Lecture 7. Demand analysis and forecasting in marketing

PhD., Elbek Khodjaniyazov

Introduction to Demand Analysis

• Definition: Demand analysis is the process of understanding, measuring, and predicting the market demand for a product or service.
• Objective: Helps firms determine sales potential, set prices, plan production, and develop marketing strategies.
• Key Questions in Demand Analysis:
• What factors influence customer demand?
• How sensitive is demand to price, income, or advertising?
• What will future demand look like?

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Determinants of Demand

Demand depends on various internal and external factors, such as:

• Price of the Product
• Law of demand: other things being equal, demand decreases as price increases.
• Graph: Downward-sloping demand curve.
• Elasticity concept:

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Levels of Market Demand Measurement

Estimation Techniques

1. Market Surveys – Direct questioning or sampling.
2. Buyer’s Intentions Survey – Asking customers about future buying plans.
3. Sales Force Estimation – Input from field representatives.
4. Test Marketing – Introducing product in a limited area.

Meaning & Definition of Demand Forecasting

Demand forecasting is a systematic process that involves anticipating the demand for the product and services of an organization in future under a set of uncontrollable and competitive forces.

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Accurate demand forecasting is essential for a firm to enable it to produce the required quantities at the right time and arrange well in advance for various inputs.

Meaning & Definition of Demand Forecasting

• In the words of Cundiff and Still, “Demand forecasting is an estimate of sales during a specified future period based on proposed marketing plan and a set of particular uncontrollable and competitive forces.”

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• Demand forecasting enables an organization to take various business decisions, such as planning the production process, purchasing raw materials, managing funds and deciding the price of the product . An organisation can forecast demand by making own estimates or taking the help of specialized consultants or market research agencies

METHODS OF DEMAND FORECASTING

A) Qualitative Techniques/ Opinion Polling Method

• In this method, the opinion of the buyers, sales force and expert could be gathered to determine the emerging trend in the market.
• Suited for short term demand forecasting.

-Demand forecasting for new product can b made by qualitative techniques.

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The opinion polling methods of demand forecasting are of following kinds:

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1. Consumer Survey Method
2. Sales Force Opinion Method
3. Delphi Method

1) Consumer Survey Method

Survey method is one of the most common and direct methods of forecasting demand in the short term.This method encompasses the future purchase plans of consumers and their intentions. In this method, an organization conducts surveys with consumers to determine the demand for their existing products and services and anticipate the future demand accordingly.

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Survey method include:

1. Complete Enumeration Survey
2. Sample Survey and Test Marketing
3. End Use

1) Consumer Survey Method

1. Complete Enumeration Survey:

In this method records the data & aggregates of

consumers

If the data is wrongly recorded than Demand Forecasting going wrong, than this method will be totally useless.

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2. Sample Survey & Test Marketing:

Only few customers selected and their views collected.

Based on the assumption that the sample truly represents the population.

This method is simple and does not cost much

The main disadvantage is that the sample may not be a true representation of the entire population.

1) Consumer Survey Method

c) End Use Method:

This method Focuses on Forecasting the demand for

intermediary Goods.

Under this method, the sales of a Product are projected through a survey of its end users.

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Example:

Milk is a commodity which can be used as an intermediary good for the production of ice cream, and other dairy products.

2) Sales Force Opinion Method

• In this method , instead of consumers, the opinion of the opinion of salesman is sought.
• It is also referred as the “grass root approach” as it is a bottom- up method that requires each sales person in the company to make an individual forecast for his or her particular sales territory.
• The composite of all forecasts then constitutes the sales

forecast for the organisation.

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• The main advantage is that the collecting data from its own employees is easier for a firm than to do it from external parties.
• The main disadvantage is that the sales force may give biased views as the projected demand affects their future job prospects.

3) Delphi Technique

This method is also known as expert opinion method.

In this method seeks the opinion of groups of Expert through mail about the expected level of Demand.

The identity of expert is kept secret.

These opinion exchanged among the various experts and their reactions are sought and analyzed.

The process goes on until some sort of unanimity is arrived at among all the experts.

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The advantage is that the forecast is reliable as it is based on the

opinion of people who know the product very well.

The disadvantage is that the method is subjective and not based on scientific analysis.

B) Quantitative Techniques/ Statistical or Analytical Methods

These are forecasting techniques that make use of historical quantitative data.

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A statistical concept is applied to the existing data in order to generate the predicted demand in the forecast period.

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The statistical methods, which are frequently used, for making demand projection are:

1. Trend Projection Method
2. Barometric Method
3. Regression Method
4. Econometric Method

1) Trend Projection Method

-An old firm can use its own data of past years regarding sales in past years.

-These data are known as time series of sales.

-Assumes that past trend will continue in future.

-Past trend is extrapolated (generalised).

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The trend can be estimated by using any one of the following methods:

1. Graphical Method
2. Least Square Method
3. Time Series Data
4. Moving Average Method
5. Exponential Smoothing

1) Trend Projection Method

1. Graphical Method:

A trend line can be fitted through a series graphically. The direction of curve shows the trend.

The main drawback of this method is that it may show the trend but not measure it.

1) Trend Projection Method

b) Time Series Data:

Data collected over a period of time recording historical

Variables influencing demand for a commodity.

Time series analysis relates to the determination of changes in a variable in relation to time.

c) Moving Average Method:

The moving average of the sales of the past years is computed. The computed moving average is taken as forecast for the next year or period.

This is based on the assumption that future sales are the average of the past sales.

APPLICATIONS IN MARKETING DECISIONS

Pricing Strategy

• Elasticity-based pricing: Adjust price according to sensitivity of demand.

Advertising Budgeting

• Forecasting demand response to ad spend (using regression).

Production & Inventory Planning

• Align output to expected market demand to minimize stockouts or overproduction.

New Product Launches

• Forecast demand under various marketing mix scenarios (using simulation models).

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