1. Managerial Economics
Demand Forecasting

2. Demand Forecasting
 It means expectation about future course of
the market demand for a product based on
statistical data about past behavior and
empirical relationships of demand
determinants
 Types/Objectives of Demand Forecasting
 Short term
 Long term

3. Short Term Forecasting
 It normally relates to a period not exceeding a
year
 Benefits of Short term forecasting
 Drafting of Production Policy
 Evolving a Sales Policy
 Determining Price Policy
 Fixation of Sales Target

4. Long Term Forecasting
 It refers to the forecasts prepared for long
period during which the firm’s scale of
operations or the production capacity may be
expanded or reduced.
 Benefits of Long term forecasting
 Business Planning
 Manpower Planning
 Long-Term Financial Planning

5. COMPONENTS OF DEMAND
FORECASTING SYSTEM
 Market research operations to procure relevant and
reliable information about the trends in market.
 A data processing and analysing system to estimate
and evaluate the sales performance in various
markets.
 Proper co-ordination of steps (i) and (ii) above
 Placing the findings before the top management for
making final decisions.

6. Significance /Use/ Importance of
Demand Forecasting
 Production Planning
 Sales Forecasting
 Control of Business
 Inventory Control
 Growth and Long Term Investment Program
 Economic Planning and Policy Making
 Avoiding Surplus and Inadequate
Production


7. Sources of Data
 Primary: which are collected for first time for
purpose of analysis
 Secondary : are those which are obtained
from someone’s else records

8. Techniques of Demand Forecasting
Survey
Methods
Consumer Survey Opinion Poll
Methods
Market Studies
Complete Expert
&
Enumeration Opinion Experiments
Sample Delphi
Survey Method Market Test
Laboratory
Test

9. Consumer Survey Methods
 Complete enumeration Method: All potential users of
product are contacted and are asked about their future
plan of purchasing the product in question
 Limitations
 Very expensive in case of widely dispersed market
 Consumers may not know their actual demand and may
br unable to answer query
 Their plans may change with a change in factors not
included in questionnaire

10. Contd.…
 Sample Survey: Only a few potential
consumers and users selected from relevant
market are surveyed
 Method is simpler, less costly and less time
consuming.
 Surveys are done to understand market
demand, tastes ad preferences, Consumer
expectations etc

11. Opinion Poll Method
 Aim at collecting opinions of those who are
supposed to possess the knowledge of the
market e.g sales representatives, sales
executives, consultants and professional
marketing experts
 This method includes
 Expert opinion
 Delphi method

12. Expert opinion
 Under this method each expert is asked independently to
provide a confidential estimate and results could be averaged.
 Experts may include executives directly involved in the
market such as suppliers, distributors or dealers or marketing
consultants, officers of trade association etc.
 Advantage is that there is no danger that group of experts
develop a group- think mentality. Moreover, forecasting is
done quickly and easily without need of elaborate need of
statistics.

13. Delphi Method
 This method is an attempt to arrive at a consensus on
some issues by questioning a group of experts
repeatedly until the responses appear to converge
along a single line or the issues causing
disagreement are clearly defined.
 Generally a panel consisting 9 to 12 experts
 A coordinator is required for the process

14. Market Experimentation
 Test marketing
 A test area is selected, which should be a representative of the
whole market in which the new product is to be launched.
 A test area may include several cities having similar features i.e.
population, income levels, cultural and social background, choice
and preferences of consumers
 Market experiments are carried out by changing prices,
advertisement expenditure and other controllable variables
influencing demand
 After such changes are introduced in the market, consequent
changes in demand over a period of time are recorded.

15. Contd.…
 Experiments in laboratory or consumer clinic
method
 Under this method consumers are given some money to
buy in a stipulated store goods with varying prices,
packages, displays etc.
 They are also requested to fill a questionnaire asking
reasons for the choices they have made
 The experiment reveals the consumers responsiveness to
the changes made in prices, packages and displays.

16. Limitations of market
experiment methods
 Very expensive
 Being costly, carried out on a scale too small to permit
generalization with a high degree of reliability
 Based on short term and controlled conditions which
may not exist in an uncontrolled market
 Tinkering with price increases may cause a permanent
loss of customers to competitive brands