Presentation On

Market and Demand Analysis

Presented By:Pankaj MotwaniRahul TrivediRakesh ChaharVaibhav GangwarVijay Jangra

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Demand Forecasting

General considerations:

1. Factors involved in demand forecasting

2. Purposes of forecasting

3. Determinants of demand

4. Forecasting demand for new products

5. Criteria of a good forecasting method

6. Presentation of a forecast to the management

7. Role of macro-level forecasting in demand forecasts

8. Recent trends in demand forecasting

9. Control or management of demand

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Demand ForecastingAccurate demand forecasting is essential for a firm to enable it to produce the required quantities at the right time and arrange well in advance for the various factors of production, viz., raw materials, equipment, machine accessories, labour, buildings, etc.

In a developing economy like India, supple forecasting seems more important. However, the situation is changing rapidly.

The National Council of Applied Economic Research.

Factors involved in Demand Forecasting

1. How far ahead?

a. Long term – eg., petroleum, paper, shipping. Tactical decisions. Within the limits of resources already available.

b. Short-term – eg., clothes. Strategic decisions. Extending or reducing the limits of resources.

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Factors involved in Demand Forecasting

2. Undertaken at three levels:

a. Macro-level

b. Industry level eg., trade associations

c. Firm level

3. Should the forecast be general or specific (product-wise)?

4. Problems or methods of forecasting for “new” vis-à-vis “well established” products.

5. Classification of products – producer goods, consumer durables, consumer goods, services.

6. Special factors peculiar to the product and the market – risk and uncertainty. (eg., ladies’ dresses)

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Purpose of forecasting

1. Appropriate production scheduling.

2. Reducing costs of purchasing raw materials.

3. Determining appropriate price policy

4. Setting sales targets and establishing controls and incentives.

5. Evolving a suitable advertising and promotional campaign.

6. Purpose of short & long-term forecasting

7. Planning of a new unit or expansion of an existing unit.

8. Planning man-power and financial requirements.

9. Demand forecasts of particular products form guidelines for related industries (e.g. cotton and textiles).

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Length of forecasts

Short-term forecasts – upto 12 months, eg., sales quotas, inventory control, production schedules, planning cash flows, budgeting.

Medium-term – 1-2 years, eg., rate of maintenance, schedule of operations, budgetary control over expenses.

Long-term – 3-10 years, eg., capital expenditures, personnel requirements, financial requirements, raw material requirements.

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Criteria of a good forecasting method

1. Accuracy – measured by (a) degree of deviations between forecasts and actuals, and (b) the extent of success in forecasting directional changes.

2. Simplicity and ease of comprehension.3. Economy.4. Availability.5. Maintenance of timeliness.

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Presentation of a forecast to the Management

In presenting a forecast to the management should :-

1. Make the forecast as easy for the management to understand as possible.

2. Always pin-point the major assumptions and sources.3. Give the possible margin of error.4. Make use of charts and graphs as much as possible for

easy comprehension.

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Recent trends in demand forecasting

1. More firms are giving importance to demand forecasting than a decade ago.

2. Since forecasting requires close cooperation and consultation with many specialists, a team spirit has developed.

3. Better kind of data and improved forecasting techniques have been developed.

4. There is a greater emphasis on sophisticated techniques such as using computers.

5. In spite of the application of newer and modern techniques, demand forecasts are still not too accurate.

6. Top-down approach is more popular then bottom-up approach.

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Control on management of demand

1. The key to management of demand is the effective management of the purchases of final consumers.

2. The management of demand consists in devising a sales strategy for a particular product.

3. It also consists in devising a product, or features of a product, around which a sales strategy can be built i.e. Product design, model change, packaging and even performance reflect the need to provide what are called strong selling points.

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Situational Analysis & specification of objectives

Situational Analysis:

Predictions of sales program & means of carrying it. Understanding Customers needs & purchasing power Present market players. Growth Opportunities

Specification of objectives:

Who are the buyers? Prospect of the product Price which a customer will be willing to pay Channels of distribution

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Collection of Data

Based on primary data:

The following steps are required:

The output required from the study Specifications of the data required Mode of collection of data Conducting the survey and obtain data Analysis & conclusion

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Primary Data

Advantages of Primary Data:

The accuracy of the study will be high. Analysis will be easier, as data specifically required is collected.

Disadvantages of Primary Data:

Testing of the questionnaire on insiders before survey to avoid vague answer from the respondents

Confidential or embarrassing information may not be responded.

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Secondary Data

Based on secondary data:-

Two basic types of sources: Internal and External Internal:

The past records of an organization offer substantial information. The information relating to the trends in sales can be used to get first a broad idea of the market condition.

External: Market Research Organizations:- Like MARG, ABC , CMIE,

Trade Journals etc. Trade Associations: Like FICCI, CII, Local chamber of

industries etc. Government Research Organizations: Central Statistical

Organization, RBI etc.

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Cont……..

