There are two approaches to demand to forecast
- Survey methods
- Statistical methods
Experts’ Opinion Poll:
Refers to a method in which experts are requested to provide their opinion on the product. Generally, in an organization, sales representatives act as experts who can assess the demand for the product in different areas, regions, or cities. Sales representatives are in close touch with consumers; therefore, they are well aware of the consumers’ future purchase plans, their reactions to market change, and their perceptions of other competing products. They provide an approximate estimate of the demand for the organization’s products. This method is quite simple and less expensive.
Refers to a group decision-making technique of forecasting demand. In this method, questions individually asked from a group of experts to obtain their opinions on demand for products in future. These questions repeatedly asked until a consensus obtained. In addition, in this method, each expert is provided information regarding the estimates made by other experts in the group, so that he/she can revise his/her estimates with respect to others’ estimates. In this way, the forecasts cross-checked among experts to reach more accurate decision making. Ever expert is allowed to react or provide suggestions on others’ estimates.
However, the names of experts are kept anonymous while exchanging estimates among experts to facilitate fair judgment and reduce halo effect. The main advantage of this method is that it is time and cost effective as a number of experts approached in a short time without spending on other resources. However, this method may lead to subjective decision making.
Market Experiment Method:
Involves collecting necessary information regarding the current and future demand for a product. This method carries out the studies and experiments on consumer behavior under actual market conditions. In this method, some areas of markets selected with similar features, such as population, income levels, cultural background, and tastes of consumers. The market experiments carried out with the help of changing prices and expenditure so that the resultant changes in the demand are recorded. These results help in forecasting future demand.
Trend Projection Method:
Trend projection or least square method is the classical method of business forecasting. In this method, a large amount of reliable data required for forecasting demand. additionally, this method assumes that the factors, such as sales and demand, responsible for past trends would remain the same in future. Moreover, In this method, sales forecasts made through analysis of past data taken from previous year’s books of accounts. In case of new organizations, sales data taken from organizations already existing in the same industry. This method uses time-series data on sales for forecasting the demand for a product.
In the barometric method, demand is predicted on the basis of past events or key variables occurring in the present. This method also used to predict various economic indicators, such as saving, investment, and income. This technique helps in determining the general trend of business activities. For example, suppose government allots land to the XYZ society for constructing buildings. This indicates that there would be high demand for cement, bricks, and steel. The main advantage of this method is that it is applicable even in the absence of past data. However, this method is not applicable in case of new products. In addition, it loses its applicability when there is no time lag between economic indicator and demand.
Econometric methods combine statistical tools with economic theories for forecasting. The forecasts made by this method are very reliable than any other method. An econometric model consists of two types of methods namely, regression model and simultaneous equations model.
Other Statistical Measures:
Apart from statistical methods, there are other methods for demand forecasting. These measures are very specific and used for only particular datasets. Therefore, their usage cannot generalized for all types of research. The different types of statistical measures are index number, time series analysis, decision tree analysis etc.