7

Market and Demand

Analysis
All business activities start with the market and demandd analysis..A project can
successful if we know what the customer's need is and how m , a n
onk be It is necessary to estimate the potential size of market for the proposed
demand.
product and get an idea about the market share that is likely to be captured." Therefore,
attempt should be made to determine the trend of demand and composition and
pattern of potential users of the product. Market and demand analysis influences
long-term planning of facilities. their capacity, their location and their layout.
produuets
Market survevs can reveal the demand and supply position for various
From the
Competition and price trends can also be found through market surveys.
data coliectedthrough market observation, one can identify the products/industries
which are in demand.
Advice of professional experts can also be obtained to supplement market and
demand analysis of the proposed product. Before launching a product, its market
and demand analysis is very important. Therefore, it should be carried out
systematically.

Steps in Market and Demand Analysis

The key steps involved in market and demand analysis are as under :
1. Situation Analysis-Situation analysis stands for identifying and evaluating
uncontrollable external influences namely : economic. social conditions.
decision
customers. competitors. Before developing any action plan, thethe future,
maker must understand the current situation and trends affectingt analysis
of a project. The first step of situation analysis involves market analysIS
competitive analysis--market measurement. If such a situationalrequired
provides enough data to measure tthe market, aformal study isnotdemand
However. in most cases, a formal study of the market and
essential.
 97

