ANALYSING MARKET

OPPORTUNITIES

ROBIN GULATI

CONTENTS• Some common terms• Market demand• Ways to break down the market• Need for forecasting• What is forecasting?• Why forecasting?• Who needs forecast?

Some Common Terms

• Market Potential: A quantitative estimate of the total possible sales by the all firms selling the same product in a given market.

• Company Potential: Refers to a part of the market potential; what an individual firm can achieve at the maximum in a given market, again under ideal conditions and on the assumption that an ideal marketing effort has been made.

• Market Demand and Company Demand: Refers to those portions of ‘market potential’ and ‘company potential’ that are achievable under existing conditions.

• Market Forecasting: It is transparent and rigorous approach to estimate the current and future market trends by using existing data and facts.

• Company Forecast: It is the sales forecast of the company.

• Refers to that portion of the company demand, which the company expects to capture with the chosen marketing effort.

Market Demand

6x5x3=90

• Companies can prepare as many as 90 different types of demand estimates.

• Demand can be measured for six different product levels, five different space levels, and three different time levels.

• A company might forecast short-run demand for a particular product for the purpose of :• Ordering raw materials, • Planning production, and • Borrowing cash

• It might forecast regional demand for its major product line to decide whether to set up regional distribution.

• Forecasts also depends on the type of market.

• The size of a market depends on the number of buyers who might exist for a particular market offer.

Ways to break down the market:

1. Potential Market: The set of consumers who profess a sufficient level of interest in a market offer.

• However, potential consumers must have enough income and must have access to the product offer.

2. Available Market: The set of consumers who have interest, income, and access to a particular offer.

• For some market offers, the company or government may restrict sales to certain groups.

3. Target market: The part of the qualified available market the company decides to pursue.

• The company will end up selling to a certain number of buyers in its target market.

4. Penetrated Market: The set of consumers who are buying the company's product.

• Market demand for a product is the total volume that would be bought by a defined customer group in a defined geographical area in a defined time period in a defined marketing environment under a defined marketing program.

• Company Demand is the company's estimated share of market demand at alternative levels of company marketing effort in a given time period.

• The company's share of market demand depends on how its products, services, prices, communications, and so on are perceived relative to the competitors'.

• Total market potential is the maximum amount of sales that might be available to all the firms in an industry during a given period, under a given level of industry marketing effort and environmental conditions.

• A common way to estimate total market potential is as follows:

(Potential number of buyers) x (the average quantity purchased by a buyer) x (the

price)

• Area Market Potential: Companies face the problem of selecting the best territories and allocating their marketing budget optimally among these territories. Therefore, they need to estimate the market potential of different cities, states, and nations.

• Two major methods of assessing area market potential are:

1. The market-build up method: Used primarily by business marketers

2. The multiple-factor index method: Used primarily by consumer marketers.

The Market-build Up Method

• Identifying all the potential buyers in each market and estimating their potential purchases.

• This method produces accurate results if we have a list of all potential buyers and a good estimate of what each will buy.

• This information is not always easy to gather.

The Multiple-factor Index Method

• Most commonly used in consumer markets.• A drug manufacturer, for example, might

assume that the market potential for drugs is directly related to population size.

• If the Mumbai has 2.28% of the Indian population, the company might assume that Mumbai will be a market for 2.23% of total drugs sold.

• Single factor, however, is rarely a complete indicator of sales opportunity.

• Regional drug sales are also influenced by per capita income and the number of physicians per 10,000 people.

FORECASTING

What is a forecast?

• The best judgment of the future.• Framework for interpreting present events.• Identifies factors with which a corporation

must cope.• Provides a sorting rule amongst corporate

choices.• Examines current strategic assumptions.• Aids in strategic decision-making.• Measure of uncertainty.

Need for forecasting• Affects:

• R&D expenditure• Production planning• Promotional investment• Portfolio optimization• Sales targets• Business development and licensing

• Art of sales forecasting is to balance market factors with the internal dynamics of the company and to do it with simplicity, consistency and transparency.

Why forecasting?

• Rapidly changing environment; rapidly evolving technology, changing market structure, and critical political developments.

• Uncertainty about the future: It is always good to have estimate about the magnitude of this uncertainty.

• Development of alternative actions.• Better forecasting, better decision making.

Who needs forecast?

