Measuring Market Opportunities

Potentials and Forecasts

Potentials

• Market potential

• Area potential

• Sales potential

Comparing Potential to Actual

Market Potential

Market Demand

Company Demand

Primary (Basic)Demand Gap

Selective (Company)Demand Gap

Why estimate potentials?

How to estimate potentials

• Often relies on:• Assumptions.• Published data (industry publications, gov’t

sources).• Variables that correlate closely to market

potential.

Market Potential

• MP=N x P x Q• MP=market potential• N=number of possible buyers• P=average selling price• Q=average number purchased by each buyer

Example: What’s the market potential for CD’s?

Assumptions:

Area Potential

General Sales and Marketing Management buying power index:

Area potential = 0.2 x (% of area population) + 0.3 x (% of area retail sales) + 0.5 x (% of area disposable income)

Sales Potential

• Market potential x potential market share

Forecasts

Planning Assumptions

• Forecasts are based on assumptions about:• customer behavior • past and planned product strategies • competitor actions• the environment

• Forecast a range of possible outcomes

Subjective or Judgment-Based Forecasting Methods

• Naïve extrapolation

• Sales force composite

• Jury of expert (executive) opinion

Customer-Based Forecasting Methods

• Market testing

• Market surveys

Sales Extrapolation Forecasting Methods

Moving Average1st Qtr2000

$500K

2nd Qtr2000

$600K

3rd Qtr2000

$700K

4th Qtr2000

$600K

1st Qtr2001

$633.3K

Average =$600K Average =

$633.3K Average =$644.4K

Percent Rate of Change1st Qtr1998

$100K

1st Qtr1999

$125K

% change=25%Sales = $125K + ($125K x .25) = $125K + $31.25K = $156.25K

To predict sales for 1st quarter 2000:

Regression

Sales = b0 + b1(time) (base + trend)

Sales = b0 + b1(advertising) + b3(price) + b4(competitors’ prices) + b5(competitors’ advertising) + b6(disposable income)

• Leading Indicators

Estimating Market Share

• Market share index =product awareness x (70%)product attractiveness x (65%)intention to buy x (60%)product availability x (60%)product purchase (50%)

= 8%

Market Development Index

• What’s the potential for the market to develop?

MDI= current market demand maximum market potential

Interpreting MDI

• MDI < 33• Considerable market growth potential.• Can grow market with high prices and basic

benefits.

• MDI 33-67• Growth is possible, but need to offer more

product variations and lower prices; expanded distribution.

• MDI>67• Still room for market growth, but more

difficult.• Need very customer-focused solutions.