andDemand Analysis
Market
carry out a formal study of market
to
Specificationof Objectives--Intoorder out its objectives clearly and
necessary spell situationa! analysis
and demand. it is objectives that guide
comprehensively. It means, theclarity. Objectives can be presented in the
greater the information
must be spell out with bear in mind how
In doing so, always the overall market and demand.
form of questions.relevant
generated willbe for forecasting analysis should not
market and demand
concerning the
The questions not
be asked.
analysis may answer the following
Objectives of the market and demand
questions :
buyers?
(i) Who are our demand for the product?
(i) What is the total
of sales?
(iii) What is the pattern customers be willing to pay from the improved
(iv) What price will the
product?
potential customers be convinced about the superiority of the
(v) Howcan
product?
willattract customers?
(vi) What price and warranty
distribution are suitable?
(vii) What channels of
Collection of Market Information-The information useful for market
3.
and demand analysis may be obtained from secondary and/or primary
which is collected for the
sources. Primary information is that information
observation or through
firsttime. We can obtain primary dataeither through another or through
direct communication with respondents in one form or
personal interviews.
has
Secondary information, on the other hand, represents information that
already becen collected by someone else and therefore, it is already available.
Secondary information provides pose and starting point for the market and
demand analysis.
Sources of Collection of Secondary Information--When we utilises
secondary data for market and demand analysis, we have to look into various
sources from where we canobtain them. The important sources of secondary
information useful for market and demand analysis are as under :
() Various publications of the central, state or local governments;
(i1) Various publications of international bodies;
(i) BookS magazinces and newspapers;
(iv) Reports and publications of various associations connected with
business and industry, banks etc.
() Reports prepared byresearch scholars, economists, etc.
(vi) Public records and statistics.
98
Market and
Thus, the important sources are : Demand 1
Census of India.
National sample survey reports.
Analysi
NITIAyog Reports.
India year book
Economic Survey
Annual Survey of Industries
Annual reports of Ministry of Commerce and Industry
The Stock Exchange Diary
Bulletin of RBI
Publications of Advertising Agencies
Studies of STC
Annual Reports on Currency and Finance by RBI
Studies and Reports of Export Promotion Councils and
d
Techno-Economic Surveys.
Some Industry Specific Sources of Secondary
Information are:
Commodity Boards
Industry Title
" Chemicals
Fertilizer Statistics-by Fertilizers
Textiles
of India. AsSociation
Indian Textile
" Industrial Machinery Commissioner, MumbaiBulletin-by Textile
Build Machine-Build
General of Technical India-by Directorale
DevelopmentMumbui
Annual Report of Indian Machine Tool-b
Indian Machine Tools Manufacturers
Association.
Metallurgical Iron and Steel Control Bulletin-by Ministry of
Steel and Mines-New Delhi
Evaluation of Secondary InformationThe market analyst must be ven
caretul in using secondary information, He must make a minute scrutm)
Decause it is just possible that secondary information may be unsuitable o
may be inadequate. By way of caution, the market analyst, before using
Secondary information, must see that thev DOssess following characterisi
() Reliability of InformationThe reliability can be tested by finding
out such things about the said
Who collected the information :
" What were the information?
sources of information?
" Were this information collected by using proper method?
 99
andDemandAnalysis
Market
Atwhat timethis information collected?
What level of accuracy was desired?
What was the target population?
information?
What was the objective of obtaining
How was the sample chosen?
" How representative was the sample?
information that is suitable for one
(i) Suitability of Information--The another. Hence, if the available
analysis may not be found suitable for used.
information is found to be unsuitable, should not be
level of accuracy achieved in
(ii) Adequacy of InformationIf theinformation willbe considered as
information is found inadequate,this market analyst.
inadequate, hence it should not be used by the
Survey
4,Conduct of Market position for various products.
Market surveys canreveal the market and demand market surveys. From the
Competition and price trends can also be found through
identify the products/services
information collected through market surveys one can often does not provide
which are in demand. Secondary information, though useful,
Therefore, it needs to be
comprehensive basis for market and demand analysis. specific
supplemented with primary information collected through market survey,
tothe project being undertaken.
Surveys refer to all methods of obtaining needed information through asking
questions to the respondents. Surveys are commonly conducted both in quantitative
and qualitative studies. However, market surveys may be a census survey or sample
survey. In census survey, the entire population is covered. The word population
refers here to the totality of all units under consideration in a specific study. For
examples, allreaders of Economic Times. Census surveys are conducted mainly for
intermediate goods and investment goods when these are used by a small number
of firms. In other cases, census survey may prove costly.
In sample survey, a sample of population is contacted and relevant information
iscollected.
Steps in a Sample Survey-A sample survey involves followingsteps:
1. To Define the Target Population-The first step in conducting asample
Survey is to define the target population. The target population may be divided
into various segments such as : all television owners which may further be
divided into income groups.
2. loSelect Proper Sampling Scheme -Several schemes are available such
as : simple random sampling, cluster sampling, sequential sampling non
probability sampling. Each scheme has its own merits and demerits.
Depending upon the nature of survey, select a proper sampling scheme.
100 Market and
3. To Select Proper Sampling Size-The
size of the Demand Analys
sample has
bearing onthe reliability ofthe estimates. The larger the size
of a
greater the reliability. re
4. To Construct the Questionnaire-After having
questionnaire is designed and respondents are
decided about he
contacted 1o
sample, the
questions asked in questionnaire. The factors affect the
answsaermplitnhgese
survey through questionnaire-wording of
desired information can be obtained accurately and
factor isthe ability and willingness of the respondent toeunbigiveafsedleciveyn.essuchAnother
questionnairemust be of
tha
unbiased information.
Questionnaire must contain simple but straight forward acCurate and
respondents so that they may not feel any
questions.
5. To Recruit and Trainthe InvestigatorsGreat care
difficulty in direansctiownserinforg tthhee
is
the field investigators and giving the right kind ofneededin
Investigators must have deep knowledge about the
have technical background, particularly for
training recruiting
to
them.
product. They shoud
technologies. products based on high
6. To Obtain Information--The next step in a sample
survey is to obtain
information as per the questionnaire from the respondents.
major methods of contacting the respondents for There are three
information--interviewed personally, telephonically, or bygetting
mail. desirel
In personal interview, face to face contact between
respondent is established. In this process,
the investigator and
questionnaire in person either at the residenceinvestigator presentsof the the
or at the office
respondent.
In telephonic interview, investigator establishes a contact through
telephone. The questionnaire to beused in this process must be briel.
simple to the point and non-confidential.
In mail surveys, e-mail are economical and evoke fairly candid
responses. The response rate, however, is often low.
7. To Scrutinise the Collected Information--The another step is to scrutinis
the gathered information. The gathered information should be thorough
scrutinised to eliminate unwanted data.
8. To Analyse the Information-A careful analysis and interpretationnofthe
suitabl:
information gathered is essential. After tabulating it as per plan,
statisticalinvestigation may be conducted. To analyse the information. help
of experts may be taken. :
Problems--A field investigator in India has to face the following prroblems
1. Different language isfaced
Languages--The problem of multiplicity of
by a field investigator in conducting an all India survey.
 101

Analysis
and.Demand questions depends upon
Market -Appropriateform of andthe kind of
Questionnaire respondents
Design of finformationsought, thesampled whether to use closed or
2. nature of must decide market
the intended. The researcher
of questionnaire affects the
analysis Thus, design
onen-ended question. the
it is impossible to cover all
research. Population-Since into
Heterogeneity of the country has to be divided
, Irdia survey, therefore, the the country (population)
statesin an all heterogeneity of
categories. However, the
broad task difficult.
makes the survey
Sought in Market Survey
Box : Information
and rate of growthofdemand.
Total demand segments of market.
Demand in differentelasticities ofdemand.
Income and price
Motives of buying.
intentions.
Purchasing plans and products.
Satisfaction with present
Unsatisfied needs.
products.
Atitudes toward various
Distribution practices and preferernces.
Socio-economic characteristics of buyers.