• Managers for Brands & business unit management require sales forecast for:• Demand and supply planning and order

fulfillment• Partnering decisions• Finance management• At levels of local/country, regional &

global

FORECASTING

Sales revenue,

Unit volumeHealth care

policy, Pricing policy

Licensing, Partnering, Opportunity

costs

Global, Regional, Country

Business units

Sales force size, structure & allocation

Marketing, Promotional

and Consumer Programmes

ROI, Margins, Options

valuation

Forecasting Techniques

• Involves:

1. Patient based forecasting• Estimates patient share/market share by

using:• Incident and prevalent population• Diagnosed population• Prescription data• In-patient based forecasting the

combination of patients and prescription

Patient based forecasting

• Patient demographics and epidemiology of a disease help drug-makers to chose the right market for the drug.

• Shows the actual picture of the market.• Gives a knowledge of the potential market.

• Any event affecting the epidemiology will increase or decrease the total patient pool, thus the market size.

• Epidemiology is the result of segmentation, thus a change in patient pool will affect the segments in future making the patient based forecast necessary.

2. Data based forecasting• Estimates product/market share by

statistical trending of historical data.

Patient based algorithm

• The theoretical maximum number of patients with a given disease state are defined and then this data is contracted, or filtered, to arrive at the number of patients who currently are receiving therapy.

Steps involved are:

A measure of disease prevalence or incidence.

An estimate of the no of patients who are symptomatic for the disease

An estimate of the no of patients who are diagnosed correctly with the

disease.

An estimate of the no of patients who undergo drug therapy.

Example: Forecast steps for DDP IV agents

Population

Prevalence of T2D

Diagnosed patients

Prevalence rate

Diagnosis rate

Treatment rate

Drug treated patient poolTime statistical series

modeling to predict future yearly sales

converted to patient numbers

Key forecasting parameters

Daily dose of therapy

compliance rate

Historical units data by drugs/class

No. of patients on each existing

drug/class

Uncontrolled patient on each existing therapies

Add on DPP IV for uncontrolled patient

Add-on therapy for uncontrolled

patients on biguanides only

(%)

Add-on therapy for uncontrolled

patients on sulfonyl ureas

only (%)

Add-on therapy for uncontrolled patients on Bigu

+ SU (%)

Add-on therapy for Big+

Glitazones (%)

Add-on therapy for uncontrolled

patients on SU+glitazones

(%)

Add-on therapy for uncontrolled patients on

triple therapy Bigu+SU+Glitazones

only (%)

Patients on DPP IV class at peak

DPP IV class: Value & volume forecast

• Daily dose• Days of therapy• Compliance rate• Pricing

Forecasting the Product

• Calculation of potential patients who are treated with the product being forecast.

• This is referred to as patient share, product share, or market share depending upon the definition of the share calculation.

Forecasting Patient Share (Methods)

I. User-entry Share Methodology• Simplest method• Forecaster enters the projected share for all

products in the competitive grid.• May be based on monthly, quarterly, or

annual basis, or entered on any time basis aligned with the model design.

• Demerit: Non-transparent method.

II. Peak Share and Time to Peak Share Methodology

• The user enters in 2 parameters:

a. The peak share of the product being forecast

b. The amount of time required to attain this forecast peak share.

• More complex than simple user-share method.

• Demerit: Non-transparent method.

III.Attribute Methodology

• Most sophisticated• Forecast is based on the product’s attributes,

market’s perception of those attributes and the importance of various attributes in the mind of the physician.

• Types:

a) Attribute scores and weights

b) Conjoint studies

c) Preference shares

d) Discrete choice models

e) Utility function models

• Attributed used in prescription very therapy-area specific.

• Include some measure of safety and efficacy.

• Ranking should be according to the relation between attributes.

• The attributes must be combined together to reflect their importance in the prescribing decisions.

Method Merits Demerits

User-entry Flexible and quick Logic used to derive shares can be unclear

Simple model construction

Defensibility relies upon user documentation

Combines peak share and uptake dynamics in a single forecast input.

Peak share and time to peak

Separates peak Logic used to derive can be unclear

Simple model construction

Defensibility lies in user documentation

Method Merits Demerits

Attributes and scores

Constructs share as a function of product attributes

Outcome relies upon the integrity of the input data; bias can affect results

Separates attributes used in the prescribing decisions

Data collection can be costly and time consuming

Allows for perceptual mapping of products

Forecast are defensible based upon product attributes

Other methods for forecasting sales/demand

1. Jury method / Executive opinion methoda) Top jury method

b) Percolated jury method

2. Survey of expert’s opinions

3. The Delphi method

4. Sales force composite method

5. Market share method

6. Substitution/replacement method

7. Market tests/Test marketing

8. Analytical and statistical methoda) Simple projection method

b) Extrapolation method

c) Moving averages method

d) Exponential smoothening

e) Time series analysis

f) Complex econometric models

9. Market survey method

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