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The better a company can assess future
demand, the better it can plan its resources. Each company
is exposed to three types of factors influencing demand:
company, competitive and macroeconomic factors.
Company factors include
market share trends, changes in strategy and implementation,
changes in brand value. Competitive factors include
competitor advertising, competitor product offerings, market
share. Macroeconomic changes include
income, economic growth and shocks.
There are several methods to assess and forecast demand. None yields demand
numbers that are a 100% guaranteed. However, using more than one
method improves accuracy and confidence levels. Most
companies use Simple
Sales Analysis and Forecasting. Most companies also use Market
Size and Market Share Research. One of the most accurate
method used today is the combination of Market
Size Research and Mind Share Research.
Microeconomic, Macroeconomic and
Competitive Methods
Market Size Research combined with Mind
Share Research
is a good way to forecast corporate demand. It combines
macroeconomic trends with microeconomic and competitive performance. It is
based on the fact that customers will only buy your product if they
-
need your product
or service - macroeconomic trends
-
are able to pay for
your product or service - macroeconomic trends
-
are aware of your
product or service offerings - microeconomic performance
-
perceive your company's offerings to
have the best value -
microeconomic plus competitive performance
Market Size Research quantifies the first
two issues while Mind Share Research quantifies the last
two. Together they quantify or forecast future corporate demand as
well as future market share.
Market Size Research combined with Market
Share Research
is often used to forecast corporate demand. It combines
macroeconomic trends with competitive performance. It is
based on the fact that customers will only buy your product if they need your product
or service and are able to pay for it (macroeconomic
trends). It also assumes that your company's market share
will not change in the future.
The advantage of this method is that this
information is often well known and publicized. Several
companies offer syndicated reports on these issues.
Customized studies can be performed whenever the information
of your market segment is not published. The disadvantage
lies in the assumption that your market share stays stable.
Microeconomic methods
Past sales can be used to forecast future
demand. Past sales are broken into:
-
trend analysis: used for long-term
forecasting; obtained by curve-fitting
past sales with either linear or non-linear regression.
-
cycle analysis:
used for intermediate range forecasting; up and down swings in
sales.
-
seasonality analysis: used for short-term
forecasting; hourly, weekly, monthly, quarterly,
etc sales patterns.
While this method is easy to use, it is
based on past behavior and does not include new company, competitor
or macroeconomic developments.
Microeconomic Statistical Time-Series Analysis
Sales numbers from several time periods are
correlated to one or several factors such as price, advertising,
market share, competitor price demographics, product life
stage, etc. Regression analysis and curve fitting is
then used to predict future demand.
The advantage of this
method is that it includes relevant strategy as well as
competitor and macroeconomic trends. The disadvantage is that the outcome
may be biased because of important variables being left out,
variables not being completely independent, new competitive
actions not being included.
Macroeconomic methods
Delphi Method or Expert Opinions
This method gathers information from
industry experts until a consensus is reached
about
where the market is headed. The advantage of this method is that the
information comes from the sources most involved with the
market and thus represents the most accurate information
available. The disadvantage of the Delphi method is the
risk of competitive bias and a tendency toward known
information.
Macroeconomic Statistical Time-Series Analysis
This method is a macroeconomic statistical
time-series analysis and purely quantitative in nature.
It fits linear and nonlinear curves into time series and
then extrapolating future values. Time series may be
correlated to identify leading and lagging indicators. The advantage
of this method is that
recurring trends can be captured and extrapolated easily.
Econometric Modeling
Economists define sets of equations that
describe underlying economic behavior and laws. The
coefficients are then fitted statistically. This method
contains fundamental insight and yields qualitative
superior forecasts than pure mathematical models.
Impact scenarios
High probability trends are identified and
analyzed for their impact on other trends. This yields several scenarios of probable outcomes.
These scenarios include
economic behavior and several probable future events.
The advantage and disadvantage of this method are its
multiple outcomes, which yield better information for
what-if planning but are more difficult to use in general planning than a
single number outcome. Also, the assumptions of the effects of
future events may be wrong. Impact scenarios may also be
used to evaluate competitive trends.
Get Your Questions Answered
If you have any questions about demand
forecasting, give us a call or
send us an email.
We will be happy to answer your questions.
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