Questionnaire
Box : Guidelines for Designing
of this study.
Researcher must be clear about the various aspects
Questions must be simple.
directions for the
Questionnaire must contain simple but straight forward
respondents.
Questionnaires previously drafted (if available) may be looked into at this
stage.
Give due thought to the appropriate sequence of putting questions.
Questionnaire should not be unduly long.
The units of enumeration in the questionnaire should also be defined
precisely so that they can ensure accurate and full information.
Since the quality of the questionnaire has an important bearing on the
resultsof the market survey, the questionnaire should be tried out in a
pilot survey and modified in the light of problems and difficulties noted.
 Market and
Demand
5.
Characterisation of the Market
service may be decided on the basis of
Analysis Mark

Amarket for the product

collected from secondary
in terms of the
following :
1. Total eftective
or
sources and

demand.
through market survey. It may be
infodrmescartiiboend
segments of market.
2. Demand in different
3. Price.
promotion methods.
4. Distribution and sales
5. Consumers.
6. Supply and competition.
7. Government policy.
order to measure effective
1. Total Effective Demand-In
product or service, first of all demand
define the consumption of the
and consumption of a
demand
of the
product.
Ina
competitive market, eftective
equal. But where competitive markets do not
production
exist for product
products are
due to
exchange restrictions, controls on and
consumption figure may have to be adjusted for market distribution,
he
2. Demand in Different Segment
of demand, the total market
of
demand
Market-IIn
may be
to imperfections.
order look iinto
broken down into the naturfoer
different segments of the market. Market segmentation may be done on the demand
bases of following :
i) Nature of Product-One of the important bases is product ue
situations. Different customers may use the same product in difleren
situations. Amarketer makes the product versatile, so that it can be
used in different situations. Similarly,consumption has also been the
basis for segmenting the market for beverages (tea, coffee,soft-drinks
segments may be here : heavy users, moderate users, and light users
(ü) Consumer Groups-This is generally the starting point of all markc
segmentation strategy. Consumers of a product may be divided in
industrial consumers and domestic consumers. Industrial consumer
maybe sub-divided industry-wise. Domestic consumers maybe futhe
sub-divided into diflerent income groups--low income, middle incamt
upper income and higher income. division d
(i) Geographic Location of Consumers-A geographical small vale
consumers is helpful, particularly for | products which have a efficien
to weight relationship andIfor products which require regular, future. w
after-sales service. Geographically based segmentation. in
help the marketer only in planning his distribution function.
usedbasis
ôi
(iv) Demographic Characteristics-The next next commonly ofthe mand
market segmentation is the demographic characteristics
 Analy'sis 103
setandDemand
Eactors like age, education, income, occupation, sex, family size and
market.
maritalstatus are used singly or in combination, to segment the
(v) Psychographic
VariablesS-Often it has been seen that two consumers
with the same demographic characteristics may act in an entirely
different manner. Even though the two may be of the same age, from
of the
same profession, with similar education and income, each This is
customers may have a different attitude towards new products.
consumers.
largely because of personality and lifestyle differences ofvariables
Increasingly, marketers are turning to psychographic to
segment their markets.
during market
: Price-Information regarding the price must also be gathered
difference among the
Survey. This information may be helpful to make
following types of prices :
(i) FOB (free on board) price as quoted by a manufacturer.
(ii) CIF (cost, insurance and freight) price as quoted by a manufacturer.
(ii) Average wholesale price.
(iv) Average retail price. product affects
4. Sales Promotionand Distribution Methods-The nature ofdistribution for
the methods of distribution. There are diflerent channels of
capital goods, industrial raw materials, and consumer goods. Similarly,
methods of sales promotion (advertisements, discounts, gifts etc.) may vary
from product to product. Such a study may explain certain pattern of
consumption and may highlight the difliculties.
5. Consumers-The consumes are the arbiters of fortune in business. In highly
competitive economic system, the success, survival, and growh of firms
warrants accurate knowledge about consumers. Understanding consumer
is the crucial task. However, consumers may be characterised along two
dimensions as follows :
() Demographic and Sociological Consumersmay be characterisedon
the basis of age, sex, income, profession, geographic location, and social
background.
(ii) Atitudinal-Under this dimension, consumers may be characterised
on the basis of preferences,intentions, habits, attitudes andresponses.
6. Sources of Supply and Degree of Competition--It is essential to have the
knowledge about existing sources of supply and whether they are foreign or
domestic. For domestic sources of supply, information should be gathered
about:
(i) Location of suppliers,
(1) Present production capacity of supplier,
 Market ana' Demand
Analysis
supplier,and
levelof
specifiedbecause uny
(ii)
Capacity
utilisation
shouldbe
substitutesproduct due to
(iv)Coststructure. changes in productqualimayty,
price,
Competitionfrom other
andso
on. significant
replaced by
some
promotional
cflorts policieshave .bearinggon the
GOvernmentplans,legislations and
Policy-Government
be
availability,
Government a
product. governmentisreflected in : policiandes
import
7. demandand marketofTheroleofthe import duties, excise
specificd. incentives, regulations, and
shouldbe controls,export controls,financialI
duties, sales
exporttrade licensing,credit
industrial
subsidies
tax,
ofvarious types. DEMANDFORECASTING
future demandoffthe products or services
predictingthe
forecastingis estimateor calculatein.
advance. Why do firms require
Demand forecasteisto reasons suchas :
ofthefirm.
To aremany
forecasting?There lacility capacityy
planningandIfoor capital budgeting
demand decision-making for production requirements.
In to support
adequate stafT policies.
Toprovideadministrativeplansanduncontrollablecvents
Todevelop lossesassociatedwith
Tominimiseactionsofcompetitorfirms. deciding
To oflsetthe factorin the capacity and location b

