PREFACE

The sole purpose of this project is to study FORECASTINF DEMAND for Consumer Goods in detail. It includes definition of demand forecasting, factors involved in demand forecasting, purpose of demand forecasting, determinants of demand forecasting. The sources of information have been duly acknowledged and responsibility of any errors within the project lies with me.

Payal Purohit Roll no.118 Division II

ACKNOWLEDGMENT

I would like to extend my gratitude to all people who helped in completing the project. At the outset let me thank BBA Programme Director for introducing the concept of project work which emphasis on practical thinking. I am extremely grateful to our economic teachers Mr. Aakash Kundra for his constant supervision and guidance throughout my project. I am also thankful to our BBA Programme building library which has proven as a good source of information and the library staff for its assistance.

INTRODUCTION

WHAT IS DEMAND FORECASTING ?

Demand forecasting is not a speculative exercise into the unknown. It is essentially a reasonable judgment of future probabilities of the market events based on scientific background. Demand forecasting is an estimate of future demand. It cannot be hundred per cent precise. But it gives a reliable approximatiion regarding the possible outcome, with a reasonable accuracy. It is based on the mathematical laws of probability. Demand forecasting is a specific type of forecasting, which enables the manager to minimize elements of risk and uncertainty. The future event has to be given form and content in terms of projected courses of variable, i.e. is forecasting. The manager can conceptualize the future in definite terms. If he is concerned with future events in its order, intensity and duration, he can predict the future. If he is concerned with the course in like of future variable of future variables like demand, price or profit, he can project the future. Accurate demand foresacting is essential for a firm to enable it to produce the required quantities at the right time and arrange well in advance for the various factors of production viz., raw materials , equipment , machine accessories , labour , buildings , ect. Some firms may as a policy produce to order but , generally , firms produce in anticipation of future demand. Forecasting helps a firm to assess the probable demand for its product and plan its production accordingly. In fact, forecasting is an important ais in effective and efficient planning . it can also help management in reducing its dependence on chance. Demand forecasting is also helpful in better planning and allocation of national resources.

FACTORS INVOVLED IN DEMAND FORECASTING

There are six factors involved in demand forecasting : a) How far ahead ? How far ahead can t he long term forecast go , depend upon the nature of the industry but beyond ten years , the future becomes so uncertain that the projection becomes rather dubious. For example , petroleum companies , shipping companies and paper mills , in view of the long life of the fixed assests , the very hugh capital costs involved and the possibility of profit only on the distant future , do have to forecast well deep into future. A long term forecasts is one which provides information for major strategic decisions; it is concerned with extending or reducing the limitsof resources. Short term forecasting may cover a period of three months , six months or one year . which period is chosen depends upon the nature of business; when the demand fluctuates from one month to another , a very short period should be taken. A short term forecast is one which provides information for tactial decisions; therefore it is concerned with day to day operation within the limitsof resources currently available. b) Demand forecasting may be undertaken at three different levels: 1) MACRO-LEVEL concerned with the business conditions over the whole economy measured by an appropriate index of industrial production , national income or expenditure . 2) INDUSTRY LEVEL prepared by different trade associations. 3) FIRM LEVEL which is the most important from managerial view point. c) Should the forecast be general or specific ? The firm may find a general forecast useful but it usually needs to be broken down into commodity / product wise forecast and forecasts by areas of sale.

d) Problems and methods of forecasting are usually different for new products from those for products already well established in the market for which sales trends are known and the competitive characteristics of the product well understood. e) It is important to classify products as producer goods , customer durables or consumer goods and services. Economic analysis indicates distinctive patterns of demand for each of this different categories.

f) Finally , in every forecast special factors peculiar to the product and the market must be taken into account. The nature of the compition in the market , how far the situation is complicated by uncertainty or non measurable risk and the possibility error of inaccuracy in the forecast must be seriously considerd.

