Forecasting Qualitative

7/23/2019 Forecasting Qualitative

1/27

FORECASTINGQualitative methods

Amit Sharma


2/27

IMPORTANCE OF DEMAND

FORECASTING

1. Price Control:

Demand forecasting helps in controlling prices by

matching the output with future expected demand.

2. Business Planning:

Demand forecasting helps in business planning based

on future activities to be taken up.

For Ex: Entrepreneurs may plan their export, sales,

production targets on the basis of future demand.

3. Competitive Strategy:Demand forecasting helps business to effectively,

formulate their competitive strategy in terms of

manpower, finance, advertising and other overheads.


3/27

TYPE OF DEMAND FORECASTING

1. Short Term Demand Forecasting:

In short term demand forecasting the time span

is limited normally less than 1 year. It is

undertaken to know the requirements of

material, labour, finance etc.2. Long term demand forecasting

This is undertaken to make future strategic

decisions regarding new product planning,

expansion, diversification, market developmentlong term demand forecast equips the

entrepreneurs to come out with sustainable

business policies.


4/27

LEVELS OF FORECAST

1. Firm Level:

it is based on the demand of product or services at firm level.

Whatever a single firm forecasts about its product or services

is known as firm level forecasting.

2. Industry Level:it is based on the demand of product or services by a group of

firm in the same category of product or service.

3. National Level:

The forecast is based on the future estimate of demand for the

whole economy. It is worked out on the basis of the level ofsavings. Consumption income and investment

4. Global Level:

With the opening of the economy through initiatives like

globalization and liberalization entrepreneurs have started

forecasting demand of international markets.


5/27

FACTORS AFFECTING DEMAND

FORECAST

Nature of Goods

Level of Competition

Price

Level of Tech.Economic out look


6/27

BAROMETRIC TECHNIQUES

It uses lead-lag relationship between

economic variables for predicting the

changes in a certain variable.

Earth quake necessitates Construction ofbuildings which leads the demand for

Cement, fans, Acs, Tube lights etc.

This requires ascertaining the lead-lag

relationship between two time series andthan keeping track of leading-series to

predict lagging-series


7/27

Virtual ShoppingA representative sample of consumers shop in a virtual

store simulated on the computer screen.By doing so, this method eliminates the high cost in terms

of time and money involved in consumer clinics.

Sample customers are asked to take a series of trips

through the simulated virtual store.

Prices, packaging, displays and promotions are changed insubsequent trips and consumer reaction recorded.


8/27

FORECASTING TECHNIQUES (CONTD)

Barometric Forecasting involves the use of

current values of certain economic variablecalled indicators to predict the future values ofother economic variables.Variables whose current changes give an indication offuture changes in other variable are called leading

indicators. Eg: Increase in building permits can be used toforecast an increase in housing construction.Variables whose changes coincide with changes in othereconomic variable are called coincident variables. Eg:Manufacturing and trade sales


9/27

FORECASTING TECHNIQUES (CONTD)

Barometric Forecasting (cont)

Variables whose changes follow changes in othereconomic variables are called lagging indicators.Average duration of unemployment.Ideally, changes in leading indicators consistentlyprecede changes in values of other variables.

Each of the categories is consolidated into an index,and these indices are used as forecasters. Theseindicators need to satisfy some criteria if they are tobe used as indicators, that is how many months ofchange in the direction of the index is necessary as apredecessor of a turn in economic activity.


10/27

QUALITATIVE METHOD- SURVEYS

A.Individual and companies plan in advance for

their future purchases. In this method potential

buyers should be approached and asked as to

how much they intend to buy a particular

product or service at a particular point of time.

i. census method:

When the total population of potential buyers in

surveyed it is know as census method.

ii.sample method:

When only a portion of total population of

potential buyer is surveyed it is known as

sample method.


11/27

B. OPINION POLL METHOD

The firm can forecast its sales by polling experts within and outside the firm.

