Microeconomics Enhanced2

8/4/2019 Microeconomics Enhanced2

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Micro Economics

Demand Forecasting


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Agenda

The need for demand forecasting Different types of demand forecasting 3:2 Concept and Opinion Poll Opinion Poll results and expert advice Conclusion


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What is Demand Forecasting

It is a proactive process of determining whatproducts are needed :

Where, When and in What quantities

Consequently, demand forecasting is a customerfocused activity

It is also the foundation of a companys entirelogistic processIt supports other planning activities like capacity,inventory and even overall business planning


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Why Demand Forecasting ?

Reduces future uncertainties and helps studymarkets that are dynamic, volatile and competitive

Effective forecasting helps build stability in

operations Helps plan operations of purchasing and finance for

better control over waste, inefficiency and conflicts

Helps setting sales targets, pricing policies,establishing controls and incentives


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Key Determinants of Demand

Purchasing Power

This is determined from monthly disposable income

Price Price of product and its substitutes and complements

Demography

Characteristics of the population using the product


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Key factors for selecting theRIGHT method

Short Term Forecasting

Usually time period for this is till 1 year.

For operating decisions like production planning

Medium Term Forecasting

For 6 months to 2 years.

For tactical decisions like employment changes

Long Term Forecasting Above 2 years

For strategic decisions like research and development


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Demand Forecasting .. HOW ?

Determine the purpose of forecast

Establish a time horizon

Select a forecasting technique

Gather and analyze data

Prepare forecast

Monitor forecast


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Different Methods ofDemand Forecasting

Quantitative (Micro-economic)

Involves prediction of activity of particular firms,branded products,commodities,markets and industries

- dimensionality of factors is lower and can be easilyincorporated into a model

Qualitative (Macro-economic) Involves prediction of economic aggregates such as

inflation,unemployment,GDP growth

- difficult because of complex inter-dependencies in

overall economic factors


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Different Methods ofDemand Forecasting

Survey of Buyers Intentions

Expert Opinion

Delphi Method

Collective Opinion (Basically from Sales)

Nave Models

Smoothing Techniques.


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Least sophisticated method

Customers are directly contacted to findout their intentions to buyproducts/commodities in the near future

Ideal for short and medium term demandforecasting

Intentions recorded through personalinterviews, mail or post service, telephoneinterviews and questionnaires.


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Advantages

Helps in approximating future requirements evenwithout past data.

Disadvantages

People may not know what they are going topurchase.

They may report what they want to buy, but notwhat they are capable of buying.


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Expert Opinion/Hunch Method

Views on sales outlook for the firm during theshort term or long run can be taken fromexperts in the field.

By averaging the opinions of the experts whoare most knowledgeable about the firm andits product, the firm can come arrive at a

better forecast than would be provided bythese experts or

Final decision is arrived at by a consensus.


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Expert Opinion/Hunch Method

Advantages

Can be undertaken easily without use ofelaborate statistical tools.

Disadvantages

Judgmental biases.

Based on small numbers


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Delphi Method

The Delphi technique was developed at RANDCorporation in the 1950s to help capture theknowledge of diverse experts while avoiding thedisadvantages of traditional group meetings. The

latter include bullying and time-wasting. The administrator should provide the experts with

anonymous summary statistics on the forecasts ofother experts and the experts reasons for theirforecasts.

The process is repeated until there is little change inforecasts between rounds two or three rounds areusually sufficient. The Delphi forecast is the medianor mode of the experts final forecasts


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Delphi Method

Advantages

Experts identity is not disclosed Saves time and other resources in approaching a large number of

expert.

Limitations/presumptions: Panelists must be rich in their expertise, possess wide knowledge

and experience of the subject and have an aptitude and earnestdisposition towards the participants.

Presupposes that its conductors are objective in their job, possessample abilities to conceptualize the problems for discussion,generate considerable thinking, stimulate dialogue amongpanelists.


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Also called as Sales force polling.

