Demand and Pricing
Predicting demand is an important strategy used in conducting business, both for opening new markets, and to predict the behavior of segments already established. The demand forecasting tool helps to reduce the uncertainty and risk associated with decision making.
A suitable process generates prediction:
(i) Better budgeting
(ii) Market competitiveness
(iii) Greater integration between the areas of the company
Demand forecasting involves different types of solutions:
The price is a key variable in the decision making, whether in the retail market, the regulated sectors or specific markets. The projection of the price offers greater reliability of future events. Price projection models often based on the balance between supply and demand. In the case of commodities, the pricing is quite singular. A producer just does not have the ability to determine prices and you need to adopt a global view of business to adequately determine the price.
The projection of the quantity demanded is fundamental variable to prepare and budget for the optimization of resources and investment. This quantity can be expected to be both the inputs needed for production, as related to the very end activity. In general, not just price and cost help predict the quantity but also the degree of market competition on screen. In competitive markets and commodities, the quantity is closely related to prices. Already in oligopolistic markets and differentiated, marketing activities have a high potential for determining the quantity demanded.
The projection of costs tends to be one of the drivers of strategic planning. Anticipating the use of inputs from the expected productivity, or the evolution of the price of the input, reduces uncertainties related to the resources needed for operation. More than that, many times the cost curve is asymmetric and understanding of the cost structure brings clear advantages over competitors. The asymmetry can be illustrated, for example, the fact that an expense not paid with marketing can be more costly than the realization of expense to the extent that competitors can occupy larger market share.