There are several techniques

I. Executive Polling:

Top management of a firms sales, production, finance department may be

asked for sales outlook for next quarter or year. Some outside market experts

could also be polled to arrive at a better estimate of demand forecast. To

avoid a bandwagon effect (whereby the opinions of some experts might beovershadowed by some dominant personality in their midst),

Delphi method can be used. Here, experts are polled separately, and then

feedback is provided without indentifying the expert responsible for a

particular opinion. The hope is that through this feedback procedure the

experts can arrive at some consensus forecast.

II. Sales force Polling:

This is a forecast of the firms sales in each region and for each product line, it

is based on the opinion of the firms sales force in the field These are the

people closest to the market, and their opinion of future sales can provide

valuable information to the firms top management.


12/27

FORECASTING TECHNIQUES (CONTD.)

TheDelphi methodis a systematic, interactive

forecastingmethod which relies on a panel of independentexperts.The carefully selected experts answer questionnaires intwo or more rounds. After each round, a facilitatorprovides an anonymous summary of the experts forecasts

from the previous round as well as the reasons theyprovided for their judgments.Thus, participants are encouraged to revise their earlieranswers in light of the replies of other members of thegroup.

It is believed that during this process the range of theanswers will decrease and the group will convergetowards the "correct" answer.

Finally, the process is stopped after a pre-defined stopcriterion (e.g. number of rounds, achievement ofconsensus, stability of results) and themeanormedian

scores of the final rounds determine the results
http://en.wikipedia.org/wiki/Forecastinghttp://en.wikipedia.org/wiki/Meanhttp://en.wikipedia.org/wiki/Medianhttp://en.wikipedia.org/wiki/Medianhttp://en.wikipedia.org/wiki/Meanhttp://en.wikipedia.org/wiki/Forecasting


13/27

CONSUMER SURVEYS AND OBSERVATIONAL

RESEARCH

Consumer surveys involve questioning a sample of consumers

about how they would respond to particular changes

in the price of the commodity,

incomes,

the prices of related commodities,advertising expenditures,

credit incentives

and other determinants of demand.

These surveys can be conducted by simply stopping and

questioning people at a shopping center or

by administering questionnaires to a carefully constructed

representative sample of consumers by trained

interviewers.


14/27

Consumer Surveys:

It involves gathering of information about

consumer behavior from a sample of consumerswhich is analyzed and then further projected

onto the population.

Surveys are conducted to assess consumers

perception of various aspects, such as newvariations in products, variations in prices of

the product and related products, new

variations in services provided etc.

The drawback of this method is that the

consumer has to respond to hypothetical

situations.


15/27

OBSERVATIONAL RESEARCH

Shortcomings of Surveys (on previous slides)can

be over come by supplementing them with ORs

It refers to gathering of data about consumer

preferences by watching and observing them

buying and using products.

Eg. OR has shown that people buy several

medicines for cold rather than only one type, OR

also uses product scanners found in stores or

people meters in stores or homes (this raisesissues of privacy)

OR tries to determine demographic

characteristics (age sex, race education income

family size)


16/27

CONSUMER CLINICS

These are lab experiments where consumers may

be given money to spend in a simulated store to

see how they react to changes in

price,

product,

packaging displays,

price of complementary,

substitutes.Participants can be selected to represent the

socio economic characteristics of the market


17/27

MARKET EXPERIMENTS

Unlike Consumer clinics which are conducted in

the lab-like conditions these are conducted in the

actual market place

E.g a firm may select several markets

representing similar socio economic

characteristics and

change commodity price in some markets,

packaging in some others and

than record the response of the consumer in

different markets


18/27

Market experiments:

Seller of a product introduces variations and

tries it out in a representative market.

The seller gathers information on the behavior

of the consumers in this representative

market.This is a high cost technique.

Advantage of market experiments are that

they can be conducted on a large scale to

ensure validity of results and consumers are

not aware that they are a part of experiments.


