Unit-2 Demand theory Objectives POE | BBA First Year

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Definition Demand theory objectives 

• Forecasting sales
• Manipulating demand
• Appraising salesman’s performance for setting their sales quotas, and
• Watching the trend of the company’s competitive position.

   Demand Forecasting:·

Forecasting refers to predicting future levels of sales based on current and past trends. This is perhaps the most important use of demand study. True, sales forecasting is the basis for planning all phases of purchasing and capital budget (expenditure) programs are all based on sales forecasting.

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 Demand Manipulation:·        

• Sales forecasting is the most passive. Very few companies take full advantage of it as a technique for formulating business plans and policies. However, “Management must recognize the extent to which sales are the result not only of the external economic environment, but also of company action.·       
•   The volume of sales varies, “how much money is spent on advertising, what pricing policy is adopted, what improvements are made to the product, how accurately the salesman and sales efforts are matched with potential sales in different areas. It depends on what is done, etc.”·        
• Often the objective of advertising is to change consumer tastes in favor of the advertiser’s product. The efforts of so-called ‘hidden motivators’ are aimed at manipulating people’s ‘true’ desires. Thus sales forecasts should be used to estimate the results of other plans to adjust prices, promotions and/or products.

Importance of Analysis

• A business manager must know the background of demand because all other business decisions are largely based on it. For example, the amount of money to be spent on advertising and sales promotion, the number of sales-persons to be appointed (or to be employed), the optimum size of plant to be set up and many other strategic business decisions depend on the level of demand. depends on.·        

2Importance of Analysis

• Why should a business firm invest time, effort and money to produce color TV sets in a poor country like Chad or Burma unless there is sufficient demand for it? A firm must be able to describe the factors that motivate households, governments or business firms to desire a particular product, like a type-writer. It is in this context that an understanding of the theory of demand is really helpful to the practicing manager. ·  Demand theory is undoubtedly one of the manager’s essential tools in business planning in both the short and long term. The purpose of corporate planning is to identify new areas of investment.·         

3Importance of Analysis

•   Maintaining a stock of finished goods may require a large amount of capital. If demand is indeed responsive to advertising, there can be a strong argument for heavy outlay on market development and sales promotion.·        
• Demand considerations can directly and indirectly influence the day-to-day financial, production and marketing decisions of the firm. Demand (sales) forecasts provide some basis for estimating cash flows and net income over a period of time. Furthermore, expectations regarding demand for a product influence production scheduling and inventory planning.·        

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