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Four Steps To Forecast Total Market Demand

There are four steps to forecasting total market demand: 1) Define the market boundaries, 2) Divide total demand into component parts, 3) Forecast the drivers of demand for each component, and 4) Conduct sensitivity analyses to understand critical assumptions and risks. The document then provides examples of how different industries have applied these four steps to forecast demand for various products like paper, personal computers, and food packaging.

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santun kumar SINCE 1997
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223 views2 pages

Four Steps To Forecast Total Market Demand

There are four steps to forecasting total market demand: 1) Define the market boundaries, 2) Divide total demand into component parts, 3) Forecast the drivers of demand for each component, and 4) Conduct sensitivity analyses to understand critical assumptions and risks. The document then provides examples of how different industries have applied these four steps to forecast demand for various products like paper, personal computers, and food packaging.

Uploaded by

santun kumar SINCE 1997
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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FOUR STEPS TO FORECAST TOTAL MARKET DEMAND

ALOKEPARNA CHAKRABORTY

There are four steps in any total-market forecast:

1. Define the market.

2. Divide total industry demand into its main components.

3. Forecast the drivers of demand in each segment and project how they are likely to change.

4. Conduct sensitivity analyses to understand the most critical assumptions and to gauge
risks to the baseline forecast.

Defining the Market -

The elements that influence total-market size projections differ from those that influence
product market share forecasts. If the price or performance of prospective substitute
products changes, customers may act differently. A completely new product could supplant
one that has previously dominated the market. Managers have the ability to make snap
decisions about market definition and analysis. Demand curves for the entire industry are
frequently steeper than demand curves for individual items. Analysts can assist managers in
determining the competitiveness of new food cans, glass jars, and composite cans by
assisting them in understanding product replacement.

Dividing Demand into Component Parts -

The second step in forecasting is to break down total demand into its constituent parts for
further examination. To evaluate demand for paper, managers may choose to utilise a "tree"
diagram like this one created by a management team in 1985. Similar strategies have been
employed by other companies to segment overall demand. Managers must choose whether
to rely on existing segment size statistics or commission research. For several large U.S.
industries, public data on historical demand levels by segment is accessible. However, even
with solid data sources, the information may not be classified into the most appropriate
categories.

Forecasting the Drivers of Demand -

In most circumstances, managers can confidently assume that macroeconomic variables and
industry-specific changes influence demand. The next stage is to figure out what drives
demand in each category and forecast it. The demand for plain-paper copier paper was
influenced by the majority of the factors. The team came to the conclusion that the flattening
trend in usage growth (per degree of economic success) would likely continue. Expansion in
copy paper consumption would be mostly driven by economic growth rather than cost
reductions, as has been the case in the past.

Other sectors have conducted similar research. Knowing the demand drivers is critical to any
total-market forecast's success. Forecasters in the personal computer market in the United
States predicted that demand would continue to climb in 1983. One firm conducted a more
precise demand prediction, which revealed that growth would eventually level off.

Conducting Sensitivity Analyses

Marketers who rely on single-point demand estimates are putting themselves in perilous
situations. It's possible that some of the macroeconomic variables used in the forecasts are
incorrect. Small forecasting inaccuracies, as well as industry and cost structure
discontinuities, might pose significant hazards. The difficulty is determining how far off target
a forecast might be.

Determining an Appropriate Effort -

Managers must choose the proper level of effort for the project's objectives. Forecasting total
demand might be useful in making strategic decisions. According to Dr. Andrew Wylie in
Harvard Business Review, 1988, developing independent forecasts through the four-step
approach will result in better suggestions.

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