19/27

VIRTUAL SHOPPING & VIRTUAL

MANAGEMENT

In VS a representative sample of consumers shop in a

virtual store simulated on computer screen instead of

a simulated physical store.

In VS 3 D images are available and allows marketers

to recreate atmosphere of the actual store on thecomputer screen. The consumer can se shelves stocked

with all kinds of products, he can view up close any

product by touching its image on the screen so as to be

able to read its label and check its content, and he can

then purchase the product by touching the picture of ashopping cart. He can be asked to take series of trips

through the, virtual store, then prices packaging,

displays, and changed in subsequent trips and their

reactions are recorded.


20/27

VIRTUAL MANAGEMENT

Uses Computational models which mimic human

behavior closely to allow top management to simulate

or test the impact of managerial decisions ( such as

changing the product price or its characteristics)

before implementing those decisions in the real world.Macys Department Store uses computer model, based

on information from consumer surveys and database

information to determine

1)The number of salespeople needed in each department

of the store

2) How to turn browsers into shoppers

3) How to locate service desks and cash registers to

maximize sales.


21/27

FORECASTING OF DEMAND

Involves projecting the values of the present to a futurepoint in time. It is a difficult task. Statisticians have

worked out some models for the purpose.

Aim of economic forecasting is to reduce the risk or

uncertainty that the firm faces in its short term

operational decision making and in planning for its

long term growth.

Distinction between estimation and forecast:

A forecast is a projection of the relevant variable, notconcerned about underlying factors and their behavior.


22/27

FORECASTING

Demand estimation involves primarilyunderstanding the underlying factors orvariables and their behavior and effects onthe relevant variable. It attempts to

understand why and to what extent is theestimate influenced by a variable or agroup of variables.

Demand forecast does not go into suchrelationships, it only attempts to projectfuture demands.


23/27

All rights reserved

DEMAND FORECASTING

A demand forecast has to be knit into the rest ofthe system, and should not be taken inisolation like:

Capacity installation or expansionHiring of labor and other related activitiesChanges into political and economicenvironment

It should be based on thorough knowledge anddata relating to the past.

Even with these considerations forecast may befar different from real situation


24/27

ECONOMIC FORECASTING

Forecasting refers to the process of

analyzing available information regarding

economic variables and relationships and

then predicting the future values ofcertain variables of interest to the firm or

economic policymakers.

Forecasts can be short run or long run. It

could be daily, weekly, monthly, quarterly,annual or five / ten or twenty years.


25/27

FORECASTING TECHNIQUES

(CONTD.)

SurveysEconometric Models: These give anestimate of the dependent variable (whichcould also be a forecast), if theindependent variables used as data areforecasts. Eg: The demand of automobileswhich is a function of disposable income,family size, interest rates and index of

industrial production could be used toforecast the demand for automobiles


26/27

FORECASTING TECHNIQUES (CONTD.)

Trend analysisrelies on historical data to predict thefuture. It is the use of historical data to discern a longrun trend.The simplest form of forecasting using trendanalysis is the projection into the future of thecurrent value of an economic variable.

Eg: One might forecast that next year sales wouldbe a function of sales in the existing year oralternately next year sales would be a function ofthis years sales and the change in sales betweenthis year and last year. Or a forecaster might predictnext year sales based on sketching a line thatappears to best fit the historical data.

Models that use only trend analysis might not bethat useful as against those which also take intoconsideration seasonal and cyclical factors.

(CONTD)


27/27

(CONTD.)

Projection Techniques:

1.Visual time series projection2.Time series projection using least square method

.Visual Time Series projection: This technique plots the dataand on the basis of the same a trend is projected through these

data points. This method is better than the compound growth rateas it considers data between the two end points.

.Least square method of time series projection: This methodascertains how the dependent variable moves with time and timebecomes the independent variable

Forecasting Qualitative

Documents

Transcript of Forecasting Qualitative