Creation and implementation of a marketing strategy within your business are the most crucial factors that will ensure its success. To understand whether the marketing strategy you intend to implement will work, you need to complete demand forecasting to estimate the revenue you are likely to collect. This will help you understand the market better and give you a footing in the business world. Also, this will provide you a safe way to discovering new demand forecasting methods.
It will also help the rest of your business departments prepare appropriately for the likely changes upon the implementation of the marketing strategy. Ensuring this is successful can be complemented through the identification of a demand forecasting method that will work best with your business and help you enact the changes. The following are five major demand forecasting methods that you can use.
5 Classic Demand Forecasting Methods to Check Out Your Market
1. Market Research
So, you need a model that will help you predict the short-term demand within your business. Then, market research will be of great assistance. This is one of the most accurate demand forecasting methods. It involves the enrollment of a large number of people. Then, you are interviewing them on the specific services or product that they need. Your business should identify their need and preferences as succinctly as possible.
- This method focuses on hypotheses, as one may not obtain the exact results since it depends on estimates.
- It works best for short-term forecasting and helps to identify turning points in the business.
- It might work for your business as it helps to forecast margins and sales for new products.
However, the method has a significant drawback. This is because you need to collect a considerable amount of data before any forecasting gets done. The necessary data may come from different avenues including:
- Time series analyses.
2. The Delphi Method
Unlike other demand forecasting methods, the Delphi Method of demand forecasting involves the use of a panel of experts. they make a sequential questionnaire to help gather information on the market your company is part of. Each questionnaire is set up in a manner that the responses of the first questionnaire determine the questions in the second questionnaire.
- All the experts within the panel receive the information that comes from the questionnaires. This is used during the forecasting process.
- Also, this technique will help you and has great accuracy since the bandwagon effect that comes with the majority opinion is eliminated.
- It works well with both long-term and short-term demand forecasting.
- Also, you can use it to identify your business’ turning points.
- This method is likely to work for your company if you require the forecasts of margins and sales for new products over a short or extended period.
The downside to this is the high amount of time necessary for consolidating the responses. Additionally, questionnaire creation takes a lot of time prompting entrepreneurs to look into other demand forecasting methods.
3. The Indicator Approach
You should consider the indicator approach as a quantitative demand forecasting model as it helps in the establishment of relationships. These relationships exist between different indicators in your company. The indicators that are majorly in use in this forecasting method are:
- Unemployment rates;
- Gross development of a country.
Through a thorough investigation of the relationship between the two aspects, you can be able to identify any lagging indicators via the leading indicator data.
- The approach allows you to do short-term and long-term forecasting of the company’s margins and sales.
- This technique will work for your company if you have consistency within the market.
- The approach gives a general forecast of the sales and margins that the company is likely to experience.
The method is rarely useful on its own due to a few shortcomings. It must mix with other demand forecasting methods for better results. Additionally, you have to look through several years’ worth of data to come up with a pattern that will help to enforce this method.
4. Econometric Modeling
Econometric modeling is a demand forecasting method that adopts regression equations to help you understand the profit activity and economic sales within your company. The regression equations’ parameters are predetermined. Also, estimation takes place simultaneously. It is a method that tests internal data constituency over time as well as the relationship significance and strength of different data sets.
- The approach relates to the indicator approach as it uses a similar concept. Yet, it can also be useful in the creation of custom indicators.
- The econometric model will work best for your business if it is in the academic field and has a considerable amount of economic policies.
You also need a moderate term of accuracy of data provided which is not a major requirement in other demand forecasting methods.
5. Moving Average Method
The moving average method is under the category of time series analysis and projection. This depends on the company’s past to make assumptions on the future. Unlike other demand forecasting methods, it is a point in a time series that involves a calculation using the average of the data points from your business from several choices obtained.
- This method only works accurately for short-term projections since it needs minimal data records. However, it is poor in identifying the key turning points within your business.
- It may work for your business if you want short-term projections within the shortest period. This is because it only takes only a day to come up with the forecast.
- It may also work for your company if you deal in low-volume items and have in collection sales history that is less than two years.
You should examine all the methods from the demand forecasting to identify the one that will work best for your business. This will mean that you have to determine the level of forecast you require (is it short-term or long-term). You also need to calculate the aggregate levels, the business you are part of, the product you would like a demand forecast for, and the accuracy standards of the demand forecast methods you would like to use.
These factors will ensure that you come up with a plan that will ensure your business progresses and the stakeholders receive the correct information as per the projection.