demand function and forcasting
TRANSCRIPT
Demand Estimation and Forecasting
“Domino’s Barbeque Chicken Pizza”
By Group 14
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• Introduced to Sri Lanka in 2011 by Jubilant Food Works with their strong strategy of ‘think global and act local’.
Vision
“Exceptional people on a mission to be the best pizza delivery company in the world!"
• Currently, they operate 20 outlets in Colombo with more than 400 employees.
Domino’s Sri Lanka
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Product : Domino’s Barbeque Chicken Pizza- Large
Considered only “Colombo area” due to there is an increase in demand.
Substitute: Assume Domino’s Spicy Chicken Pizza- Large portion as the substitute as information are not available for Pizza Hut.
Selections Used for the Assignment
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Why We Selected “Domino’s Barbeque Chicken Pizza- Large”?
Due to the expansion of number of outlets to fulfill pizza demand
The price is set by Domino’s
Accessibility to information
Apparently, the demand for pizza depends advertisements, speed delivery service and promotions.
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Demand for Domino’s Barbeque Chicken Pizza- Large Depend on,
Price of the product Prices of the
substitutes
No. of outlets in Colombo
Advertisement cost
No. of promotions
Disposable incomeConsumer expenditure on Food
Delivery Service
Women employment
No. of product varieties
Performance incentives
Other factors
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The Demand Function
• Price of Domino’s Barbeque Chicken Pizza- Large portion - Pb• Price of Domino’s Spicy Chicken Pizza- Large portion ( price of
the substitution) - Ps• Number of outlets in Colombo - O• Advertisement cost - A • Number of promotions conducted - R• Consumer expenditure on food per household in Western
Province- C• Disposable income per person in Western Province- I
Qd = Pb+Ps+O+ A + R + C + I
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Sources and Units of MeasurementData Collected from Units of measurement
Qd Domino’s Sri Lanka NumbersPb Domino’s Sri Lanka LKRPs Domino’s Sri Lanka LKRO Domino’s Sri Lanka NumbersR Domino’s Sri Lanka NumbersA Domino’s Sri Lanka LKRI Department of Census and Statistics LKRC Department of Census and Statistics LKRCCPI Central Bank of Sri Lanka (http://www.cbsl.gov.lk). LKR
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Relevancy of the Sample Period and Frequency
Analyzed quarterly data from 2012 to 2015
Frequency: 16 quarters considered
Since pizza is a seasonal product to Domino’s, quarterly information represent entire population.
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Estimation of Demand Functional form:
Linear function used as R2 Value is 0.9708 and elasticity of Pb is varying
Statistical Software: MS Excel
Estimation Process:
Obtain raw data Adjust raw data for CCPI
Run the regression in MS Excel (data analysis)
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Results of the Demand Estimation
Regression Statistics
Multiple R 0.9853
R Square 0.9708
Adjusted R Square 0.9452
Standard Error of the estimate 1,059.38
Observations 16
Model Summary
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Results of the Demand Estimation ( Cont.)
Coefficients Standard Error
t Stat P-value
Intercept -35,557.30 14,081.45 -2.5251 0.0355Pb -807.9744 281.8357 -2.8668 0.0209Ps 848.9894 290.7003 2.9205 0.0192 O -148.1808 357.2717 -0.4148 0.6892A 0.0001 0.00008 1.2225 0.2563P 912.7613 186.2663 4.9003 0.00119C -0.0641 0.2871 -0.2232 0.8290I 0.1773 0.1871 0.9476 0.3711
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Interpreting Parameters
Qd = -35,557.3 – 807.974 Pb + 848.9894 Ps – 148.1801O + 0.0001 A + 912.761 R - 0.0641 C + 0.1773 I
• R2 value is 0.9708
• Coefficient of Pb is negative
• Coefficient of Ps is positive
• Coefficient of O is negative
• Coefficient of A is positive
• Coefficient of C is negative
1 Price 808 Qd1 Price 849 Qd
1 Outlet
148 Qd
1 Ad. 0.0001 Qd
1 C 0.0641 Qd
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Interpreting Parameters (Cont.)1 R 913
Qd 1 I 0.177 Qd
• Coefficient of R is positive
• Coefficient of I is positive
Since P Value is greater than 0.05, number of outlets in Colombo, advertisement cost, consumer expenditure on food per household in Western Province and disposable income per person in Western Province I are not statistically significant.
After removing all insignificant factors the demand function is,
1 R
Qd = -52299.5939 – 683.9388 Pb + 740.78809 Ps + 962.6143 R
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Elasticity of Demand
4720 6334 4947 9011 6790 11988 7112 14123 11665 12442 10001 17012 10317 15330 11712 21133125013001350140014501500155016001650
Demand Curve
Quantity Sold
Pric
e of
BBQ
Piz
za
• Price Elasticity of Demand is - 49.9%
It towards perfect elasticity
• Demand is mainly depend on promotions. Promotion Elasticity of Demand is 0.44%
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Demand ForecastingForecasting Techniques :Linear trend forecasting & Time series forecasting (simple moving average method)
Qt = 4449.47 + 760.62 t
year Quarter T T^2016 Q1 17 17380
Q2 18 18141Q3 19 18901Q4 20 19662
year Quarter T^ S^ Y ̂= T^ x S^2016 Q1 17380 1.0008 17393.90
Q2 18141 1.0774 19545.11Q3 18901 0.7109 13436.72Q4 19662 1.2109 23808.72
74184.45Total sales in 2016
Adjusted Forecast
Trend Forecast
Year Q1 Q2 Q3 Q42012 0.7597 1.20512013 0.8031 1.2802 0.6701 1.25222014 0.9973 1.0019 0.7930 1.32862015 1.3286 1.0866
Total 3.1290 3.3687 2.2228 3.7859 TotalAverage 1.0430 1.1229 0.7409 1.2620 4.1688Adj. S 1.0008 1.0774 0.7109 1.2109 4
Seasons Seasonal Adjustment Table
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Assumptions and Limitations 10% increment in consumer expenditure on food for
western province after 2013
10% of Sri Lanka per capita income is considered as, per capita income of western province after 2013
Qualitative factors which are significant cannot be used for demand estimation
Time constraints
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THANK YOU