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Demand Estimation and Forecasting

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Savitha Kumar
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30 views14 pages

Demand Estimation and Forecasting

Uploaded by

Savitha Kumar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Demand Estimation and Demand Forecasting

• Estimation attempts to quantify the links between the level of


demand and the variables which determine it
• Forecasting, on the other hand, attempts to predict the overall level
of future demand rather than looking at specific linkages.
Consumer survey
• Questionnaires containing questions about buyers’ intentions with
regard to prices, quality, advertising, usefulness, uniqueness, packing,
etc. are collected through personal interviews, by mail or through
telephonic interviews
• personal interview method, house to house
• Very expensive
• Best to elicit information
• Mail surveys
Expert opinion
• sales line managers and executives- touch with customers
• Receive customer feedback
• undertake surveys in their regions regarding the expected future
demand
• tabulated and inferences drawn by the management
• also take the help the market consultants and professional experts
who are into the business of forecasting
• also called as “Collective Opinion” method
• based on the aggregate opinion of the experts
• less time and is a reliable method
• opinions are subjective and not completely reliable
• views and estimations of the representative’s may be biased
• The salesmen, to protect their jobs and to project a good image to the
management may give highly optimistic figures and may over
estimate demand.
Delphi Method
• Olaf Helmer -1940s
• used for conducting opinion poll or survey
• An extension of simple expert or survey method
• used to consolidate the divergent expert opinions and to arrive at a
probable estimate of future demand
• group of experts are repeatedly questioned for their opinion – agree
or disagree
• time-saving method
• it pre-supposes that the participants are objective in approach and
possess great thinking ability and reasoning
Trend Projection
• past data about the dependent and independent variables
• Also called as Time Series Analysis Method
• set of observations taken at specified time, generally at equal
intervals
• the historical pattern under normal conditions
• not based on any particular theory as to what causes the variables to
change assumes that whatever forces contributed to change in the
recent past will continue to have the same effect
• based on the assumption that the factors responsible for the past
trends would continue to be the same in future and in the same
magnitude and direction
• Data is collected for a particular period, say for five years or ten years and the
resulting trend is extrapolated into future periods.

• The results are used as the basis for demand estimation. Changes in time series
data arise on account of the following reasons:

• Secular or Long-run Movements: Secular movements indicate the general conditions and
direction in which graph of a time series move in a relatively long period of time.
• Seasonal Movements: Time series undergo changes during seasonal sales of a company.
During festival season, sales clearance season etc., there are many unexpected changes.
• Cyclical Movements: Change in time series or fluctuations in the demand for a product during
different phases of a business cycle like depression, revival, boom etc. are called as cyclical
movement changes
• Random Movements: When changes take place at random and there is no particular reason,
it is called irregular or random movements
Regression Analysis
• A statistical technique the line that best fits the data points according
to am objective statistical criterion so that all researchers looking at
the same data would get exactly the same result
• It studys on how a responsible variable depends on one or more
predictable factors
• A statistical technique for estimating the relationships between 2 or
more variables(between dependent and independent)
• Study of relationships between 2 or more variables
• Conducted during following reasons
• When we want to know if any relationship exists between 2 or more
variables
• Understand the nature of relationship
• To predict a variable given the value of others
• Regression line can be obtained by minimizing the sum of the square
of the residuals
• Ordinary least squares
• Assumptions and limitations: Regression analysis assumes linearity,
independence, and constant variance, which may not always hold in
real-world scenarios.
• Overfitting and underfitting: Models can be overly complex
(overfitting) or too simplistic (underfitting) if not carefully tuned.
• Multicollinearity: When independent variables are highly correlated,
it becomes challenging to determine their impact on the dependent
variable.
• Outliers and influential points: Extreme data points can
disproportionately affect regression results, leading to inaccurate
conclusions.
• Misinterpretation of results: Users may misinterpret regression
output without proper understanding, leading to flawed decisions or
actions.
• Evolutionary Approach
• Substitute Approach
• Growth Curve Approach
• Sales Experience Approach
Demand forecasting steps

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