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Keshav,Raman,Narayanan,Keyur1
Measuring Market Opportunities: Measuring Market Opportunities: Forecasting and Market KnowledgeForecasting and Market Knowledge
Keshav,Raman,Narayanan,Keyur2
Chapter Summary
This Chapter will introduce you to the following:Telstra Telecommunications in
AustraliaA Forecaster’s ToolkitRate of Diffusion of InnovationsCautions and Caveats in ForecastingMarket Intelligence and Knowledge
SystemsMarketing Research
Keshav,Raman,Narayanan,Keyur3
A Forecaster’s Toolkit
Before choosing a method by which to prepare a forecast, one must know what is to be estimated or forecast
Firstly, there’s the size of the potential market (likely demand from all actual and potential buyers)
Market potential estimate often serves as a starting point for preparing a sales forecast
There is also the size of the currently penetrated market (if a company has existing sales in products)
Keshav,Raman,Narayanan,Keyur4
Sales Forecast
Two broad approaches for preparing a sales forecast are:
Top-down approachA central person takes responsibility for
forecasting and prepares an overall forecast
Bottom-up approach Each part of the firm prepares its own
sales forecast, and the parts are aggregated to create the forecast for the firm as a whole
Common in decentralized firms
Keshav,Raman,Narayanan,Keyur5
Methods for Estimating Market Potential and Forecasting Sales
Statistical methodsObservationSurveys (and qualitative research) AnalogyJudgmentMarket tests
Keshav,Raman,Narayanan,Keyur6
Statistical Methods
Use history and various techniques to forecast the future based on extrapolation of the pastAdvantages
Useful in established firms for established products
Likely to result in a more accurate forecast than other methods under stable market conditions
LimitationsAssumes the future will look very much
like the past Other techniques have been developed to
improve new product forecasts (diffusion of innovations and conjoint analysis)
Keshav,Raman,Narayanan,Keyur7
Observation
Another method for forecasting is to directly observe or gather data about what real customers do in the market of interestAdvantages
Based on what people actually doLimitations
Typically not possible for new-to-the-world products
Requires prior examples to observe
Keshav,Raman,Narayanan,Keyur8
Surveys
A common way to forecast sales or estimate market potential is to conduct a surveyAdvantages
Many different groups of respondents can be surveyed
Does not require history or prior examplesLimitations
What people say is not always what they doPeople may not be knowledgeable, but when
asked their opinion, they may provide itWhat people imagine about a product concept
in a survey may not be what is actually delivered
Keshav,Raman,Narayanan,Keyur9
Qualitative Qualitative research is often
conducted along with empirical market surveys to aid in forecasting sales
Qualitative research such as focus groups and depth interviews can help in finding out much about marketing issues and key trends
For example, can use industry experts to compare empirical survey findings
Keshav,Raman,Narayanan,Keyur10
Analogy
It can be useful to forecast sales or market potential by investigating similar products
AdvantagesRequires no history nor prior examplesBest for new product forecasting where neither
statistical methods nor observations are possible
Useful for new-to-the-world high-technology products
LimitationsThe proposed new product is never exactly like
that to which the analogy is drawnMarket and competitive conditions may differ
considerably from when the product was launched
Keshav,Raman,Narayanan,Keyur11
Judgment
Although not really a forecasting method on its own, sometimes forecasts are made by intuition (gut feeling)Advantages
Those with sufficient forecasting experience in a market they know well, may be quite accurate in their intuitive forecasts
LimitationsOften difficult to defend forecasts against
those prepared by evidence-based methods when the two differ
Keshav,Raman,Narayanan,Keyur12
Market tests
Used mainly for new products. Methods such as experimental or live test markets have sometimes been adopted.Advantages
Closest forecasting method to the true market
LimitationsExpensive to conductCompetitors can deliberately distort market
conditions to invalidate the test
Keshav,Raman,Narayanan,Keyur13
Mathematics Entailed in Forecasting
Regardless of the method used, the ultimate purpose of the forecasting exercise is to end up with numbers that reflect the data
Two key mathematical approaches that are used to determine ultimate numbersChain ratio methodBrand or category indices
Keshav,Raman,Narayanan,Keyur14
Rate of Diffusion of Innovations: Another Perspective on Forecasting
The adoption process Involves the attitudinal changes
experienced by individuals from the time they first hear about a new product, until they adopt it
Five stages in the adoption process:1. Awareness2. Interest3. Evaluation4. Trial5. Adoption
Keshav,Raman,Narayanan,Keyur15
Speed of Adoption
Speed of the process depends heavily on:RiskRelative advantageRelative simplicityCompatibility with current ideas and
behaviorEase of small-scale trialEase of communication of benefits
Keshav,Raman,Narayanan,Keyur16
Diffusion of Innovation Curve
Keshav,Raman,Narayanan,Keyur17
Cautions and Caveats in Forecasting
Keys to good forecastingMake explicit the assumptions on which
the forecast is basedUse multiple methods
Common sources of error in forecastingForecasters are subject to anchoring biasCapacity constraints are sometimes
misinterpreted as forecastsIncentive pay: bonus plans cause
managers to artificially inflate or deflate forecasts
Unstated but implicit assumptions can overstate a well-intentioned forecast
Keshav,Raman,Narayanan,Keyur18
Market Intelligence and Knowledge Systems
Four commonly used market knowledge systems are:Internal marketing information systemsMarketing databasesCompetitive intelligence systemsClient contact and salesforce
automation systems
Keshav,Raman,Narayanan,Keyur19
Marketing ResearchQuestions to be asked by a critical
user of marketing research:What are the research objectives?
Will the proposed study meet them?Are the data sources appropriate?
Secondary or primary? Are the planned qualitative or
quantitative research approaches suited to the objectives?
Is the research well designed?Are the planned analyses
appropriate?