Forecasting of total demand
Steps in any total market forecast:
Define the market.
Divide total industry demand into its main components.
Forecast the drivers of demand in each segment and project how they are likely to change.
Conduct sensitivity analysis to understand the most critical assumptions and so gauge risks to the baseline forecast.
A.1 Defining a market
Before we can forecast demand, the first step naturally is to define the market in terms of potential end-users. The total demand for any product class is governed by a number of factors such as the general economic development, composition of the population etc. However, these factors can only be identified, if we know all the possible end-users.
A.2 Dividing demand into component parts:
The markets for a product need not always be homogenous. There can be segments based on benefits, geography, income, occupation, buying behaviour i.e. whether purchase is made by individuals or by institutions.
A.3 Forecast the Drivers of Demand
It will be appreciated that each segment may have different factors, which influence demand. These factors can also be called the "Drivers of Demand".
We identify the Drivers of Demand for each segment of the market. There are various ways of doing this but experience and end-use analysis is most important.
Regression analysis of various factors can also be used to determine the historical connection between the factors and demand. The problem with this method is that we are using past data and as in all such data, the past need not always indicate the future.
In end-use analysis, we take each segment and identify the drivers of demand of this segment. In this kind of analysis, there are two kinds of factors - macroeconomic variables and industry specific factors which can explain this growth.
The point to be...