forecastingisa guiding expenditure on the new projet

Thus, demand plannedbyafirm. The capital
being
ofanewprojectcapacity of thefacility. the market and demand.
dependson the informationabout various aspects of
Aftergathering demand.
future
we can estimate
Forecasting methods or quantitatie
Methods of Demand performed usirng qualitative
Demand forecasting may beare subjective in nature and are at times based upn
methods. Qaliative methods especially suitable in situations wher
thejudgement ofexperts. These methods are analysis and the forecasts have
available for quantitative
historical data are not
be preparcd quickly in short-period. basically two types of techniques availark
In quantiative analysis, there are Series Analysis and Causal Analy sis. AS
for demandforecasting. These are Time of historia
time series
the term "Time Series Analvsis" suggests, we require a predictionsfor furue
demand data with respectto time intervals in the pastto make perform demand
demand. As the term "Causal Analysis" suggests. here we
forecasting using acause-and-effect relationship.
Market and Demand Analysis 105

Demand Forecasting

Qualitative Methods
Quantitative Methods
" Customer Survey
"Executive Opinion Time Series Analysis
Sales Force Composite Causal Analysis
" DelphiMethod
"Historical Analogy Trend Projection
Method
Chain Ratio Method
E 'ponential Smoothing Consumption
Method
Level
Me. 'hod
"End Use Method
Movi 19 Average Method Leading Indicator
Method

Dualitative Methods of Demand Forecasting

There are certain situations in which dmand forecasts have to be made quickly
ithout using historical data. The time av ailable is not enough for
etermining the forecasts using quantitative mthods. For example, in theobjectivelylaunch of
newinnovative product, there is no data availaile from the past
asis of the sales of the product. In this situation, th;e qualitative experience on the
vailable forecasting method. There are five qualitative methods analysis is the only
of demand
recasting :
1. Customer Surveys-It is the customer who
product or service. Therefore, it is but natural todeermines
the demandfor a
inthe forecasting method. Since, it is practicallyinvolve the customer directly
not posible to identify all
the potential customers or to contact all the
existing customers, sampling of
customers is resorted to while designing customer
care has to be taken to frame questions such that the survey questionnaire,
customers are solicited. Similarly, the implementationtrueandresponses of the
analysis stages
of thesurveys have to be carefully handledto
from the survey reflect the exact pulse of the
ensure that conclusions drawn
Surveys can be time-consuming and expensivecustomers. : at the same time they may
provide valuable information about customers' changing
may not be easily available elsewhere. preferences, which
2. Executive Opinion-A jury of top
functional areas such as marketing,executives of the company from different
etc., are brought together to give theirfinance, human resources production,
opinion about the forecast of a new
 Market and
Demand
106
Thisapproachtoo forecasting is particularly Analysis
productto
for nen
be launched.
products, which
other
do not have any past history of sales,
option exceptto depend upon thevast sInuitabsulche
individualexperience
of these senior
situations, there is no
executives in providing the forecast fGr the new product.
riskthat the opinion ofany
inAthe same time.
an impressive

compared
thcre is a
manner may overshadowthe opinion off other experts,
3. Sales Force Composite-This approach to forecasting is much less
to customer surveys. The
sales force of a
expres ed
expensive
indirect contact with
estimates about the likely sales
of the product in their region.
company
customers. Thus, they can be advised to give theiris

