Demand Forecasting for Schmeckt Gut's New Product

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ECON6000 ECONOMIC PRINCIPLES & DECISION MAKING
ASSESSMENT 3

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Executive summary
This is a report directed to the board member of Schmeckt Gut regarding the demand for the
new product of the company. The demand forecasting before the launch of the product is
important for the strategy formulation and decision making. The objective of this paper is to
analyse the data provided by the research department of the company to understand the
variables that influence the demand for the product. The study divides the projection into four
different scenarios and regression analysis is done based on the data. The study finds out that,
income growth of the consumer is the most important variable that impacts the demand for
the new product. However, the nature of the impact on the demand depends on the projection
of the variables. The study also recommends strategies to the board members based on the
different scenarios.

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Table of contents
Introduction................................................................................................................................4
Methods......................................................................................................................................4
Discussion..................................................................................................................................4
Recommendation......................................................................................................................10
Conclusion................................................................................................................................11
Reference..................................................................................................................................13

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Introduction
According to the principle of economics, the demand for a product depends on a lot of direct
and indirect factors. It is important for a company like Schmeckt Gut to understand and
forecast the demand for their new product. The income of the consumers, inflation and the
tariff rate has a crucial influence on the demand of the product. The objective of this report is
to understand the influence of the variables such as the change in the income, inflation and
the tariff rate.
Methods
The study uses the data of the research department of the company and uses regression
analysis to synthesise the data in order to get an insight regarding the demand for the new
product of the company.
Discussion
Different projections regarding the variable
Scenario 1- 5% increase in income, 10% tariff rate and 5% inflation
This scenario is possible as high-income growth of 5% with the presence of a 10% tariff rate
can change the demand for the product in the domestic market. In this case, the demand curve
shifts to the right and increases the price of the product. This in turn, also increases the
inflation level in the economy. Boserup (2017) stated that this is a common phenomenon
under the boom phase of the business cycle to have a higher inflation level corresponding to a
higher income of the consumer. In addition to that, the increased consumption corresponding
to the increased income can also increase the overall output of the economy as per the theory
of aggregate demand. In both the ways, the price of the product has the opportunity to go up
pushing a lot of pressure on the inflation of the economy (Pigou, 2017). Furthermore, this
scenario also has a high tariff rate which can be considered as a tax for the importer. Laffer
curve shows that, with the increase in the tax rate, the revenue of the government increases as
people prefer to buy from outside with the tariff rate applied. However, after a certain point,
the consumers prefer to buy the products from the domestic market as the tariff rate increase
further. Lastly, as per the theory of Phillips as the income increases the number of
unemployed people decreases that impacts on the inflation rate and the number of stores in
the market.