PURPOSE OF DEMAND FORECASTING

The purposes of forecasting differ according to types of forecasting: short term forecasting and long term forecasting. a) Purpose of short term forecasting It is difficult to define short run for a firm because its duration may differ according to the nature of the commodity. For a highly sophisticated automatic plant 3 months time may be considered as short run, while for another plant duration may extend to 6 months or one year. Time duration may be set for demand forecasting depending upon how frequent the fluctuations in demand are, short- term forecasting can be undertaken by affirm for the following purpose;

Appropriate production scheduling so as to avoid problem of overproduction and the problem of short-supply. Production schedules are geared to expected sales. Cost reduction in raw materials purchase, inventory control by determining future resource requirements. Determining appropriate pricing policy avoiding increase in a weak market and reduction in bull market. Setting sales targets appropriately and establishing controls and incentives. Evolving suitable advertising and promotional program. Forecasting short-term financial requirements cash requirements depends on sales level and production operations. As it involves delay in arranging for additional funds, sales forecasts enable arrangement of funds well in advance.

b) Purpose of long term forecasting

The concept of demand forecasting is more relevant to the long-run that the short-run. It is comparatively easy to forecast the immediate future than to forecast the distant future. Fluctuations of a larger magnitude may take place in the distant future. In fast developing economy the duration may go up to 5 or 10 years, while in stagnant economy it may go up to 20 years. More over the time duration also depends upon the nature of the product for which demand forecasting is to be made. The purposes are;

Planning of a new unit or expansion of an existing unit. This requires analysis of long-term potential of all the products of the firm. Planning long-term financial requirements Long-term sales forecasts are quite essential for organizing long-term financial requirements as arranging funds involves considerable time and effort. Planning man-power requirements. Training and personnel development are long-term propositions. These take time and can be started well in advance on the basis of estimates of man-power requirements assessed based on sales forecasts.

DETERMINANTS OF DEMAND FORECASTING

1. NON DURABLE CONSUMER GOODS : There are three basic factors influencing the demand for these goods:

i.

Purchasing power : This is determined by the disposable personal income .Data on aggregate personal income and personal disposable income are published by the central statistical organization . some people suggest the use of discretionary income in the place of disposable income viz. , a) imputed income and income in kind , (b) major fixed outlay payments such as mortagage debt paymen , insurance premium payments and rent , and (c) essential expenditures such as food and clothing and transport expenses based upon consumption in a normal year. Discretionary income can be quite an important determinant in case of consumer non durables which are luxuries.

ii.

Price : The price factor is another important variable to be included in demand analysis . Here , one has to consider price of the product and also its substitutes and complements. One may also consider the price differences between the product concerned and its substitutes and complements. Price determinant of the volume of sales of consumer non durables is sometimes more important through cross elasticity than its directly in terms of price elasticity.

iii.

Demography: This involves the characteristic of the population, human as well as non human using the product concerned. For example , it may pertain to the number and characteristic of children in a study of the demand for toys or the number of characteristic of automobiles in a study of the demand for tyres or petrol. In fact , it involves distinguishing between the total market demand and market segments. Such segments may be derived in terms in terms of income , social status , sex , age , male-femal etc. Demand can be forecast by employing the following formula : d = f(Y,D,P) where d=demand , Y is disposable income D is demography and P is price.

2. DURABLE CONSUMER GOODS : The important considerations in the forecasting of demand for durable consumer goods as under : I. The consumer has to make a choice between : a) using goods longer by repairing it , if necessary or b) disposing it of or replacing it with a new one . for example , a person may replace his black and white tv by selling it or just exchanging it for a colour tv after paying the difference in prices. The choice may depend upon non economic factors like social status , prestige , etc. or on economic factors like income and obsolescence. These goods required special facilities for their use e.g. roads for automobiles , and electricity for refrigerators and TVs. The existence and growth of such facilities is and important variable for determining their demand. To the extent that the consumer durables is used by households rather than on an individual basis, the total household figures are more

II.

III.

IV.

V.

important than total population figures. The few consumer durables that are used individually could be expected to depend more on population than on households. As consumer durables are used by more than one person , the decision to purchase may be influenced by family characteristic , such as the seze of families and the age distribution of adults and children as well as price , income and the other consideration. The total demand consisit of a) new owner demand b) a replacement demand. The replacement demand tends to grow with the growth in the total stock with the consumers. Once a person gets used to a thing, he is unlikely to give it up at some future date. This makes replacement demand regular and predictable. For certain well established products , lige expectancy tables have been prepared in advanced countries in order to estimate the average replacement rates. When purchasing power increases , the scrappage rate tends to be high and viveversa. Again , when demand exceeds production , scrappage rate is lower, but as production catches up , the scrappage tends to increase. The total demand is symbolically stated as d = N+R , where d is demand , N is new owner demand and R is the replacement demand.

VI.

Price and credit conditions also affect the demand for durable consumer goods. The ratio of price to the average life of the product should be considered. If the average life is high , the principle effect would be dampen the influence of the price.

