Chapter 4 Market

Forecasting
4.2 Quantitative Methods

4.1 Qualitative Methods

Forecast

A prediction, projection, or estimate of some future activity, event, or occurrence.

Types of Forecasts –

Economic forecasts : Predict a variety of economic indicators, like money supply, inflation

rates, interest rates, etc.

Technological forecasts : Predict rates of technological progress and innovation.

Demand forecasts : Predict the future demand for a company’s products or services.
 Why do we need to forecast?

 Throughout the day, we forecast very different things such as weather,

traffic, stock market, state of our company from different perspectives.

 Virtually every business attempt is based on forecasting.

 Not all of them are derived from sophisticated methods.

 However, “Best" educated guesses about future are more valuable for

purpose of Planning than no forecasts and hence no planning.

 TYPES OF FORECASTING METHODS
Qualitative methods:

 These types of forecasting methods are based on judgments, opinions, emotions, or personal

experiences

 are subjective in nature.

 They do not rely on any rigorous mathematical computations.

Quantitative methods:

 These types of forecasting methods are based on mathematical (quantitative) models,

 are objective in nature.

 rely heavily on mathematical computations.

 Qualitative methods

Executive Sales Force

Opinion Market Survey Delphi Method
Composite

Approach in Approach that uses

Approach in which Approach in which
which a group of interviews and
each sales person consensus
managers meet surveys to judge
estimates sales in agreement is
and collectively preferences of
his or her region reached among a
develop a forecast customer and to
group of experts
assess demand
 Qualitative Forecasting

Used when:

 Past data cannot be used reliably to predict the future.

 Technological trends

 Regulations

 When no past data is available, usually because

the situation is very new.

 Entry into new markets

 Development of new products

Quantitative Information

 Used when data is tangible, can be used reliably to predict the future, and there

is sufficient historical data upon which to base forecasts.

 Sales

 Profits

 Production levels
 Delphi Technique

 The main objective of the Delphi technique is

 to construct consensus forecasts from a group in a structured manner.

 involves a repeated cycle of questionnaires presented to a panel of select experts.

 The independent answers provided by the expert team are then forwarded to the facilitator

to analyze and summarize the opinions.

Highlights of Delphi method
A few of the highlights of this method include

 Freedom of expression: The anonymity of the experts allows them to express their opinions
without any social pressure.

 Right to change opinions: The experts are free to change their opinions at any time without
the fear of criticism.

 Regular feedback: The experts are informed about the other participants’ opinions in the
study after each round and allowed to comment on the responses. This helps to revise their
own forecasts and opinions.

 Quantitative results: Though qualitative in nature, it involves some form of statistical

aggregation, paving the way for quantitative analysis as well.
A visual representation of the Delphi method
 When to use the Delphi technique?

 Delphi technique is recommended when the problem at hand needs collective and

subjective decisions. It can be used to:

 forecast outcomes related to economic development such as improved education,

employment opportunities, and income.

 forecast outcomes of an epidemic/pandemic disease (for example, COVID-19 leads to loss

of lives, hampers economic status of the affected nation, brings financial fragility to small

businesses).
 Limitations of Delphi method

 Delphi is time-consuming and laborious for both facilitators and experts.

 It may lead to loss of consistency or distraction between rounds as it demands long-term and

continuous commitment.
 Market Research

 Market research is a popular qualitative forecasting method used in business.

 It forecasts future demand through consumer surveys and questionnaires.

 Businesses apply this technique to gain valuable insights from consumers when, for example,

introducing a new product into the market.

 It differs from the Delphi technique because public opinions are considered here to glean insights, and

not just those of experts.

 Market research methodologies also change according to evolving market challenges.

 Highlights of market research method

 Some of the highlights of market research are that it

 Helps to introduce new products, identify potential markets, select appropriate marketing

techniques and promotion measures

 Introduces consumer-oriented marketing policies

 Assists companies in studying marketing problems and arriving at solutions

 Reduces the gap between the producers and consumers

Steps involved in market research
 Quantitative methods

Time-Series Models Associative Models

Time series models look Associative models (often

at past patterns of data called causal models)
and attempt to predict assume that the variable
the future based upon the being forecasted is
underlying patterns related to other variables
contained within those in the environment. They
data try to project based upon
those associations.
 TIME SERIES MODELS
Model Description
Naïve Uses last period’s actual value as a forecast
Simple Mean (Average) Uses an average of all past data as a forecast
Uses an average of a specifi ed number of the
most recent observations, with each
Simple Moving Average
observation receiving the same emphasis
(weight)
Uses an average of a specifi ed number of the
most recent observations, with each
Weighted Moving Average
observation receiving a diff erent emphasis
(weight)

Exponential Smoothing A weighted average procedure with weights

declining exponentially as data become
Technique that uses the least squares
Trend Projection
method to fi t a straight line to the data

A mechanism for adjusting the forecast to

Seasonal Indexes
accommodate any seasonal patterns
inherent in the data
DECOMPOSITION OF A TIME SERIES
Patterns that may be present in a time series :

 Trend: Data exhibit a steady growth or decline over time.

 Seasonality: Data exhibit upward and downward swings in a short to intermediate

time frame (most notably during a year).

 Cycles: Data exhibit upward and downward swings in over a very long time frame.

 Random variations: Erratic and unpredictable variation in the data over time with
no discernable patter
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