Forecasting

Forecasting and
and
Demand
Demand Measurement
Measurement
Raju Varghese
 Why Study Demand?
• Finance -The cash that is required for
operations and investments.
• Operations – To establish capacity and
output levels.
• Purchasing – To get the right amount of
supplies.
• HR – To get the right number of workers
• Marketing- To prepare Sales Forecasts
 Wrong Sales Forecast
• Excessive Inventories or Inadequate
Inventory.
• Sales Forecasts are based on
estimates of Demand.
 Demand Levels
Time Level Product Level Space Level

Short Run All Sales World

Medium Run Industry Sales India

Long Run Company Sales Region

Product Line Territory

Sales
Product Form Customer
Sales
 Types of Markets
• Potential Market: Set of consumers who
have income and access to the product
offer.
• Available Market: Set of consumers who
have interest, income and access to a
particular product offer.
• Target Market: Part of the qualified
available market the company decides to
pursue.
 Types of Markets
• Penetrated Products: Is the set of
customers who are buying company’s
products.
 Market Demand
• Market Demand for a product is the total
volume that would be bought by a
• defined customer group in a
• defined geographical area in a
• defined time period in a
• defined marketing environment under a
• defined marketing programme
 Market Demand
Functions
Market Potential
Market Demand

Q2

Market
Forecast

Market
Minimum

Q1
Industry Marketing Expenditure
Q2 - Q1 = Small / Non expansible Market

Q2 - Q1 = Big / Expansible Market

 Market Penetration
Index
• Low MPI = Substantial growth prospects for all firms.

• High MPI = High cost in attracting remaining

prospects.
Share Penetration Index
• Share Penetration
Index = Current Market Share
Potential Market Share
 Product Penetration
Percentage
Sr. Product Penetration %
No.
1 TV 40

2 Motorcycles 6

3 Scooters 4

4 PC at Home 1
 Product Penetration
Percentage
• Lower the Product Penetration Index
– Higher the Market Potential
 Company Demand
• It is the company’s estimated share
of market demand at alternative
levels of company marketing effort
at a given time period.
 Company Demand
• The company’s share of market
demand depends on how its products,
services, etc are perceived in
comparison to the competitor.
Estimating Current Demand
 Company Sales Forecast
• It is the expected level of company
sales based on a chosen marketing
plan and an assumed marketing
environment.
 Total Market Potential
• TMP =
Potential Number of buyers * Average
Quantity Purchased by a buyer * The Price
The maximum amount of sales that would
be available to all the firms in an
industry in a given time period under a
given level of industrial marketing
efforts and environmental conditions.
 Total Market Potential
• Estimate the potential number of
buyers and then eliminate the groups
that will not buy the product.
 Area Market Potential
• Market Build Up Method: Identify all
the potential buyers in each market
and estimate their potential
purchases.
• Ex.Pumps
 Multiple Factor Index
Method
• Customers for consumer products
are numerous.
• Hence predicting demand will be a
problem.
• Hence such companies use existing
indices.
 Multiple Factor Index
Method

• MICA rural Market Ratings

• RK Swamy- BBDO Guide