How Consumer Habit and Where Consumers Live Drive the e-Commerce Demand Forecast
As an example of e-commerce demand forecasting, consider the market for selling books online, like my latest book Change&Chance Embraced: Achieving Agility with Smarter Forecasting in the Supply Chain, from which this article is derived. The starting point for any forecasting process is to identify all the things that are needed to put a forecast together. These are inputs. Typical inputs include finding sources of data about the item to be forecast; obtaining information about external conditions, that is, about factors in the environment influencing a forecast; determining the needs of the user of the forecast; gathering the human and financial resources required to produce a forecast; and listing projection techniques. These are inputs not only to the forecasting process but also to the forecaster’s judgment, which is applied throughout the process. The forecasting process also requires knowledge about the outputs of the process: formatting the output of the final product, presenting the forecast to the forecast users, and evaluating forecast errors on an ongoing basis.
In the consumer goods (CPG) industry, for example, the demand for a product is forecast along with a measure of the effect that price will have on its demand (price elasticity) . Thus, understanding the sources of variability in demand , the demand forecaster will need to consider demographic, economic, and market factors such as income, market potential, and fashion and consumer habits, typically an integral part of a formal demand theory:
- · Income measures a consumer’s ability to pay for a company’s goods or services. The price of its goods or services and the prices of its competitors’ are certainly important.
- · The market potential represents the total market for products or services being forecast. This might be the number of households or business establishments.
- · Fashion and consumer habit are crucial because innovation and change create new products and services, thus causing people’s tastes and habits to change. These changes must be monitored. For example, the introduction of air transportation caused people to change travel habits; the resulting impact on the railroad industry was tremendous. Also, the introduction of computers and smart phones has impacted people’s work habits.
The telecommunications industry illustrates a number of considerations common to many market-based service-demand forecasting applications (top frames). The global market that generates business telecom revenues may be viewed, in part, as the number of business telephones from which calls can be made. Messages (calls) are regarded as the quantity of service rendered (or product sold). The correspondence between revenues and messages is not one-to-one because additional factors, such as the geographical location of the parties and duration of calls cause variation in the revenue per message.
The e-book publishing industry is a particularly challenging area for demand forecasters. Like fashion products, e-books are highly polished products. They require a lot of preparation and are geared for a very limited yet non-captive market. Accurately forecasting the potential demand for each title seems crucial. To provide book publishers with some assistance in conceptualizing the role of demand forecasting in the textbook industry, it is useful to create a visual representation or model of the publishing industry.
At a regional level, the economic growth in China in recent years has created a rapidly growing middle class and city white-collar jobs. These expanding demographics have increased disposable incomes that help raise living standards. People seek food that is both high in protein and convenient to the consumer. Supermarket chains expand and establish more stores to meet the demand, resulting in the increase of the consumption for ready-to-eat packaged foods. A Consumer Packaged Goods (CPG) manufacturer supplies more and varied products, such as chicken, for the fast-foods (FMCG) market to fulfill the demand from consumers..
Different measures of economic activity, such as interest rates, industrial production, the unemployment rate, gross domestic product (GDP), volume of imports versus exports, and inflation rates, have special significance in other industries to help determine the size of some market at a designated time and place.