LAW OF SUPPLY AND DEMAND

DEMAND
ESTIMATION:
ThEOry-PrAcTIcE
MArkET STuDIES
AND ExPErIMENTS
rEgrESSION
ANAlySIS
BY: CHELDY SYGACO ELUMBA-PABLEO;MPA,LLB

DEMAND
the willingness of
consumers to buy a
product at a certain
price at the aggregate
demand of all
consumers in an
economy for all
products and services.

DEMAND ESTIMATION
means the statistical
techniques such as a
regression analysis
are used to determine
the level of demand
for a product,
services or brand.

A. PRODUCT
In marketing, it is defined as
anything that can be offered to a
market that might satisfy a “want or
need” .
However, it is much more
than just a physical object. It is the
complete bundle of benefits or
satisfaction that a buyers perceived
they will obtain if they purchase the
product
It is the sum of all physical,
psychological symbolic and service
attributes.
It is similar to good.

GOODS
in accounting, it is
defined as the
physical objects that
are available in the
market place. This is
of being delivered to
a purchaser and
involves transfer of
ownership from
seller to customer.

B. SERVICES
has no physical
transfer except as in
incidental part of the
transaction. In
economics, services
are still considered
economic goods.

C. BRAND
name given to a
product or services
such as the trade
marks, trade name
or brand name.

*OBJECTIVES OF DEMAND
ESTIMATION*

1. To introduce the basic
elements of regression.
2. To show how results of
this analysis and various
test significance of these
results influence business
decision.

*THEORY AND
ESTIMATION OF
PRODUCT*

1. To introduce how a firm’s inputs
determine a firm’s level of output.
E.g. the product function in the
short or long run.
2. To illustrate and explain important
patters of relationship between a firm’s
inputs and it’s output.
3. To demonstrate how these patterns
are estimated using regression in
analysis.

*3 METHODS FOR
ESTIMATING A DEMAND
FUNCTION*

Consumer Interview
under this method, consumers is
interviewed with regard to their
consumption habits .Interviews could be
conducted on: CENSUS BASIS or SAMPLE
BASIS. Under the former, all past and
prospective consumers are interviewed.
While under the later, only the subject of
them called the sample are interviewed.
- The interview could be: planned orally or
through pre-designed questioner,
depending upon the complexities of the
problem. This interview is called surveys
aim at obtaining the relevant information
on a variety of variables, useful for
estimating the demand function for
product under study.

Market Experiments
-provide an
alternative method
to estimate the
demand

2 functions

1a. Actual Experiment
- shops are opened in different localities (places)
and then consumers’ reaction are observed and
recorded. Different localities would include
consumers with varying levels of income, caste
and religion, sex, age group, taste and preference
etc. Further during the experiments, one could try
to elicit consumers’ reaction to price change. If
such an exercise is carried out with sufficient
care with regard to the sample of locations and
probable prices, the researcher should have no
difficulty in coming out a demand function,
indicating quantities that consumers would
demand at various levels of incomes, prices and
other relevant variables in the function.

2b.Market Stimulation Method
also called consumer clinic or laboratory
experiment techniques involves, providing
token money to a set consumers and asking
them to shop around in simulated market.
The price of various goods, their quality,
and packaging varies during the experiment
to observe consumers reaction to such
changes. This generates information which
could be sufficient to estimate demand
function.

*4 STEPS IN DEMAND
ESTIMATION *
(Followed by economist is
regression method)

1. Identification of Variables
influences the demand for the
good whose function is under
estimation.
2. Collection of historical data
on all the relevant variables.

3. Choosing an appropriate
from the function.
4. Estimation of the function.

DEMAND WISE

-----(FACTS)---at the store level, in
average up to 27% of (SKU) stock keeping
units and more than 36% of promoted items
are out of stock at any given time, according
to different industry research. An average
retailer spend 10-15%of sales on promotions
(nearly 50% of its total marketing budget) yet
less than 20% of these promotions are
profitable, on average returning just
$0.65/dollar spent. Spending on retail
promotions tops $300B according to the
Production Management Asso. with in-store
promotions accounting for $867M.

*IMPORTANCE OF DEMAND
FORECASTING*

is crucial to any suppliers,
manufacturers or retailers.
Forecast of future demand will
determine the quantities that should be
purchased, produced and shipped.
Lost revenue and increased cost
due to inaccurate forecast, over stocks,
unsuccessful promo management, mark
downs and out-of-stock season items are
the bane of every retailer’s existence,
writing off hundreds of thousands of
dollars’ worth of merchandise on an
annual basis—and as much on sales due
to shortages—is considered normal part
of doing business.
Minimizing of these looses is a
vital problem for each retailer.
DEMAND FORECASTING

retailers need a production
forecasting system must provide
short term tactical forecast useful
for planning regular and
promotional sales from a retailers’
perspective. THUS: forecasting
system must be able to handle
any of the millions SKU’s in each
store and must be scalable to
produce approximately hundreds
of millions forecasts per year
across each retailer.
TO SOLVE THIS PROBLEM

*EFFECTS OF PRICE LEVEL
ON DEMAND AND
EFFECTOF DEMAND ON
PRICES*

Supply and Demand
in economics, it is the basic factor
determining price. According to the theory
or law of supply and demand, the market
price of commodities and services are
determined by the relationship of supply
and demand. Theoretically, when supply
exceed demand, sellers must lower, when
prices to stimulate sales conversely
demand exceeds supply, buyers bid
prices up as they compete to buy goods.
-It does not mean the amount of goods
and services are actually sold and bought
in any sale the amount sold is equal to the
amount bought and such supply and
demand therefore are always equal.

is the amount available
for sale or the amount
that sellers are willing to
select a specific price.
SUPPLY-
IN ECONOMIC THEORY:

sometimes
called effective
demand, it is the
amount
purchasers are
willing to buy at
specific price.
DEMAND-

demand for products that
varies according to the time
of year. It poses problems
for business because they
have to build-up stocks for
sale and stocks are
expensive to keep. Firms
are also caught within
expectations while sales are
lost if demands exceeds
expectations.
SEASONAL DEMAND-

THANK YOU FOR READING!
CHELDHAYE

LAW OF SUPPLY AND DEMAND

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