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Demand Forecasting

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demand forecasting

Demand ForecastingPresented 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 ForecastingMeasure and forecast the size, growth and profit potential of each market opportunityIt helps marketers quantify, compare, and interpret marketing performanceDemand 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 ResearchMarketing 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 MarketPotential marketConsumers have some stated interest in a product or service.Available marketSet of consumers who have the interest, income and access to the product or services.Qualified available marketSet of consumers who have the interest, income, access and qualifications for a particular product or service.Served or target marketPart of the qualified market that the company decides to pursue.Penetrated marketSet of consumers that have already bought a particular product or service.

Market DemandDEFINITION:- 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 DemandMarket 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 DemandMarket 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 CurveA 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 DemandAs 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 marketMarket PotentialThe maximum sales reasonably attainable under a given set of conditions within a specific period of time.Example Texas Instrument Handheld Calculator, The SR10.In another words market and sales potential can change depending on market factors such as average category price or general economic conditions.Example when texas instruments introduced SR10,a handheld calculator, it made slide ruler obsolete. It had only four features (add,subtract,multiply and divide) and it had no cost was 100$. Market potential was limited to only those buyers who did lot of calculations and could afford such a expensive calculator. When the number of features offered increased and price decreased rapidly,not only the sales increased but also the market potential increased.12Uses of Market PotentialPotential 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 estimatesGovernment SourcesTrade AssociationsPrivate CompaniesFinancial AnalystsMethods of Estimating Market PotentialAnalysis based Estimates.Area Potential.Market ForecastingThe amount of sales expected to be achieved under a set of conditions within a specific period of timeForecasts answer What If Questions.Forecasts help set budgets.Forecast provides a basis for a monitoring system.Forecast aid in production planning.Company DemandCompany demand isdemandfor a specific companys goods compared to other company offerings. The demand is determined by sales numbers of a particularbrandput 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 companys shirts amount to 4,000 units, the company demand for the firm is (4000x100/50000) 8 percent.

Company Sales ForecastSales Forecastingis the process of estimating what your businesss 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 cant 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 PotentialThe highestmarket sharethat aproductcan reasonably be expected toachievewithin a giventime frame. The sales potential for anew productis typically assessed by abusinessinterested inproducingit beforeproductioncommences to determine whether production efforts are likely to be worthwhile.

Estimating Current Demand There are 2 types of estimates of current demand:Total market potentialTerritory 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 unitTerritory PotentialSince it is impossible for a company to have the demand forecast of the product globallyTherefore, territorial potential method can be introduced.In this method, the company selects a territory where it can sell its products well.Forecasting Future DemandSURVEY OF BUYERS INTENTIONSCOMPOSITE OF SALES FORCE OPINIONSEXPERT OPINIONPAST-SALES ANALYSISMARKET-TEST METHODLEADING 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 yearshort and medium-term sales

Composite of Sales Force Opinions Forecasts on information provided by the sales force.Delphi Method.BiasThey may understate demand so that the company will set a low sales quota.

Expert OpinionForecasting 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 wont 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 analysisBreaking 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 MethodBuyers 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:ExpensiveTime consuming Competitive Awareness

30Leading IndicatorsThink of how the amber traffic light indicates the coming of the red light. In the world of finance, leading indicators work the same way.ExampleStock MarketGDP