MARKET AND DEMAND

ANALYSIS

Amit Singla

Collection of
Secondary
Information

Situational
Analysis and
Specifications
of Objectives

Demand
Forecasting

Characterization
of the Market

Conduct of
Market Survey

Market
Planning

Amit Singla
Key Steps in Market and Demand
Analysis and their Inter-

SITUATIONAL ANALYSIS AND

SPECIFICATIONS OF OBJECTIVES

In order to get a Feel of the

relationship between product and the
market, the project analyst may
informally
talk
to
customers,
competitors, middlemen and others in
the industry.
Wherever possible he may look at the
experience of the company to learn
about preferences and purchasing power
of the customers.
Amit Singla

COLLECTION OF SECONDARY
INFORMATION

General Sources of Secondary

Information

Census of India
National sample survey reports
Economic survey
Annual reports and other publications

Industry Specific Sources of Secondary

Information
Evaluation of Secondary Information
Amit Singla

SECONDARY SOURCES
OF DATA
1.
2.
3.
4.
5.
6.
7.
8.

9.

Indian Economic Survey

Indian Basic Facts
Reports of Export Working Groups on
Various Industries
Census of Manufacturing Industries
Indian Statistical Yearbook
Monthly Statistical Bulletin
Annual Report of State Bank of India
Annual Reports and Accounts of the
Companies Listed on the Stock
Exchange
AmitVarious
Singla
Annual Reports of the

CONDUCT OF
MARKET SURVEY

Census Survey
Sample Survey
Steps in a Sample Survey

Define the Target Population

Select the Sampling Scheme and Sample Size
Develop the Questionnaire
Recruit and Train the Field Investigators
Obtain Information as Per the Questionnaire
from the Sample of Respondents
Scrutinizes the Information Gathered
Analyze and interpret the
Information
Amit Singla

CONDUCT OF
MARKET SURVEY

Some Problems

Heterogeneity of the Country

Multiplicity of the Languages
Design of Questionnaire

Amit Singla

CHARACTERISATION
OF THE MARKET

Effective Demand in the Past and

Present
Production + Imports Exports
Change in stock level
Breakdown of Demand

Nature of Product
Consumer Groups
Geographical Division
Amit Singla

CHARACTERISATION
OF THE MARKET

Price
Methods of Distribution and Sales
Promotion
Consumers
Supply and Competition
Government Policy

Amit Singla

DEMAND FORECASTING

Qualitative Methods

These methods rely essentially on the

judgment of experts to translate
qualitative information into quantitative
estimates
Used to generate forecasts if historical
data are not available (e.g., introduction of
new product)
The important qualitative methods are:
Jury

of Executive Method
Delphi Method
Amit Singla

JURY OF EXECUTIVE OPINION METHOD

Rationale

Approach

Upper-level management has best information

on latest product developments and future
product launches
Small group of upper-level managers
collectively develop forecasts

Main advantages

Combine knowledge and expertise from

various functional areas
People who have best information on future
developments generate
Amitthe
Singlaforecasts

JURY OF EXECUTIVE OPINION METHOD

Main drawbacks

Expensive
No individual responsibility for forecast
quality
Risk that few people dominate the group

Typical applications

Short-term and medium-term demand

forecasting

Amit Singla

DELPHI METHOD

Rationale

Anonymous written responses encourage

honesty and avoid that a group of experts
are dominated by only a few members

Amit Singla

DELPHI METHOD

Approach

Coordinator
Sends Initial
Questionnaire

Each expert
writes response
(anonymous)

Coordinator
sends updated
questionnaire

Coordinator
performs
analysis

No

Consensus
reached?

Amit Singla

Yes

Coordinator
summarizes
forecast

DELPHI METHOD

Main advantages

Generate consensus
Can forecast long-term trend without
availability of historical data

Main drawbacks

Slow process
Experts are not accountable for their
responses
Little evidence that reliable long-term
forecasts can be generated with Delphi or
other methods
Amit Singla

DELPHI METHOD

Typical application

Long-term forecasting
Technology forecasting

Amit Singla

TIME SERIES PROJECTION METHODS

These methods generate forecasts on

the basis of an analysis of the historical
time series.
The important time series projection
methods are:

Trend Projection Method

Exponential Smoothing Method
Moving Average Method

Amit Singla

CASUAL METHODS

Casual methods seek to develop

forecasts on the basis of cause-effects
relationships specified in an explicit,
quantitative manner.

