Question

Difference between demand forecasting and demand estimation

Answer 1

Estimation attempts to quantify the links between the level of demand and the variables which determine it. Forecasting , on the other hand, attempts to predict the overall level of future demand rather than looking at specific linkages.

For this reason the set of techniques used may differ, although there will be some overlap between the general, an estimation technique can be used to forecast demand but a forecasting technique cannot be used to estimate demand.

A manager who wishes to know how high demand is likely to be in two years’ time might use a forecasting technique.

A manager who wishes to know how the firm’s pricing policy could be used to generate a given increase in demand would use an estimation technique.

The firm needs to have information about likely future demand in order to pursue optimal pricing strategy. It can only charge a price that the market will bear if it is to sell the product. On one hand, over-optimistic estimates of demand may lead to an excessively high price and lost sales.

On the other hand, over-pessimistic estimates of demand may lead to a price which is set too low resulting in lost profits. The more accurate, information the firm has, the less likely it is to take a decision which will have a negative impact on its operations and profitability.

Answer 2

Demand forecasting is an aggregate of two terms; the first one is Demand and another term is forecasting. Demand determines the external requirements of a commodity or service. In general, forecasting implies making an evaluation in the present for a future occurring issue.

Demand estimation is a forecast concentrating on prospective customer behavior. It predicts the requirement for a business's commodities or assistance by implementing a set of variables that determine how, for instance, price fluctuations, a competitor's pricing tactics or changes in consumer revenue levels will affect commodity demand.