Salespersons are required to estimateexpected sales in their respective territories

and sections

The salespersons are closest to the marketand their opinion of future sales can provide

valuable information to the firms topmanagement


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Advantages:

1. Simpleno statistical techniques.

2. Based on first hand knowledge.

3. Quite useful in forecasting sales of new products.

Disadvantages:

1. Almost completely subjective.

2. Usefulness restricted to short-term forecasting.3. Salesmen may be unaware of broader economic

changes.


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Nave Models


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Smoothing Techniques(Qualitative)

Moving averages

Exponential smoothing

So e sat do n and tho ght


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So, we sat down and thought ..which should be a good subject for

demand forecasting ?


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Some facts ..

The Indian spa industry, with over 2,300 spas, generates revenuesaround US$ 400 million annually. At present, India has around 20-25major spa centers, most of them in the Southern states of Kerala andKarnataka.

Indian wellness and health market is estimated to be growing at 25percent a year.

A rough estimate by the journal cites that India has 2,300 big andmedium spas.

The next four years will see at least 700 new spas - both multinationaland Indian brands - build their infrastructure in India.

The rise in annual disposable incomes among individuals, coupled withthe growing level of health awareness, has created strong opportunitiesfor existing and new entrants in this sector. .

With the extended global spa economy now estimated to be wortharound $255 billion, there has never been a better time for the wellnessindustry in India.


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Extending existing spa services to companies

The Concept ..

With an increasing number of working peoplestressed out, it would be a good idea to offer

spa services to employees within thecompany

Employees would be given discounted ratesusing shared company infrastructure

This would in turn increase the productivity ofemployees thus bringing in more profits to thecompany


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Method Used in Forecasting ofMobile SPA

Survey Buyers method

Present all the statistical data that we get fromthis poll


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Opinion poll Some Results

Population

0

20

4060

80

100

120

140

160

1

Gender

Count

Gender Male

Gender Female

69% male ; 31% female population

Age Group

0

10

20

30

40

50

60

70

80

21-30 31-40 41-50 50 and above

Age Group

Agein

years

Series1

(21-30): 37 % ; (31-40) : 30%

(41-50) : 25% ; (50 +) : 8%


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Opinion poll Results ContdIndustry Profile

01020

30

4050

6070

IT Telecom Banking Business Others

Industry

Industry

Cou

ntofpeople

Series1

30% business ; 27% IT ; 18% banking

Stress Chart

0

20

40

60

80

100

120

140

1

Countofpeople

Stressed at work Daily

Stressed at work At

most thrice a week

Stressed at work Once

in a week

Stressed at work no

Stress

60% -- once in a week

23% -- daily

12% -- almost thrice a week


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Opinion poll Results Contd

Monthly income

0

10

20

30

40

50

60

70

1

Countof

people

15,000 to 20,000

20,000 to 35,000

35,000 to 50,000

50,000 and above

56 % -- Rs 20000 to 50000

~ 22% -- less than 20000 Rs

~ 22% -- more than 50000 Rs45% -- minimum 1000 Rs per month

33% -- 1000-3000 Rs per month

17% -- 3000-5000 Rs per month

5 % -- 5000 Rs and more per month

Willingness to spend per month

020406080

100

Minimum

1000

1000 to 3000 3000 to 5000 5000 and

above

How much amount you will be willing to spend on a

monthly basis for SPA services?

Amount

Countofpeople

Series1


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Opinion poll Results Contd90% of the respondents wanted to visit the company spa ,if offered services atlower price

36% of the respondents wished to visit a spa once a week and almost an equalnumber wished to visit a spa once in a month

The remaining percentage chose to visit a spa twice a month

72% of the respondents thought evening time was convenient to attend.

This is considering moments of relaxation after hectic days work

36% of the respondents wished to visit a spa once a week and almost an equalnumber wished to visit a spa once in a month

The remaining percentage chose to visit a spa twice a month

75% of the respondents preferred body massage and 55% preferred head and footmassage

45% of the respondents preferred a choice of more than one of the spa services


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Conclusion


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Methods used in Forecastingof Mobile SPA

Expert opinion

We will show the video and also will paste thedata that we were given if needed??


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Benefits of DemandForecasting

Early recognition of market trends

Better Market positioning

Planning and scheduling production Budgeting of costs and sales revenue

Controlling inventories

Making policies for long term investment Helps in achieving targets of the firm


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