Advantages of Secondary Data: It is available easily and saves time. It may be cheaper than collecting it first hand, if the data

required is standard data. Data collected by professional research organizations may be

more accurate and reliable

Disadvantages of Secondary Data: For providing highly user-specific information, research

organizations charge heavily. The user can often have no direct check on the quality of the data

collection process of the research agency. The plans of the user to enter into a specific area of the market

may not remain confidential

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Characterization of the market

Effective Demand in the past & Present Breakdown of demand Price Methods of distribution & sales promotion Consumers Supply & competition Government policies

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SIMPLE MOVING AVERAGEYEAR QUARTER NUMBER

OF CYLINDERS

THREE QUARTER AVERAGE

FIVE QUARTER AVERAGE

1 Q1 1200

Q2 900

Q3 1000

Q4 750 1033

2 Q1 1100 883

Q2 500 950 990

Q3 750 783 850

Q4 1300 783 820

3 Q1 1100 850 880

Q2 900 1050 950

Q3 1200 1100 910

Q4 1000 1033 850

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1Q1

1Q3

2Q1

2Q3

3Q1

3Q3

0

200

400

600

800

1000

1200

1400

DEMANDTHREE QUARTERFIVE QUARTERMoving average (FIVE QUARTER)

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WEIGHTED MOVING AVERAGE

WEIGHTS ATTACHED

3Q4= 60%

3Q3=30%

3Q2=10%

WMA=1000*0.60+1200*0.30+900*0.10

=1050

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EXPONENTIAL SMOOTHING

F(t+1)=μ*D(t)+(1-μ)*F(t)

F(t+1)=Forecast for year (t+1)

D(t)=Demand for year (t)

F(t)=Forecast for year (t)

μ=Adjustment factor

F(t+1)=0.30*1200+0.70*1000

=1060

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EXPONENTIAL SMOOTHING

YEAR QUARTER DEMAND FORECASTμ=0.30

FORECASTμ=.50

1 Q1 1200 1000 1000

Q2 900 1060 1100

Q3 1000 1030 1000

Q4 750 1021 1000

2 Q1 1100 940 875

Q2 500 988 988

Q3 750 842 744

Q4 1300 814 747

3 Q1 1100 960 1024

Q2 900 1002 1062

Q3 1200 971 981

Q4 1000 1040 1091

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CHAIN RATIO METHOD

DEMAND FOR GYM– Population (U) =20,00,000– Proportion of U that fall in area (A) = 2%– Proportion of A that are men (B) = 55%– Proportion of B b/w 10-35 age group (C) = 75%– Proportion of C that go to Gym (D) = 1%

Daily demand for Gym=20,00,000*0.02*0.55*0.75*0.01

= 165

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CONSUMPTION LEVEL METHODIncome Elasticity of Demand Method

Income Elasticity: This reflects the responsiveness of demand to variations in income. It is calculated as:

E1 = [Q2 - Q1/ I2- I1] * [I1+I2/ Q2 +Q1] 

Where

E1 = Income elasticity of demandQ1 = quantity demanded in the base yearQ2 = quantity demanded in the following yearI1 = income level in the base year I2 = income level in the following year

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Income Elasticity of Demand Method

I1=12000

I2=14000

Q1=250

Q2=300

E1=[300–250/14000-12000] * [12000+14000/ 300 +250]

= 2.36

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CONSUMPTION LEVEL METHODPrice Elasticity of Demand Method

Price Elasticity: This reflects the responsiveness of demand to variations in price. It is calculated as: EP = [Q2 - Q1/ P2- P1] * [P1+P2/ Q2 +Q1]  Where EP = Price elasticity of demand Q1 = quantity demanded in the base year Q2 = quantity demanded in the following year P1 = price level in the base year P2 = price level in the following year

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Price Elasticity of Demand Method

Q1=250 Q2=400 P1=3.5 P2=8

EP=0.59

Regression Models

This is a statistical model is used when there is one or more factors that effects the changes in the dependent variable

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Simple Regression Model

Age SBP Age SBP Age SBP

22 131 41 139 52 128 23 128 41 171 54 105 24 116 46 137 56 145 27 106 47 111 57 141 28 114 48 115 58 153 29 123 49 133 59 157 30 117 49 128 63 155 32 122 50 183 67 176 33 99 51 130 71 172 35 121 51 133 77 178 40 147 51 144 81 217

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80

100

120

140

160

180

200

220

20 30 40 50 60 70 80 90

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Multiple Regression

Relation between a continuous variable and a set ofi continuous variables

y=a+ b1 X 1 + b2 X 2 +-------+ bi X i

Partial regression coefficients bi

– Amount by which y changes on average when xi changes by one unit and all the other xis remain constant

– Measures association between xi and y adjusted for all other xi

Example– SBP versus age, weight, height, etc

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Qualitative Method

Delphi Method: It consists of an effort to arrive at a consensus in an uncertain area by questioning a group of experts repeatedly until the results appear to converge along a single line of the issues causing disagreement are clearly defined.

Developed by Rand Corporation of the U.S.A in 1940s by Olaf Helmer, Dalkey and Gordon. Useful in technological forecasting (non-economic variables).

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Advantage & Disadvantage

Advantages

1. Facilitates the maintenance of anonymity of the respondent’s identity throughout the course.

2. Saves time and other resources in approaching a large number of experts for their views.

Limitations/presumptions:

3. Panelists must be rich in their expertise, possess wide knowledge and experience of the subject and have an aptitude and earnest disposition towards the participants.

4. Presupposes that its conductors are objective in their job, possess ample abilities to conceptualize the problems for discussion, generate considerable thinking, stimulate dialogue among panelists and make inferential analysis of the multitudinal views of the participants.

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Qualitative methods

Jury of executive method:

Soliciting the opinions of a group of managers on expected future sales & combining them into a sales estimate.

Advantages:

It takes into consideration variety of factors like economic climate competitive advantage etc.

Has immense appeal to managers who tend to prefer their judgment to mechanistic forecasting procedures.

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Market planning

Market planning contains

Current market situation Market situation Competitive situation Distribution situation Macro-environment Opportunity & issue analysis Objectives Marketing Strategy Action Program

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Conclusion

The objective of this market demand analysis was to determine the market potential and project the future demand for wellness services associated with the Bluegrass Crossings Regional Business Center industrial park

This information is necessary in determining the future potential of an outpatient clinic in a chosen area.

This analysis offers projected population change in the general market area of the wellness center and Ohio County Hospital over the next decade and the subsequent change in market share.

This information may be useful for other potential service additions or changes in this market area.

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Thank You