required to give three estimates of expected demand, namely, the They may be
optimistic estimate. These
expected demand. andthe to arrive at the overall estimate of estimates \may
f
owestbe
compiledfor different regions the demand
forecast for the product.
has its disadvantages. The sales
This approach to forecasting
estimates may not be as
accurate as customer surveys, which
customers' current preferences
person'first.s
give
hand information about the and
incentives
about thepurchase ofa product. In addition,i if the performance appraisal of
sales personnel is linked with achieving sales targets, they are mors o
to give lower projections of denmand in order to gain incentives later on.
4. Delphi MethodThis method is named after an ancient Greek
astrologer
Delphi. In this method. a questionnaire e-mail is sent to experts from va
diversified streams, seeking their opinion on the forecast of a (usualv kta
advanced technology) product. This isa popular technique particularly o
technological forecasting. The following steps are involved in this method
) The moderator selects a panel of experts.The composition of thepanel
is known only to the moderator.
(ii) The panelmembers are not brought face to face nor do they knowwho
else is on the panel.
(ii) The moderator poses the question to all the members through mailar
email and obtain their answers.
(iv) The moderator then summarises the results and redistributes them to
the panel members alongwith new appropriate questions.
(v) This may be repeated tillthe panel arrives at same kind of consensus
The advantage of the Delphi method is that the opinion of experts bascu
the far-off global locations can be taken without much expense.inhibitions
As the pai i
members do not know the identity of the others, there are no
expressing opinions frankly and freely.
However, this method involves several round and is time-consuming.
 Analysis 107
Marketand Demand
Analogy-This method relies on using data of asimilar existing
K Historicaloforecast
productto1 the demand for another product. For example,the demand
ofelectrictea kettles may be related to the demand for electric toasters.
Subjective methods are more appropriate for long-term forecasts.
Quantitative Methods of Forecasting
discuss time series analysis first.
n quantitative methods of forecasting, we willquantitative methods of demand
we will discuss the other
Later inthe chapter, causal analysis.
forecasting, namely, the suggests,
Time Series Analysis-As the term time series analysis/methods
with respect to time
we require atime series of historical demand data The important
intervals in the past to make predictions for future demand.
time series projection methods are :
1. Trend Projection Method
2. Exponential Smoothing Method
3. Moving Average Method
Trend Projection Method
value with time or to
Trend is the overalltendency of the data to increase inexponential. Rising per
decrease in value with time. The trend may be linear or determining
involves :
capita income may form a trend. The trend projection method future
the trend of consumptionby analysing past consumption data, and projecting
consumption by extrapolating the trend. linear
When this method is used, the most commonly established relationship is
each
relationship. In linear relationship, two variables are linearly correlated to
other.
Y, =a+bT
where :

Y, is the Demand for the year t

T is the Time variable
a is the intercept of the relationship, and
is the slop.
The parameters of a and b can be estimated by using least square method.
According to the least square method, the linear relationship is chosen in such a
way that the sum of the squared deviations of the observations from the line is
minimised. The parameters, a and b, of the linear relationship are estimated with
the help of following equations :
ETY -nTY .. ()
b=
ET' -nT
a = y-bT ... (ii)
 Marker and Demand
Analysi
108

calculation of aand b is given in the following example:

The
E
Example:Calculations in Least Square Method
Demand TY T2
Time

10
13 13
14 28
4
17
72
16
18 90
19 114 25
36
20 140
49
22 176
64
23 207
81
10 22 220
I00
24 264
121
12 24 288
144
13 25 325
169
LT=91 EY = 269 ETY = 1998
T' =819
T =6.5 Y = 19.21

STY - nTY 1.998 - 1,748.5

b= = 1.097
2T -nT? 819-5195

a= y-bT = 19.21 -1.097 x 6.5 = 12.08

Hence Y = 12.08 + 1.097X
where :
T = Time
Y = Demand
n =
Number of Observations
Mean of T
Y = Mean of Y
a =

Intercept
b =
Slope
Advantages of the Least squares method are :
() It uses all the observations.
(ii) The estimates are worked out by an objective and statistical procedure.
Limitations of the Least squares method are :
(0) This method is more complicated than other
(i) The results of such an methods. are
satisi
analysis are valid if certain conditions
larket and Demand Analysis 109

Exponential Smoothing Method

ENpOnential smoothing is the most commonly used forecasting technique and
inleeral part of allcomputer forecasting software packages. It is surprisingly
ccurateand casyto use. The value of the smoothing constant is kept low ifthe
emandis fairly stable and| will be higher if the demand were experiencing growth.
e higher the rate of growth, the larger should be the value of the smoothing
onstant as it will give greater importance to the recent growth.
Exponential smoothing is based on the premise that latest occurrence of data is
vindicating of thefuture than the past occurrences. This methodgives decreasing
mportance to older data andrequires very little data. It is based on the forecast and
he actual data of the previous period and a smoothing constant Alpha a which
es between 0 and I. In exponential smoothing, forecasts are modified in the light
fobserved errors. Error is the difference between actual demand and the forecast
lemand. The forecast is given by the relation :
F,., = F, ta-e,
Forecast for the year t+ 1
=