CRITERIA OF A GOOD FORECASTING

1) ACCURACY :
It is necessary to check accuracy of past forecasts against present performance and of the present forecasts against future performance. Some comparisons of the model with what actually happens and of the assumptions with what is borne out in practice are more desirable. The accuracy of the forecast is measured by degree of deviations between forecast and actual and the extend of success in forecasting directional changes. 2) SIMPLICITY AND EASE OF COMPREHENSION Management must be able to understand and have confidence in the techniques used. Understanding is also needed for a proper interpretation of the results. Elaborate mathematical and econometric procedures may be judged less desirable if management does not really understand what the forecaster is doing and fails to understand the procedure. 3) ECONOMY: Cost must be weighed against the importance of the forecast to the operations of the business .The economic consideration of balancing the benefits from increased accuracy against the extra cost of providing the improved forecasting. 4) AVAILABILITY: The techniques employed should be able to produce the meaning ful results quickly , techniques which take a long time to work out may produce useful information too late for effective management decisions.

5) MAINTANENCE OF TIMELINESS: The forecast should be capable of being maintained on an upto date basis. This has three aspects: The relationships underline the procedure should be stable so that they will carry into the future for a significant amount of time. Current data required to use these underline relationships should be available on timely basis. The forecasting procedure should permit changes to be made in the relationships as they occur.

RECENT TRENDS IN DEMAND FORECASTING

1.More firms are giving importance to demand forecasting than a decade ago. 2. Since forecasting requires close cooperation and consultation with many specialists, a team spirit has developed. 3. Better kind of data and improved forecasting techniques have been developed. 4. There is a greater emphasis on sophisticated techniques such as using computers. 5. New products forecasting is still in infancy. 6. Forecasts are usually broken down in monthly forecasts. 7. In spite of the application of newer and modern techniques, demand forecasts are still not too accurate. 8. The usefulness of personal feel or subjective touch has been accepted. 9. Top-down approach is more popular then bottom-up approach.

BIBLIOGRAPHY
http://www.scribd.com/doc/18537501/Demand-Forecasting

http://www.scribd.com/doc/3895250/Demand-Forecasting

http://www.autobox.com/pdfs/sivillo.pdf

http://www.slideshare.net/sandeep_24/demand-forecasting-me-presentation

http://en.wikipedia.org/wiki/Demand_forecasting

http://www.britannica.com/EBchecked/topic/156922/demand-forecasting

FORECASTING DEMAND FOR CONSUMER GOODS

BYPAYAL PUROHIT ROLL NO. 118 DIVISION II

Forecasting Demand: Current demand for iced-tea in America is so huge, that it forms 80% of all tea consumed in America. It has become a uniquely American habit, despite having a relatively shorter history of participation in the tea trade. As the convenience of ready-to-drink iced teas lure new tea drinkers, a roll-over effect should occur in the demand for other types of more specialised teas, such as herbal iced-tea to increase. Several other factors can be utilised to forecast the demand of iced teas or for any other market segment. Most of them largely relate to the growth rate of current market segment bases such as age, income, and certain nationality groups. Changes in lifestyle, or in the socio-economic condition are amongst the larger developments that might influence demand especially in the long run. Specific to the iced-tea market for example, a decrease in the proportion of working class due to a rapidly ageing

population might hinder demand in urban centres especially in commercial areas. Overall, however, the outlook for iced-tea be verages is still very much positive with instant tea becoming more important in certain markets. According to a study by Goradia (mentioned in Commodity Supply Management by Producing Countries), the global consumption of liquid tea rose by 145% while that of tea leaves rose by only 92% between 1951 and 1970. Such rapid growth is expected to continue into the near future.

4. CONCLUSION As Lipton and Kai Shii both serve and cater to the same market, they use similar marketing strategies but with different approaches to achieve their companys objectives. Both companies differ largely in size in terms of financial and human

resource capital. This affects the way they implement their strategies. Lipton, being a global brand has a slight edge in terms of expertise in the tastes and culture of its target group of consumers. It also has wider product range and technological superiority and is planning to launch a radical new productBrooke Bonds hot tea can. However, although Shin Shii would be a new player with Kai Shii in the American market with no international experience, Unilever should be wary of its past achievements of revolutionising a new type of product very successfully in the Taiwanese market. Despite successfully facing domestic competitors in the overcrowded iced-tea market, it might want to review its marketing policy to be better prepared to face a small but unpredictable competitor. Both companies can look forward to competition in an encouraging and growing market with demand expected to rise steadily in the immediate long run.