Methods of Demand Forecasting
The methods of demand forecasting are
Opinion survey methods and statistical methods.
(1) Opinion survey methods
(2) Consumers opinion survey
(3) Expert opinion survey
(4) Collective opinion survey
(5) Test marketing or controlled experimentation method
(6) End use method
1)Consumers opinion survey:-
The consumer opinion survey can be either census or sample survey where the numbers of buyers are limited, census survey methods hold. In this case, the opinion of the entire universe is obtained. On the other hand, where the number of buyers is large, universal survey is not feasible; hence, sample survey methods are used The results obtained through the sample surveys are blown up to the entire universe to obtain the forecasted demand However, it should be borne in mind that consumer opinion surveys are not perfectly reliable as there are consumers biases and based on the likely hood of some future changes that mayor may not materialize. Further, consumer opinion surveys are expensive and time taking.
2)Expert opinion method or Delphi method:-
Expert opinion method is a variant of the consumers opinion survey method. It was also popular as Delphi method and first used by Rand Corporation in USA for predicting the demand under conditions of intractable technological changes. It is used under conditions of nonexistence of data or when a new product is being launched.
The fairest step in this method is the identification of experts and eliciting their opinions about the likely demand for the product. The experts may difter in their views in which case the firm has to pass on the opinions of one expert to the other, of course under strict anonymity and seek their reactions. This exercise should go on until a common line of thinking emerges.
3) Collective opinion surveyor sales force opinion survey method:-
In this method, the firm will extract the opinions of the sales team, which is on the payrolls of the company about the future demand for the product. The sales personnel are very close to the consumers and dealers. They express their opinions about the future demand for the product. The opinions so gathered are tabulated and the demand forecasts will be arrived at. However, care be taken before forming an opinion about the future demand. The opinions of the sales team should not be taken on the face value as an ambitious sales man gives an over estimate of the demand for the product while a skeptic fearing the fixation of higher sales targets always quotes a lesser figure. This can resolved by maintaining a track record of accomplishment of the previous targets and achievements of each member of the sales team and make necessary adjustments in the forecasted sales and arrive at a conclusion. This method is an inexpensive but more reliable method of demand forecasting.
4)Test marketing or controlled experimentation:-
Firms resort to test marketing while launching a new product or likely to change the design or model of the existing products. This is also known as controlled experimentation method as the product is likely to be launched in a segmented market to identity its demand potential. The essential prerequisites of test marketing are that the product price, its design, quality, level of advertisement and sales promotion campaign should be equal in promotion to that of what the firm is likely to incur had it been released in the dilatational market. Test marketing should be continued until the repurchase cycle commences. The geographical, economic, sociological and even the demo Topic features of the test marketing region should represent all the features of the national market.
Test marketing can be under taken in a single market or different markets with different features of the product. Test marketing will no doubt be useful method as it ventilates the consumer preferences and facilitates the model or design changes if necessary but at the same time, it is an expensive proposition. The forecasted sales in the test marketing area should not be taken on their face values.
5)End-use or input-output method
The end-use method applies for forecasting the demand for intermediate products. These are products used in the manufacture of some other final goods. The demand for the final product is an indicator of the demand for intermediate product, subject to the availability of the input/output coefficients. Once the demand for the final goods estimated, the demand for the intermediate product can be easily arrived at using the input-output coefficients. The major problem of using this method is that one product is an intermediate product for producing not One commodity but several other commodities as in the case of iron and steel. In such cases. The input-output coefficient in all the uses and the estimated demand for all those products should be available, failing which the demand forecasts become useless.