Answer to Question #183970 in Macroeconomics for sushant

Question

Demand forecasting is not a speculative exercise into the unknown. It is essentially a reasonable judgement of future probabilities of the market events based on scientific background. Explain the statement by elaborating different qualitative and quantitative methods of demand forecasting. 

Answer 1

Demand forecasting involves predicting the number of goods and services that customers might purchase in a foreseeable future. The process is based on a scientific background involving qualitative and quantitative methods. Qualitative methods entail subjectivity and intuition while quantitative methods use data and analytical frameworks to predict future demands. Various methods of demand forecasting are available as discussed below according to Plex Demand Caster (n.d.):

Qualitative Methods include:

• The Delphi Model – This is an iterative process where experts within certain market segments are asked to generate forecasts. The forecasts are shared and influenced by the opinion of others. The process is repeated until a consensus forecast is reached.
• Sales-Force Opinion – Here, sales teams are tasked with submitting a forecast for their respective area. The forecasts are reviewed for realism and other input from senior managers and then become aggregated into a demand forecast.
• Market Research – In this technique, the company uses customer surveys to identify potential demand. The survey may include personal, demographic, and economic information. It must be controlled as a random sampling test and subjected to the same rigor before aggregating results.

Quantitative Methods Include:

• Trend Projection – This technique uses pattern detection for analyzing historical data. It is best when deployed for sales histories of over 24 months to allow for a large enough dataset.
• Barometric – Barometric demand forecasting uses present events to predict the future. It may analyze factors such as leading, lagging, or concurrent economic indicators that are put into an equation to generate a forecast.
• Econometric – The econometric approach uses complex mathematical formulations to analyze data and variables that affect the data. The equation is then fine-tuned and analyzed against historical data and a forecast is generated.

Reference

Plex Demand Caster (n.d.). Demand forecasting: An industry guide. https://www.demandcaster.com/demand-forecasting-an-industry-guide/#:~:text=Methods%20of%20Demand%20Forecasting,-There%20are%20two&text=Qualitative%20methods%20are%20used%20in,in%20automated%20demand%20forecasting%20software.