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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.

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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 alsoknown 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

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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.

Importance of Demand Forecasting

Production Planning and product scheduling A business firm

cannot function in wilderness. It has to take crucial decisions about

what to produce and how much to produce. This in tum depends upon

its estimate of future demand for the product. If the forecasted

demand is likely to rise, the firm can plan expansion of its production

capabilities to meet the growing demand at the right point of time. In

the eventuality of declining demand

Inventory planning Demand forecasting is useful for the firm to

acquire the right quantum of inventory at the right point of time, to

meet the needs of the production same time without unnecessarily

locking up the finances of the firm in inventory accumulation.

Capital planning

Increased production requires increased capital resources fixed as well

as working capital. Availability of demand forecasts helps the firm to

mobilize the capital resources in time.

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Marketing strategy

Demand forecasting will be useful in devising appropriate sales

promotion or marketing strategies. If the demand forecasts indicate a

declining trend in sales, it should resort to intensive sales promotion

campaign to sustain its sales.

Manpower planning

A firm has to recruit and train the appropriate level of work force. This

calls for forecasting the demand well in advance so that the required

contingent of the labor resources could be obtained.

Pricing strategies

Devising and setting the optimum pricing depends upon the

forecasted demand. If the forecasts indicate a declining share in the

market demand then it has to slash the prices to sustain demand.

Conversely, if the forecasts indicate increased demand for the prod

act over a longer period it can charge higher prices subject to the

other considerations.