One of the biggest challenges for business people is to evaluate customer psychology, and estimate the future demand for a product. Demand forecasting is a reliable tool to understand the environment, and utilize opportunities optimally.

Retailers need an estimate on demand fluctuations, so as to keep adequate supply of goods. Proper understanding of demand enhances competitiveness of the retailer in the marketplace. Demand forecasting is a predictive analysis technique used for understanding the future demand for products or services. The analysis and interpretation is used for forecasting consumer demand.

Understanding the demand, and accurately predicting it is vital for manufacturers, suppliers and retailers. Despite the fact, that no tool for prediction is an unmixed blessing, and has its own drawbacks, appropriate techniques can be used for forecasting, making the retailer better prepared to meet the actual demands or business opportunities as and when they arise.

Demand forecasting is generally done for the following reasons:

  • Estimate rate of sale for products.
  • Estimate the share of total sales range.
  • Formulate demand patterns based on past performance.
  • Historical analysis about the factors influencing demand for the product.

Demand forecasting brings discipline to pricing:

Crafting successful pricing strategy is a tough challenge for any business. Even a slight variation in pricing causes big changes in the operating profits. Companies therefore are more focused on their pricing policies.