This is to help developing demand function for price setting business entity and forecasting the future demand

1. Demand Estimation and Forecasting
“Domino’s Barbeque Chicken Pizza”
By Group 14

2. 2
• 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

3.  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.
3
Selections Used for the Assignment

4. 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.
4

5. Demand for Domino’s Barbeque Chicken Pizza-
Large Depend on,
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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

6. The Demand Function
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• 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

7. Sources and Units of Measurement
Data Collected from Units of measurement
Qd Domino’s Sri Lanka Numbers
Pb Domino’s Sri Lanka LKR
Ps Domino’s Sri Lanka LKR
O Domino’s Sri Lanka Numbers
R Domino’s Sri Lanka Numbers
A Domino’s Sri Lanka LKR
I Department of Census and Statistics LKR
C Department of Census and Statistics LKR
CCPI Central Bank of Sri Lanka (http://www.cbsl.gov.lk). LKR
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8. 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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9. 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:
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Obtain raw data
Adjust raw data for
CCPI
Run the regression in
MS Excel (data
analysis)

10. 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
10
Model Summary

11. Results of the Demand Estimation ( Cont.)
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Coefficients Standard
Error
t Stat P-value
Intercept -35,557.30 14,081.45 -2.5251 0.0355
Pb -807.9744 281.8357 -2.8668 0.0209
Ps 848.9894 290.7003 2.9205 0.0192
O -148.1808 357.2717 -0.4148 0.6892
A 0.0001 0.00008 1.2225 0.2563
P 912.7613 186.2663 4.9003 0.00119
C -0.0641 0.2871 -0.2232 0.8290
I 0.1773 0.1871 0.9476 0.3711

12. Interpreting Parameters
12
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 Qd
1 Price 849 Qd
1 Outlet 148 Qd
1 Ad. 0.0001 Qd
1 C 0.0641 Qd

13. Interpreting Parameters (Cont.)
13
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

14. Elasticity of Demand
14
1250
1300
1350
1400
1450
1500
1550
1600
1650
4720 6334 4947 9011 6790 11988 7112 14123 11665 12442 10001 17012 10317 15330 11712 21133
PRICEOFBBQPIZZA
Demand Curve
Quantity Sold
• Price Elasticity of Demand is -
49.9%
It towards perfect elasticity
• Demand is mainly depend on
promotions. Promotion Elasticity of
Demand is 0.44%

15. Demand Forecasting
15
Forecasting 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 18141
Q3 19 18901
Q4 20 19662
year Quarter T^ S^ Y^ = T^ x S^
2016 Q1 17380 1.0008 17393.90
Q2 18141 1.0774 19545.11
Q3 18901 0.7109 13436.72
Q4 19662 1.2109 23808.72
74184.45Total sales in 2016
Adjusted Forecast
Trend Forecast
Year Q1 Q2 Q3 Q4
2012 0.7597 1.2051
2013 0.8031 1.2802 0.6701 1.2522
2014 0.9973 1.0019 0.7930 1.3286
2015 1.3286 1.0866
Total 3.1290 3.3687 2.2228 3.7859 Total
Average 1.0430 1.1229 0.7409 1.2620 4.1688
Adj. S 1.0008 1.0774 0.7109 1.2109 4
Seasons
Seasonal Adjustment Table

16. 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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17. THANK YOU
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