Write the Important Steps Involved in Demand Forecasting.

Demand/ sales forecasting passes through a number of steps. Some of the Important Steps Involved in Demand Forecasting among theses are:

Nature of Forecast:

We must be clear about the uses of forecast data, how it is related to forward planning and corporate planning by the firm.

Nature of Product:

The next step is to determine the nature of product for which demand forecast is to be made. It must be examined carefully whether the product is consumer goods or producer goods, perishable or durable, final or intermediate demand, new demand or replacement demand type etc.

Determinants of Demand:

Next step is to locate clearly the determinants of demand for the product. Depending on the nature of product and the nature of forecasts different determinants have different importance. These factors are price-income factors like own price, related price, related income etc socio-psychological determinants such as, demographic sociological and psychological factors.

Analysis of Factors:

Analysis of determinants is also equally important. An analysis of factors is specially important depending upon whether it is the aggregate demand in the economy or industry’s demand or the consumer’s demand. In an analysis of statistical demand function it is customary to classify the explanatory factors into trend factors, cyclical factors, random factors.

Choice of Techniques:

This is very important step. We have to choose a particular technique from among various techniques of demand forecasting. Different techniques may be appropriate for forecasting demand for different products depending upon their nature. In many cases we may have to use more than one technique. Choice of technique also depends on a number of factors like the degree of accuracy required, reference period of the forecast complexity of relationship postulated in the demand function, size of cost budget etc.