Demand Forecasting

Why Demand Forecasting is Essential for

Your Ecommerce Business

 Forecasting allows eCommerce companies

to understand customer demand and
anticipate future trends, enabling them to
plan ahead and make informed decisions.
 Demand forecasting assists online retailers
in better understanding and foreseeing the
needs of their customers. This helps
companies develop effective marketing
and promotional campaigns that target
their customers and increase sales.
 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
comp
 According to Evan J. Douglas, “Demand estimation
(forecasting) may be defined as a process of finding values
for demand in future time periods.”
 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.”
 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.
 Significance of Demand
Forecasting
 Demand plays a crucial role in the management of every business.
 It helps an organization to reduce risks involved in business
activities and make important business decisions.
 demand forecasting provides an insight into the organization’s
capital investment and expansion decisions.
 i. Fulfilling objectives:
 An organization estimates the current demand for its products and
services in the market and move forward to achieve the set goals.
 For example, an organization has set a target of selling 50, 000
units of its products. In such a case, the organization would
perform demand forecasting for its products. If the demand for the
organization’s products is low, the organization would take actions
to correct it.
 ii. Preparing the budget:
 Plays a crucial role in making budget by estimating costs and
expected revenues.
 iii. Stabilizing employment and production:
 Helps an organization to control its production and
recruitment activities. Producing according to the forecasted
demand of products helps in avoiding the wastage of the
resources of an organization. This further helps an
organization to hire human resource according to requirement.
 iv. Expanding organizations:
 Implies that demand forecasting helps in deciding about the
expansion of the business of the organization. If the expected
demand for products is higher, then the organization may plan
to expand further.
 v. Taking Management Decisions:
 Helps in making critical decisions, such as deciding the plant
capacity, determining the requirement of raw material, and
ensuring the availability of labor and capital.
 vi. Evaluating Performance:
 if the demand for an organization’s
products is less, it may take corrective
actions and improve the level of demand
by enhancing the quality of its products
or spending more on advertisements.
 vii. Helping Government:
 Enables the government to coordinate
import and export activities and plan
international trade.
Objectives of Demand Forecasting
 a. Formulating production policy:
 Helps in covering the gap between the demand and
supply of the product. The demand forecasting helps in
estimating the requirement of raw material in future, so
that the regular supply of raw material can be maintained.
 b. Formulating price policy:
 An organization sets prices of its products according to
their demand. For example, if an economy enters into
depression or recession phase, the demand for products
falls. In such a case, the organization sets low prices of its
products.
 c. Controlling sales:
 Helps in setting sales targets, which act as a basis for
evaluating sales performance.
 d. Arranging finance:
 Implies that the financial requirements of the
enterprise are estimated with the help of demand
forecasting.
 ii. Long-term Objectives:
 Include the following:
 a. Deciding the production capacity:
 Implies that with the help of demand forecasting, an
organization can determine the size of the plant
required for production.
 b. Planning long-term activities:
 Implies that demand forecasting helps in planning
for long term.
Process of Demand Forecasting
 Types of Demand
forecasting
1. Macro level
 Macro-level demand forecasting looks at general economic conditions, external
forces, and other broad things disrupting commerce. These factors keep a
business in the know around portfolio expansion opportunities, market research
intel, and other shifts in the market.
1. Micro-level
 Demand forecasting at the micro-level can be specific to a particular industry,
business, or customer segment (e.g., examining demand for a natural
deodorant for millennial customers in Chicago, IL).
 Short-term
 Short-term demand forecasting is usually done for a time period of less than 12
months. It looks at demand for under a year of sales to inform the day-to-day
(e.g., planning production needs for a Black Friday/Cyber Monday promotion).
 Long-term
 Long-term demand forecasting is done for greater than a year. This helps
identify and plan for seasonality, annual patterns, production capacity, and
expansion over a longer period of time. This drives long-term business strategy
(e.g., plans to launch a facility or store internationally and expand into new
markets).
 Techniques of demand forecasting
 1. Market Research/Surveying:
 The technique in market research is customer
surveys is essential instrument for demand
forecasting. Internet surveys have made it
easier than ever to target your audience, and
survey software has greatly sped up analysis.
 Survey results can teach forecasters a lot that
a sales figure simply cannot. They may assist
with marketing initiatives, find opportunities,
and improve your comprehension of the
requirements of your target audience.
 2. Statistical Approach:
 The application of statistical approaches
to demand forecasting is. a reliable and
frequently cost-effective strategy The
following are some applications for the
statistic approach:
 Trend Projection
 Regression Analysis
 Time Series Analysis
 Decision Trees
 3. Econometric Models:
 Econometric models are mathematical models used in
economics and related fields to describe economic
systems. They are used to estimate relationships among
economic variables, such as prices, demand, supply, and
consumption.
 4. Composite Sales Force Approach:
 Sales personnel predict demand in their particular
territories using a demand forecasting technique known
as the sales force composite, sometimes known as the
"collective view." This information is combined at the
branch, region, or area level, and an overall firm demand
projection is made by accounting for the total of all the
variables.
 5. A/B Experiment:
 There are times when it is possible to study consumer
behaviour through carefully monitored market trials.
This includes testing different campaigns, features,
website images or features, email subject lines, and
many other things using A/B methods.
 6. Delphi Method:
 The Delphi method is a qualitative forecasting
technique that relies on the opinions of experts to
predict future demand. In a series of rounds,
specialists are questioned about the anticipated
demand for various products. The opinions are then
consolidated and used to make a prediction.