MB0042-Managerial Economics Unit-3 Demand Forecasting

Program Semester Subject Code Subject Name Unit Number

: MBA :I : MB0042 : Managerial Economics :3

Unit Title

: Demand Forecasting

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MB0042-Managerial Economics Unit-3 Demand Forecasting

Demand Forecasting

Objectives:
To identify the conditions under which the firm is operating. Distinguish between survey methods and statistical methods for forecasting. To adopt a suitable method to make accurate forecasts.

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MB0042-Managerial Economics Unit-3 Demand Forecasting

Lecture Outline

Introduction Forecasting Level of Demand Forecasting Criteria for Good Demand Forecasting Methods or Techniques of Demand Forecasting Survey Methods Statistical Methods Demand Forecasting for a New Products Summary Check Your Learning

Activity

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MB0042-Managerial Economics Unit-3 Demand Forecasting

Introduction

Demand forecasting refers to an estimate of most likely future demand for product under given conditions.

Such forecasts are of immense use in making decisions with regard to production, sales, investment, expansion, employment of manpower etc., both in the short run as well as in the long run.

Forecasts are made at micro level and macro level.

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MB0042-Managerial Economics Unit-3 Demand Forecasting

Forecasting

Demand forecasting seeks to investigate and measure the forces that determine sales for existing and new products

In short run like production planning, formulating right purchase policy, pricing policy, stocks etc.

In long run like ,efficient business planning, financial planning, regulating business efficiently, etc.

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MB0042-Managerial Economics Unit-3 Demand Forecasting

Levels of Demand Forecasting

Micro level or firm level : demand forecasting by the firm for its product. Industry level : undertaken by trade associations and results are made available to members.

Macro-level : based on macro-economic variables, is undertaken by national

institutes, govt. agencies etc.

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MB0042-Managerial Economics Unit-3 Demand Forecasting

Criteria for Good Demand Forecasting

An ideal forecasting method should be accurate, plausible, durable, flexible, make the data available readily, economical and quick in yielding results.

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MB0042-Managerial Economics Unit-3 Demand Forecasting

Methods or Techniques of Forecasting

Survey methods
Consumers interview Method 1. Survey of buyers intentions through questionnaire 2. Direct Interview Method a. Complete Enumeration Method b. Sample Survey Method Collective Opinion Method Expert Opinion method End-Use Method

Statistical methods

Trend projection method

Economic Indicators

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MB0042-Managerial Economics Unit-3 Demand Forecasting

Survey Methods

Survey methods : collecting opinions of experts/by interviewing consumers.

These methods are used in short run and estimating demand for new products. Consumers interview method: collect information directly from consumers regarding their future purchase plans. 1. Survey of buyers intentions/preferences or Opinion surveys : Consumer-buyers are asked to reveal their future purchase plans with respect to specific items. The heart of the survey is questionnaire.

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MB0042-Managerial Economics Unit-3 Demand Forecasting

Survey Methods

2. Direct Interview Method: customers are directly contacted and interviewed. Direct and simple questions are asked to them. a. Complete enumeration method : all potential customers are interviewed in a particular city or a region. b. Sample survey method or consumer panel method : a group of consumers are chosen and queried about their preferences in concrete situations through direct interview/mailed questionnaire.

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MB0042-Managerial Economics Unit-3 Demand Forecasting

Survey Methods

Collective opinion or Salesforce polling method : opinions of sales representatives, professional experts, market consultants and others are asked about the volume of sales expected in future.

Delphi Method or Experts Opinion Method : outside experts are appointed and
supplied with all information and statistical data and they express their opinions/views about expected future sales of company.

End Use or Input Output Method : sale of the product is projected on the

basis of demand surveys of industries using given product as an intermediate

product. For e.g., steel

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MB0042-Managerial Economics Unit-3 Demand Forecasting

Demand Forecasting for a New Product

Statistical, mathematical models, equations etc are used to estimate future demand in the long run. Trend Projection Method : is based on past data, adopting a regression analysis

demand forecasts are made.

Time series is a set of observations taken at equal intervals. Future sales of a company can be projected on the basis of time series. To calculate trend values Yc, regression equation is Yc = a+ bx. Economic Indicators : changes in magnitude of economic variables serve as a basis for demand forecasting. Eg. A rise in personal income indicates a rise in demand for consumption of goods.

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MB0042-Managerial Economics Unit-3 Demand Forecasting

Demand Forecasting for a New Product

Firms will not have past experience/data for Demand forecasting for new products . Approaches by Prof. Joel to make demand forecasting for new products: Evolutionary approach : when new product is evolved from old product, demand

conditions of old product form basis for forecasting demand for new product. Eg.
demand for new Pulsar can be forecasted based on sales of old Pulsor. Substitute approach : If new product developed serves as substitute for existing product, demand for new product may be worked out on basis of a market share. For e.g.a cell phone as a substitute for a land line.

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MB0042-Managerial Economics Unit-3 Demand Forecasting

Demand Forecasting for a New Product

Opinion Poll approach : potential buyers are directly contacted, or through use of samples of new product and their responses are found out.

Sales experience approach : product is offered for sale through one super
market and estimate of sales obtained is used to estimate demand for product.

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MB0042-Managerial Economics Unit-3 Demand Forecasting

Demand Forecasting for a New Product

Growth Curve approach : rate of growth and ultimate level of demand for new product are estimated on basis of the pattern of growth of established products. For e.g., An Automobile Co., while introducing a new version of car will study level of demand for existing car.

Vicarious approach : firm survey consumers reactions to new product indirectly through getting in touch with some specialized and informed dealers who have

good knowledge about market, consumers preferences etc.

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MB0042-Managerial Economics Unit-3 Demand Forecasting

Summary

Demand forecasting refers to the estimation of future demand under given conditions.

Methods of demand forecasting 1. Survey Methods, 2 Statistical Methods.

Survey methods: consumers interview method, collective opinion method, experts opinion method and end-use method.

Statistical methods - trend projection, economic indicators are generally used

to make long run demand forecasts.

In case of new products - evolutionary approach, substitute, growth-curve, opinion poll, sales-experience, vicarious etc., are adopted.

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MB0042-Managerial Economics Unit-3 Demand Forecasting

Check Your Learning

1. The heart of the survey method is ___________________. Ans. Questionnaire 2. Collective opinion method is also known as ___________________. Ans. Sales-force polling 3. Sample survey method of Demand forecasting is also called _________. Ans. Consumer panel 4. On the basis of___________________ it is possible of project future sales of a company. Ans. Time series

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MB0042-Managerial Economics Unit-3 Demand Forecasting

Activity

The construction industry registers the changes in the demand for various products required in the industry more visibly. Identify changes in demand for housing and trace the changes in demand for steel, cement etc during the same period.

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