where
= Smoothing constant/parameter which lies between 0 and 1
=
Error in the forecast for year
= S, -F
S = Actual value of sales in period i
F = Forecast value of sales in period i
Choice of Smoothing Constanta-The smoothing constant a has a value
etween 0and I. If the demand is stable a small smoothing constant should be
hosen so that the effect of random variations can be decreased. However, if the
emand has large variations from period to period, it is better to choose asmoothing
onstant witha higher value so that forecast value can keep up with the variations.
Exhibit :Forecasts
Data Forecast Error Forecast for t + 1
t (S) (F) (e, =S,-F)
1 28.0 29.0 -1.0 F =
29.0 0.2 (-1.0) 28.8
2 29.0 28.8 0.2 28.8 + 0.2 (0.2) 28.8
3 28.5 28.8 -0.3 28.8 + 0.2 (-0.3) 28.7
4 31.0 28.7 2.3 28.7 + 0.2 (2.3) 29.2
5 34.2 29.2 5.0 =
29.2 0.2 (5.0) 30.2
6 32.7 30.2 2.5 30.2 0.2 (2.5) 30.7
7 33.5 30.7 2.8 30.7 0.2 (2.8) 31.3
8 31.8 31.3 31.4
0.5
Fo 31.3 0.2 (0.5)
9 31.9 31.4 0.2 (0.5) 31.5
0.5 =
31.4
10 34.3 31.5 2.8 F =
31.5 + 0.2 (2.8) 32.1
|| 35.2 32.1 3.1 32.1 + 0.2 (3.1) 32.7
 Market and
DemandI
110

Moving Average Method

average method ot forecasting is suitable under situations
Analysis
The moving i.e., there is a
neither a grwzh nor a decline
trend. horizontal where
there is
forcasting. This method involves
by the actual past data used for forecasting. For example, if wefinding the
trend shown
average of the past data used tor months of January, Februaryhave past datsimapleof
the actual sales of a product for the and
take the simple average of these sales
becomes the forecast for the next month,
figures for the three months.
i.e.. April. Mar
This ch,
Similarly.thewhen thhe average
we
for the month of April is available, we take the
forecast
average
forthe
of act
dales data ual
for
data
months February. March and April to get the month of May. the
to arive aa the forecast for a given month, the
months is considered.
actual sales data of
the Theprercedieforneg,
In mathematicalterms. moving average forecast can be expressed as
F=
D,- +D-t....+*D-n
where:
F = Forecast for the t period
D_ = Actual demand in the t- 1 period and so on
= Number of periods to be averaged.

Table :Three-week Moving Averages

Weeks Actual Demand Forecast

3 weeks

700
1,300
900
1.400 966.7
1,400 1,200.0
6 1,200 1,233.3
1,700 1,333.3
8 1.600 1,433.3
1,200 1,500.0
1,600 1,500.0
1.600 1,466.7
12 1,466.7
1,400
13 1,533.3
2.200
14 1,733.3
2.100
15 1,900.0
2,000
 111
Analysis
Marketand Demand
Causal Analysis-Demand is dependent on a number of faciors like price,
availability of substitutes prices of substitutes, competitor's price policy,
establish relationship
income level ofconsumers and so on. Causal methods Causal methods
between different variables and their effect on each other.
includes :
Chain Ratio Method
Consumption Level Method
End-use Method
Leading Indicator Method

Chain Ratio Method

product can be estimated
Under the chain ratio method, the potential sales of a
usage used in the process of
by applying various factors, ratios and rates of simple analytical
determining the sales potential. The chain ratio method uses
approach (ratios and rates) to demand estimation. However, its reliability is dependent
demand.
on the ratios and rates used in estimating the for a
For example, the General Foods of the USAestimated the potential sales
following manner:
new product*A Freeze-dried Instant Coffee (Maxim)", in the
Total amount of coffee sales :174.5 million units
Proportion of coffee used at home :0.835
Coffee used at home :145.7 million units
Proportion of non-decaffeinated coffee used at home :0.937
Non-decaffeinated coffee used at home :136.5 million units
Proportion of instant coffee :0.400
Instant non-decaffeinated coffee used at home :54.6 million units
Estimated long-run market share of Maxim :0.08
" Potentialsales of Maxim :4.37 million units

Consumption Level Method

This method estimates the consumption level on the basis of elasticity
coefficients. The important elasticity coefficients are-income elasticity of demand
and the price elasticity of demand.This method is useful for product which is directly
consumed.
() Income Elasticity of Demand-This reflects the responsiveness of demand
to variations in income. It can be measured as under:

E=
1, -1,
 Marker
112
and DemandI
wherc. E, is the income elasticity of demand
Q, is the quantity demanded in the base year
Q, is the quantity demanded in the following year
Analysi
is the income level in the base year
1, is the income level in the following year.
(ii) Price Elasticity of Demand-This measures the
to variations in pricc. Itcan be expressed as under : responsiveness of deman
Ep =
P, - P,
where. E, is the price elasticity of demand
Q, is the quantity demanded in the base year
Q, is the quantity demanded in the following vear
P is the price per unit in the base year
P, is the price per unit in the following year.
The price elasticity of demand is a useful tool in
demand for the future can be estimated on the basis demand
coefticient andexpected price change.
of the
t analyelsiasst.iciThey
price
End Use Method
The end use method is suitable for estimating the
demand for
method.inteFolrmedilowianlge
products. It can also be referred to as consumption coefficient
steps are involved in this :
Identify the possible uses of the product.
Define theconsumption coefîicient of the product for various
Estimate the output level for consuming industries. uses.
Calculate the demand for the product.
This method can be illustrated with an example. A
used by four industries, A, B, Cand D. The consumption certain industrial chemicali
output levels for these industries for the year Xare showncoefficients and projectal
in the following Table:
Table :Projected Demand for Chemical
Industries Consumption Coefficient Projected Demand
Projected Output
2.0 10,000 20,000
B 18,000
1.2
15,000 16,000
0.8 20,000
D 15,000
0.5
30,000
69,000
Total
 113
Demand Analysis
Marketand
Leading Indicator Method
are those variables which change ahead of other
variables.
indicators changes
Leading
observed changes in leading indicatorsmay be used to predict the
Thus,the
(lagging variables). For example, change in the level of urbanisation
in other variablests the demand for air-
indicator) may be used to predict the change in
leading variable).
conditioners (a lagging
taken for using this method :
Two important steps are indicators, and
) ldentification of leading between the leading indicators and the variable
(ii Establishment of relationship
to be forecasted.

