Forecasting Models - Definition & Meaning
What is Forecasting Models?
Forecasting models are tried and tested frameworks which helps in predicting the outcomes more easily in the field of business and marketing. The different forecasting models include time series model, econometric model, judgmental forecasting. In today's time of uncertainty along with increased competition and volatile customer loyalty, it becomes an uphill task to infer any outcomes. Forecasting Models provide some respite from this complex process, although not 100%, but it gives some idea about the future.
There are many factors like frequency of use, relevant data and its availability, method of forecast,etc. involved in forecasting models. Market Share, Sales or Marketing costs are some of the factors which are forecasted in general.
There are many models available for use. Businessmen should wisely use those models which are practical for their business. Some methods to develop forecasting model are :
Expert opinion : The experts in the respective field of marketing should be asked to give their valuable opinion. For Ex - Salespeople have great knowledge about customer’s preferences, hence their advice to understand consumer behaviour should be taken into consideration.
Intentions of the Customer : Focus group surveys are done to predict the potential customers intentions and plan accordingly.The surveys help to know the demographics of target group, their location, need for the product and the timeline for acceptance among the customers.
Extrapolation : Analysis of similar situation is done statistically or previous results are extrapolated to predict the parameters.
Testing : A small sample is distributed in the market as a pilot testing to judge and predict the reactions of the customers. Based on the results of sample testing, future predictions are made.
Forecasting models are available in different forms. Some popular types of forecasting models used in marketing are -
● Time Series Model - Used to predict the future with full knowledge of recent happenings through Statistics.
● Econometric Model- Used to predict economy related variables like demand, supply, price, etc.
● Judgmental Forecasting - Done due to lack of historical facts or when new product or competitor enters the market.
Hence, this concludes the definition of Forecasting Models along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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