ANALYSIS OF MARKET POTENTIAL

A market potential is an estimate of the maximum possible sales opportunities present in a particular market segment and open to all sellers of a good or service during a stated future period.

MARKET POTENTIAL

A market potential is an estimate of the maximum possible sales opportunities present in a particular market segment and open to a specified company of a good or service during a stated future period.

Sales potential

Before going to the stage of establishing market potential, commodity grouping must be established in such a way that the individual commodities concerned are uniform with respect to the demand function.

  So in order to accurately arrive at a market

potential for a product the degree of product substitution and the conditions under which it takes place have to be considered.

  The decision as to include or exclude closely

related substitutes would have a significant effect over the market potential. E.g. Furniture – wood, leather, steel feather light etc.

 

steps in analyzing the market potential: Market Identification: who buys the product? who uses it? who are the prospective buyers? Market Motivation: how best to present the product? relative effectiveness of different selling appeals relative appropriateness of the various promotional

methods Analysis of Market Potential: Select the market factors associated with the

markets demand Eliminate those market segment that have no

prospective buyers of the product.

ANALYZING MARKET POTENTIAL

A market index is a numerical expression indicating the degree to which one or more market factors associated with a given products demand is present in a given market segment.

Here the market segment represents the given geographical market segment.

MARKET INDEXES

SALES FORECASTING

The sales forecast is a prediction of expected sales for a specified period. It is an estimate for sales in rupee or units for a specified future period. In other words, it is basic tool for anticipating the nature of future sales or sales prediction.

According to Cundiff and Still, is “an estimate of sales during a specified future period which period is tied to a proposed marketing plan and which assumes a particular set of uncontrollable and competitive forces”.

Meaning of Sales Forecast

The objectives of sales forecasting may

be studied under the following two major

heads

1. Short - run (range) objectives.

2. Long - run (range) objectives.

Objectives of Sales Forecasting

Short - Run objectives

1. Formulation of suitable production policy so as to meet the demand as per

the sales forecast.

2. To make provision for the regular supply of raw material etc. for the

production on the basis of sales forecast.

3. To make the best utilization of machines on the basis of sales forecast.

4. To make the regular supply of labour force as per the sales forecast.

5. To determine an appropriate price policy for a given period.

6. To estimate and provide the requisite working capital on the basis of sales

forecast.

7. To establish sales quotas & targets for different market segments.

8. To estimate stock requirements for unfinished semi-unfinished and finished

products for a specified period of time.

Long Run objectives

1. Estimating cash inflows from sales.

2. Provision for capital expenditure.

3. Planning of plant capacity so as to meet the future demand.

4. Manpower planning so that production and distribution may not

suffer.

5. Planning for acquisition of raw materials to meet the future

demand.

6. Determining the dividend policy.

7. Establishing coordination between various functions

8. Reducing selling costs and thereby reduces the final cost

9. To estimate future profits of the business enterprise.

Factors affecting or Influencing sales

forecasting

1. Business Environment

2. Conditions within the industry

3. Internal Conditions of the business Enterprise

4. Socio Economic Conditions

5. Factors Affecting Export Trade

Steps in sales Forecasting1. Forecasting of General Economic Conditions: General economic conditions within the boundaries of the nation, do effect the purchasing power of the individual customer. The standard yardstick for assessing general economic conditions will be: gross national product, per capita income, personal income, personal consumption expenditure, level of employment and the consumer price index.2. Forecast of Industry Sales: Though the industry forecast are available from the trade associations and chambers of commerce, a SWOT analysis of the competition prevailing could throw much light on the competition within the industry.3. Preparing Forecast of Company Sales: The sales manager, while preparing the sales budgets of the company has to forecast the company

and product sales for the coming year. The entire planning of the organization for production, manpower, financial arrangements, and revenue calculations will depend upon the accuracy of the sales manager's forecast.

1. Defining the objectives to be achieved.

2. Dividing various products into homogeneous groups.

3. Analysing the importance of various factors.

4. Selecting the method.

5. Collecting and analysing the related information.

6. Drawing conclusions from the analysis made.

7. Implementing the decisions taken.

8. Reviewing and revising the sales forecasting.

Steps in Sales Forecasting

DIFFERENT TECHNIQUES OF SALES FORECASTING

Survey MethodThe survey method is based on the opinion of buyers and consumers. It is useful with respect to industrial products but not as far as consumer goods are concerned.Expert OpinionAccording to this method, a company invites the opinions of executives and consultants who are acknowledged experts in studying sales trends.Market Studies MethodThis method is commonly used by marketers for consumer goods. It is also known as the Market Test Method. A market test provides data about consumers and the marketing mix.Sales Force Opinion MethodThis method estimates the buyers intentions from experienced personnel in the sales force for their respective territories.

Methods of Sales Forecasting

Cont….

Statistical Methods

Statistical methods are considered to be superior techniques. Their reliability is higher than that of other techniques.

Commonly Used Statistical Methods

Trend Method

This method provides a rough trend of the forecast on the basis of past experience. It does not, however, take into account the changing environment. It is a simple method.

Graphical Method

Sales data are plotted on graph paper and a graph is drawn for a number of years. This is a simple and inexpensive method.

Time Series Method

This method is used for long periods duly taking into account cyclical changes, seasonal variations and irregular fluctuations.

Regression Analysis

Time Series Method

“A time series may be defined as a collection of magnitudes belonging to different time periods, of some variable or composite variables, such as production of steel, per capita income, gross national product, price of tobacco, or index of industrial production.”

1980 1981 1982 1983 1984 1985

Sales (Rs)

0

Years

X

y

Cont….

1988

1989 1990 1991 1992 1993

Sales (Rs)

0

Years

X

y

Freehold or

Graphical Method:

This is the simplest

method for obtaining

a straight line. A trend

line is fitted by

freehand to know

future sales.