Chain Ratio Method

Consumption Level Method
End Use Method
Leading Indicator Method
Econometric Method
Amit Singla

CHAIN RATIO METHOD

Market Potential for heated coats in the

U.S.:

Population (U) = 280,000,000

Proportion of U that are age over 16 (A) = 75%
Proportion of A that are men (M) = 50%
Proportion of M that have incomes over $65k
(I) = 50%
Proportion of I that live in cold states (C) =
50%
Proportion of C that ski regularly (S) = 10%
Proportion of S that are fashion conscious (F)
= 30%
Proportion of F that are early adopters (E) =
10%
Singla
Average number of ski Amit
coats
purchased per

CHAIN RATIO METHOD

Market Potential for heated coats in the

U.S.:
Market Sales Potential =
UxAxMxIxCxSxFxExY
= 280 Million x 0.75 x 0.50 x 0.50 x 0.50 x
0.10 x 0.30 x 0.10 x200
= $7.88 Million

Amit Singla

CONSUMPTION LEVEL METHOD

This method is used for those products

that are directly consumed. This method
measures the consumption level on the
basis of elasticity coefficients. The
important ones are

Amit Singla

CONSUMPTION LEVEL METHOD

Income Elasticity: This reflects the

responsiveness of demand to variations
in income. It is calculated as:
E1 = [Q2 - Q1/ I2- I1] * [I1+I2/ Q2 +Q1]
Where
E1 = Income elasticity of demand
Q1 = quantity demanded in the base
year
Q2 = quantity demanded in the following
year
Amit Singla
I1 = income level in the base year

CONSUMPTION

LEVEL METHOD

Price Elasticity: This reflects the

responsiveness of demand to variations
in price. It is calculated as:
EP = [Q2 - Q1/ P2- P1] * [P1+P2/ Q2
+Q1]
Where
EP = Price elasticity of demand
Q1 = quantity demanded in the
base year Q2 = quantity demanded in
the following year P1 = price level in the
Amit Singla
base year

END USE METHOD

This method forecasts the demand based

on the consumption coefficient of the
various uses of the product.
Projected Demand for Indchem

Alpha
Beta
Kappa
Gamma

Consumption
Coefficient

Projected Output
in Year X

Projected Demand for

Indchem in Year X

2.0
1.2
0.8
0.5

10,000
15,000
20,000
30,000
Total

20,000
18,000
16,000
15,000
69,000

Amit Singla

LEADING INDICATOR
METHOD

This method uses the changes in the

leading indicators to predict the
changes in the lagging indicators.
Two basic steps:
1.

2.

Identify the appropriate leading

indicator(s)
Establish the relationship between the
leading indicator(s) and the variable to
forecast.
Amit Singla

ECONOMETRIC METHOD

An advanced forecasting tool, it is a

mathematical expression of economic
relationships derived from economic
theory.
Single Equation Model
Dt = a0 + a1 Pt + a2 Nt
Where
Dt = demand for a certain product in year t.
Pt = price of the product in year t.
Nt = income in year t.

Amit Singla

ECONOMETRIC METHOD

Simultaneous equation method

GNPt = Gt + It + Ct
It = a0 + a1 GNPt
Ct = b0 + b1 GNPt
Where
GNPt = gross national product for year t.
Gt = Governmental purchase for year t.
It = Gross investment for year t.

Ct= ConsumptionAmitfor
Singlayear t.

UNCERTANITIES IN DEMAND
FORECASTING

Data about past and present markets.

Lack of standardization
Few observations
Influence of abnormal factors

Methods of forecasting

Inability to handle unquantifiable factors

Unrealistic assumptions
Excessive data requirement
Amit Singla

UNCERTANITIES IN DEMAND
FORECASTING

Environmental changes

Technological changes
Shift in government policy
Developments on the international scene
Discovery of new source of raw material
Vagaries of monsoon

Amit Singla

COPING WITH
UNCERTAINTIES

Conduct analysis with data based on

uniform and standard definitions.
Ignore the abnormal or out-of-ordinary
observations.
Critically evaluate the assumptions
Adjust the projections.
Monitor the environment.
Consider likely alternative scenarios.
Conduct sensitivity analysis
Amit Singla