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Using Qualitative Data for Demand Forecasting

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  • 0:00 Demand Forecasting
  • 0:36 Qualitative Method
  • 1:22 Focus Groups
  • 3:26 Surveys
  • 5:09 Lesson Summary
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Lesson Transcript
Instructor: Yuanxin (Amy) Yang Alcocer

Amy has a master's degree in secondary education and has taught math at a public charter high school.

After reading this lesson, you will know how to find out whether there is demand for your product and how much demand there is through the use of qualitative data, even when you are just starting out. Learn how you can use focus groups and surveys to forecast demand.

Demand Forecasting

Any successful business depends on demand forecasting. Demand forecasting is when you use past or current data to forecast, or predict, what the future demand for your product will be. This helps you to keep up with that demand. You will know how much product to make and have on hand so that your customers are able to purchase the items they want. Businesses that have been selling for years have past sales data they can use to predict future sales, but new businesses need to turn to the qualitative method.

Qualitative Method

The qualitative method is when you forecast demand when there is no prior data or sales numbers to work with by using the opinions of a group of experts. This can be either via a focus group or the strategic use of surveys. The data that you collect from your group of experts is then used to predict a possible quantity of future demand.

Pretend that you are a new business starting out. You want to sell cookie cutters. You can use the qualitative method to figure out how much possible demand there will be for your cookie cutters. This will give you an idea of how many cookie cutters you need to make to meet that possible demand. Let's see what is involved in doing either a focus group or sending out surveys to a select group of people for your cookie cutter business.

Focus Groups

To use a focus group, you need to find a representative group of your potential customers. You then sit them all down in a comfortable group setting and talk with them. You find out what products they currently use for cookie cutters, how satisfied they are with them, what improvements they would like to see, how likely they are to purchase a new product, and how much they would be willing to pay. By conversing with the group in this manner, you find out some very valuable information, such as how many of them are likely to purchase and at what price. You then take this information and generalize it to your whole group of potential customers. You now have a prediction of possible future demand.

To get started with a focus group for your new cookie cutter business, you first think about who your potential customers will be. This will determine the kind of people that will be part of your focus group. You decide that your customers will most likely be parents who bake cookies for school fundraisers, so these are the people who will make up your focus group. You gather up your group and invite them to your office for some cookies and tea. You begin the casual conversation with some talk about cookies and what kind of cookies the parents like to bake. You then direct the conversation towards the information that you want to find out. After finding out what kinds of cookie cutters the parents would love to see, you show them the cookie cutters you have made. You ask them how they like the cutters, if they're likely to purchase them, and for how much.

You find that maybe 60 percent of the parents like the cutters and would be willing to purchase for $2 per cookie cutter. You can now use this data to forecast your demand. You take the number of potential customers that your advertising is likely to reach and then you multiply it by 60 percent to find out your potential demand. So if your total number of potential customers is one million, then one million multiplied by 60 percent gives you a possible product demand of 600,000. This means that you need to prepare to produce 600,000 cookie cutters to meet the forecasted demand. If you sell out, you can potentially make 600,000 * $2 = $1,200,000. That's not bad for sales.

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