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.