the curve, or line, has a negative slope. At a relatively high price of Rs40, the quantity demanded is 20. At a relatively lower price of Rs10, the quantity demanded is 80.

Other Factors Affecting Demand• As market demand focuses on the relation between demand

price and quantity demanded, it is also affected by the five ceteris paribus demand determinants:

• (1) buyers' incomes• (2) buyers' preferences• (3) the prices of substitute goods• (4) buyers' expectations• (5) the number of buyers in the market

Market Potential

•The maximum sales reasonably attainable under a given set of conditions within a specific period of time.

•Example – Texas Instrument Handheld Calculator, The SR10.

Uses of Market Potential

•Potential estimates can help allocate resources over a product line.

•Potential estimates can help to determine the stage of the product life cycle.

•Potential estimates can help set product objectives.

•Potential estimates can help Sales Managers.

•Potential estimates can help to develop Marketing Strategies.

•Potential estimates can help make location decisions.

•Finally, Estimates can be an input for Forecasts.

Sources for Potential estimates

•Government Sources•Trade Associations•Private Companies•Financial Analysts

Methods of Estimating Market Potential

•Analysis based Estimates.•Area Potential.

Market Forecasting

•The amount of sales expected to be achieved under a set of conditions within a specific period of time

•Forecasts answer “ What If” Questions.•Forecasts help set budgets.•Forecast provides a basis for a monitoring

system.•Forecast aid in production planning.

Company Demand• Company demand is demand for a specific

company’s goods compared to other company offerings. The demand is determined by sales numbers of a particular brand put against total market sales.

• Example : The number of shirts sold within a particular season is 50,000 units (combining all brands and sellers), and if a specific company’s shirts amount to 4,000 units, the company demand for the firm is (4000x100/50000) 8 percent.

Company Sales Forecast

•Sales Forecasting is the process of estimating what your business’s sales are going to be in the future. Sales forecasting is an integral part of business management. Without a solid idea of what your future sales are going to be, you can’t manage your inventory or your cash flow or plan for growth. The purpose of sales forecasting is to provide information that you can use to make intelligent business decisions.

Company Sales Potential

•The highest market share that a product can reasonably be expected to achieve within a given time frame. The sales potential for a new product is typically assessed by a business interested in producing it before production commences to determine whether production efforts are likely to be worthwhile.

Estimating Current Demand

There are 2 types of estimates of current demand:

•Total market potential•Territory potential

Total Market Potential

It is the maximum amount of sales that might be available to all the firms in an industry during a given period.

Q=n*p*qQ: total market potential

n: no. of buyers of specific product q: quantity purchased by an average

buyer p: price of an average unit

Territory Potential

Since it is impossible for a company to have the demand forecast of the product globally

Therefore, territorial potential method can be introduced.In this method, the company selects a territory where it can sell its products well.

Forecasting Future Demand

•SURVEY OF BUYERS’ INTENTIONS•COMPOSITE OF SALES FORCE

OPINIONS•EXPERT OPINION•PAST-SALES ANALYSIS•MARKET-TEST METHOD•LEADING INDICATORS

Survey of Buyers’ Intensions(Opinion Surveys)•The most direct method of estimating

demand in the short-run is to ask customers what they are planning to buy for the forthcoming time period – usually a year

•short and medium-term sales

Composite of Sales Force Opinions

• Forecasts on information provided by the sales force.

•Delphi Method.•Bias

▫They may understate demand so that the company will set a low sales quota.

Expert Opinion•Forecasting specialists are in a better position

than the company to prepare economic forecasts because they have more data available and more forecasting expertise.

•Bias example In 1946,Daryl F. Zanuck, head of 20th

Century-Fox, made this pronouncement: “TV won’t be able to hold on to any market it captures after the first six months. People will soon get tired of staring at a plywood box every night.”

Past-Sales Analysis

•Time-series analysis▫Breaking down past sales into its trend,

cycle, season and erratic components, then recombining these components to produce a sales forecast.

•Limitations:▫Historical data is not always good

indication of what might happen in future.

Market-Test Method

•Buyers do not plan their purchases carefully or where experts are not available or reliable, the company may want to conduct a direct test market.

•Limitations:▫Expensive▫Time consuming ▫Competitive Awareness

Leading Indicators

•Think of how the amber traffic light indicates the coming of the red light. In the world of finance, leading indicators work the same way.

•Example▫Stock Market▫GDP