Measuring and Forecasting Market Demand (2)

7/28/2019 Measuring and Forecasting Market Demand (2)

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Measuring and Forecasting

Market Demand


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Forecasting and Demand Measurement

One major reason for undertaken market research is toidentify market opportunities. Once the research iscomplete, the company must measure and forecast the

size, growth and profit potential of each marketopportunity. Forecast is fundamental to planning . Forecasts arestatements about future, specifying the volume of sales tobe achieved and equipment, materials and other inputs

needed to realize the expected sales.A popular definitions of forecasting is that , It isestimating the future demand for products and servicesand the resources necessary to produce the outputs .


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Sales Forecast prepared by the marketingdepartment is required by the:

Finance Department to raise the needed cashfor investment and operations.

Manufacturing Department to establishcapacity and output levels.

Purchasing Department to acquire the rightamount of supplies

Human Resources Department to hire theneeded numbers of workers.


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Market Demand

Market demand for a product is the total volumethat 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


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Measures of Market Demand

Companies can prepare as many as 90 different

types of demand estimates for six differentproduct levels, five space levels, and three timeperiods. Each demand measure serves a specificpurpose.


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A company might forecast short run demandfor a particular product for the purpose ofordering materials, planning production, and

borrowing cash. It might forecast regionaldemand for its major product line to decidewhether to set up regional distribution.


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Shortrun

Mediumrun

Longrun

All salesIndustry sales

Company sales

Product line sales

Product form sales

Product item sales

WorldCountry

RegionTerritory

Customer

Spacelevel

Productlevel

Timelevel

Ninety Types Of Demand Measurement


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Which Market To Measure?

Forecasts also depend on which type ofmarket is being considered. The size of a

market hinges on the number of buyers whomight exist for a particular market offer. Butthere are many productive ways to breakdown the market


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Market

PotentialMarket

AvailableMarket

Target MarketPenetrated

market


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The Potential Market- is the set of consumers who

profess a sufficient level of interest in a marketoffer. Consumer interest is not enough to define amarket. Potential consumers must have enoughincome and must have access to the product .


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The available market - is a set of consumers who haveinterest ,income and access to a particular offer .Forsome market offers, the company or government mayrestrict sales to certain groups. For example, aparticular state might ban motorcycle sales to anyoneunder 21 years of age. Eligible adults constitue thequalified available market-the set of consumer who are

eligible adults and who have interest , income, accessand qualifications for the particulars market offer


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The target Market - is the part of the qualifiedavailable market the company decides to pursue.The company might decide to concentrate itsmarketing and distribution effort on one region.The company will end up selling to a certainnumbers of buyers in its target market.


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The penetrated market is the set of

consumers who are buying the companysproduct.There are numbers of actions to be taken to

increase the current sales volumes:o

Attract a larger percentage of buyers from itstarget market.oLower the qualification for potential

customers.oExpand its available market.oLowering prices.


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These definitions are a useful tool for marketplanning. If the company is not satisfied with itscurrent sales, it can take a number of actions. Itcan try to attract larger percentage of buyers fromits target market. It can lower the qualifications forpotential buyers. It can expand its available marketby opening distribution elsewhere or lowering itsprice; or it can reposition itself in the minds of itscustomers.


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Market Demand Function

Definition

Market demand is not a fixed number, but

rather a function of the stated conditions:

1. For this reason, we can call it the market demand

function.

2. Some base sales-also called the market minimum

3. The distance between the market minimum and the

market potential shows the overall marketing

sensitivity of demand.


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Higher levels of industry marketing expenditures wouldyield higher levels of demand, first at an increasing rate,

then at a decreasing rate.

Marketing expenditures beyond a certain level would notstimulate much further demand, thus suggesting n upperlimit to market demand, called the market potential.

An expansible market is very much affected in size by

the level of industry marketing expenditures whereas inthe case ofnon-expansible market it is vice versa.


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Market Demand Function

Q2

QF

Industry Marketing Expenditure

MarketDemandintheSpecificPeriod


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Market Penetration Index

Comparison between the current and potential levels ofmarket demand is called the market penetration index.

Low High

- Substantial growth potential - Expensive to attract the

for all the firms few remaining prospect

- Price competition

increases and margins

fall


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Share Penetration Index

A company should also compare its current and potentialmarket shares, called share penetration index.

- A low share-penetration index indicates that thecompany can greatly expand its share.

- A firm should calculate the share penetration increases

that would occur to see which investments would

produce the greatest improvement in share penetration.


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Market Forecast

Only one level of industry marketingexpenditure will actually occur. The market demand

corresponding to this level is called the market forecast.


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Company Demand

Company demand is the companys estimated share ofmarket demand at alternative levels of company

marketing effort in a given time period.

The companys share of market demand depends on howits products, prices, communications and services are

perceived relative to the competitors.

Keeping all things equal, the companys market share willdepend on the relative scale and effectiveness of itsmarket expenditure.


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Company Sales Forecast

The company sales forecast is the expected level ofcompany sales based on a chosen marketing plan and an

assumed marketing environment.

The company sales forecast does not establish a basis fordeciding what to spend on marketing. It is the result of an

assumed marketing expenditure plan.

A sales quota is the sales goal set for a product line,company division, or sales representative.


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A sales budget is a conservative estimate of the expectedvolume of sales and is used primarily for making current

purchasing, production, and cash flow decisions.

Sales budget is based on the sales forecast and its slightlylower than the sales forecast.


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Company Sales Potential

It is the sales limit approached by company demand ascompany marketing effort increases relative to that of

competitors.

The absolute limit of company demand is the market potential.The two would be equal if the company capture 100% of the

market.

It is impossible for the company to capture the entire market.However, company sales potential is always less than the

market potential even when company marketing expenditure

increases considerably.

Documents

Measuring and Forecasting Market Demand (2)