Demand Forecasting
Errors and Uncertainties in future values and are bound to have some error in
Eorecasts are predictions of
is the difference between the actual value and the forecast value. Demand
them, Error
dependent on a large number of factors, all of which can not be taken into account
is random due to unidentifiable causes and
while forecasting. Some errors may be
bias.
some may be due to arise from following
Demand forecastsare subject to error and uncertainty which
Sources:
1. Information about Market-Inadequate information about past andpresent
markets may influence the demand forecasting. The projection exercise may
be vitiated by the following inadequacies of data :
(i) Data pertaining to market features like product, price, quantity, cost,
income, etc., may not reflect uniformity and measures. Thus, lack of
standardisation of data is a major source of error and uncertainty in
demand forecasting.
(i) Only few observations are available for the conduct of analysis.
Therefore, meaningful analysis may not be possible.
(ii) Abnormal factors like wa, flood or other natural calamities may affect
the observations.
2. Limitations of Forecasting Methods-Various methods are used for
demand forecasting. They are characterised by the following limitations :
() Quantitative methods of demand forecasting usually can not handle
unquantifiable factors which sometimes may be of great significance.
() Wrong interpretation of data due to bias are consistent errors.
() Uncertainty arises when the assumptions in the chosen method of
forecasting tend to be unrealistic.
()Clearly predicting the future is a difficult and uncertain exercise.
J. Environmental ChangesVarious uncertainties arise due to changes in
he environment in which business operates. The main sources of uncertainty
and errors are as
under :
 114 Market and
Demand
(i) Atechnological change may create a new
product which
Analys M
Same function more
economically and efliciently.
which may not be
() Changes in government policy, environment. For
have impact on the business
regarding granting oflicenses to newcompanies may
per form
anticipatee,d,
exampl
she
thepoicies
t
change
environment maymatkhaVee
situation.
(i) Developments in international business
significant impact on industries.
(iv) Monsoon, which plays an important role in Indian
unpredictable. The demand for a wide range of
productsiseconomy, is
directly or indirectly by the nature of monsoon,
Coping with Uncertainties
inluenced
Uncertainties inaccuracies inthe forecast will affect
productivity, increase costs
and resuit in waste. An accurate forecast will ensure efficient
and
of business. Therefore, adequate efforts may be made
to cope witheffective operation
demand forecasting such as:
1. Standardised data should be used for
conducting analysis.
uncertainties in
2. Ignore the abnormal observations in i
relationships.
identifying the
trends, coefficients
3. Select a demand forecasting method
which is
4. Evaluate critically the assumptions of the appropriate to the situation.
5. Appraise the environment imaginatively to forecasting methods.
identify the important changes
technological changes, changes in government policy, etc.
Selecting a Forecasting Method
The choice of a forecasting model depends on the amount and type of
data
available. the time horizon for which forecasts are required, the degree of accuracy
and the cost involved. Astep by step approach could be :
1. Decide what to forecast. This should include the level of
accuracy requie
and time horizon for which the forecast is
required.
2. Evaluate and analyse appropriate data. Identifythe data that is neededfor
the forecast and check whether it is available. If not, can it be collecteddand
what wil! be the cost involved?
3. Select and check the forecasting model. Check forthe ease of use, accuracy
and costs.
4. Generate the forecast.
5. the
methodused.If
Monitor forecast accuracy overtime and review the
method is found inappropriate, switch to another method.
 Analysis 115
urketand Demand
MARKET PLANNING
Marketing plan is the instrument to implement the marketing concept: it is one
atlinksthe
firmand the markets : it is the foundation for all corporate plans and
blanning. Marketing plan is the document of future course of marketing action.
Marketers start planning well
Most companies create yearly marketing plans.
time for market analysis, market
Caadvance of the implementation date to allowbetween departments. The marketing
research, management review and coordination
should define how progress towards objectives willbe measured.
nlan components/steps :
Amarketing plan, usually, has the following
1. Marketing Situation Analysis
2. Market Opportunity Analysis
3. Marketing Objectives
4. Framing Marketing Strategies
5. Implementation Programme.
has its origin in the
1. Marketing Situation Analysis-A marketing planraised:
situation analysis. At this stage following issues are
() Where we are in terms of our sales, market share, and
profitability?
Answers tothese should reflect actual to planned performance on all
these parameters-product and customer groups?
share, and
(ii) Where are our competitors in terms of sales, market
profitability on the above two parameters?
(ii) What environmental factors helped or hindered our growth?
(iv) What willbe the environmental factors in future?
This analysis will help the marketer to identify opportunities and threats as
also a firm's strengths and weaknesses.
2. Opportunity Analysis-Identification of market opportunity is critical
before the management of a firm who takes a decision to launch a new
product.
This involves an analysis of the following :
() Size of the market
(i1) Marketing strategies and the extent and quality of services rendered by
other firms in the industry.
(ii) Marketing programme required to satisfy market wants.
(iv) ldentification of key success factors in an industry and linking them to
a firm's strengths and weaknesses.
Marketing opportunities are the marketing possibilities open to the firm
and threats represent the challenges deterring the way to consumer
satisfaction. Tracking marketing opportunities is to find answers to the
questions:
() What is the present business of the firm?
 Market and
116 Demand
position?
(i) What is its competitive withinits reach?
(üi)What opportunities it has
Analysi
conducted an indepth
3. Objectives--Having to now decide on itsssituationanalysis: anda
analvsis. the firm has objectives.
commit a mistake by stating their objectives in terms of
Many opporturity
historicaltimgre,owtfhirmofs
sales turmover. It is not uncommon to come across statements like
grown 50 percent over the last two years and want to grow
per cent in the next one year." The fallacy of this that it does
<we have
by another 50
company's strengths to the market situation. Thus, it is not relate
the
objectives should reflect aspirations at the following levels :
(i) Relative market share of the firm important tha
(1) Sales turnover of the firm
(ii) Profit and ROI from the firm
(iv) Customer satisfaction.
Clearly defined. realistic. but highly challenging
parameters help guide marketing and other functional objectives on
teams to these
planned performance.
The objectives should be meaningful and achievable.
achieve
4. Marketing Strategy-A marketing strategy
(i) Positioning ofthe product in the target should reflect :
market.
(ii) Pricing policies ofthe firm.
(iii) Distribution alternatives available to a
(iv) Sales force operations. firm.
(v) Advertising and sales
(vi) Customer Service policypromotion programmes of the firm.
of the firm.
A
marketer has the following options to achieve an
sales tunover : increase in the firms
Convert non-users into users.
Convert the competitor's customers into
Increase consumption firm's customers.
of the
identifying new use situations. product in existing customer groups by
Launch new products for
different customer groups.
5. Improvements in service strategy.
Impl ementstrategy
converting ation Programme-At
into an action this Inpoint
plan. otherthewords, now
marketer now turns to
the marketer
creates deadlines to achieve programmes,
and assign certain objectives, develops action
meaningful.responsibilities to more
individuals. This makes the entire plan
Market and Demand Analysis 117

Test Questions
Questions
Short Answer Type
Discuss key steps in sample survey.
Explain industry specific sources of secondary information in India.
3. Explain steps involved in Delphi method.
4. Discuss the moving average method.
5 What is chain ratio method?
6 How is income elasticity of demand measured?
7. What is demand forecasting?
8. Describe leading indicator method.
9. Explain trend projection method.
10 Describe briefly the general sources of secondary information in India.
Long Answer Type Questions
. What is market and demand analysis? Explain the steps involved in it.
2. Describe the sources of secondary information in India.
3. How would youevaluate secondary information?
4. What is market survey? Explain the steps involved in it.
5. How would you characterise the market? Explain in detail.
6. Define demand forecasting. Describe the qualitative methods of forecasting.
7. Describe causal methods of demand forecasting.
8. Discuss quantitative methods of demand forecasting.
9. What is market planning? Explain its components.
10. Explain the major facets of Market Analysis. Do you think that it is a most
important part of the project feasibility. [GGSIPU, 2019-20]
I1. Explain situation analysis with suitable examples. [GGSIPU, 2019-20]
12. What is Demand Analysis. What are various techniques of demandforecasting.
[GGSIPU, 2017-18]
13. What is Demand Forecasting. What is its significance. [GGSIPU, 2018-19]