Business enterprise needs to know the demand for its product. An existing unit must know current demand for its product in order to avoid underproduction or over production. The current demand should be known for determining pricing and promotion policies so that it is able to secure optimum sales or maximum profit. Such information about the current demand for the firm‟s product is known as demand estimation.
Demand Estimation is the process of finding current values of demand for various values of prices and other determining variables.
Steps in Demand Estimation
1. Identification of independent variables such as price, price of substitutes, population, percapita income, advertisement expenditure etc.,
2. collection of data on the variables from past records, publications of various agencies etc.,
3. Development a mathematical model or equation that indicates the relationship between independent and dependant variables.
4. Estimation of the parameters of the model. I.e., to estimate the unknown values of the parameters of the model.
5. Development of estimates based on the model.
Tools and techniques for demand estimation includes;
1. Consumer surveys.
2. Consumer clinics and focus groups
3. Market Experiment.
4. Statistical techniques.