Ch. 5: Gathering Information and Measuring Market Demand

Marketing Management

Warin Chotekorakul

Ch.5 Gathering information and Ch.5 Gathering information and measuring marketing demandmeasuring marketing demand Outline:

Marketing Information SystemMarketing Information System Marketing ResearchMarketing Research Marketing Decision Support SystemMarketing Decision Support System Forecasting and Demand Measurement Forecasting and Demand Measurement

Marketing Information System (MIS)

Usefulness of MIS: Examples The Coca-Cola Company knows that we put 3.2

ice cubes in a glass, see 69 of its commercials every year, and prefer cans to pop out of vending machines at a temperature of 35 degrees.

Hoover learned that we spend about 35 mins each week vacuuming, sucking up about 8 pounds of dust each year and using 6 bags to do so.

Consists of people, equipment, and procedures to gather, sort, analyze, evaluate and distribute needed, timely and accurate information to marketing decision makers.

MIS is developed from internal company internal company recordsrecords, , marketing intelligence activitiesmarketing intelligence activities, , marketing researchmarketing research, , and marketing decision and marketing decision support system. support system.

Marketing Information System (MIS) --2

Internal Records SystemInternal Records SystemSupplying results dataresults data, internal records system includes reports on orders, sales, prices, costs, inventory levels, receivables, payables.

Marketing Intelligence SystemMarketing Intelligence System

Supplying happenings datahappenings data to the marketers, marketing intelligence system is a set of procedures and sourcesprocedures and sources used by manager to obtain everyday information about developments in the marketing environment.

Marketing Intelligence System (2)Marketing Intelligence System (2) How to collect marketing intelligence:

Reading books, newspapers, and trade publications

Talking to customers, suppliers, and distributors

Meeting with other company managers

Marketing Research systemMarketing Research system

is the systematic design, collection,

analysis and reporting of data and

findings relevant to a specific marketing

situation facing the company.

Suppliers of Marketing ResearchSuppliers of Marketing Research

Set up research department Engage students or professor to carry out project Using the Internet Checking out rivals: visiting competitors Buying information from:

1. 1. Syndicated-service research firmSyndicated-service research firm

2. 2. Custom marketing research firmsCustom marketing research firms

3. 3. Specialty-line marketing research firmsSpecialty-line marketing research firms

The Marketing Research ProcessThe Marketing Research Process

Step 1: Define the problem

Step 2: Develop the research plan

Step 3: Collect the information

Step 4: Analyze the information

Step 5: Present the findings

Step 6: Make the decision

Step 1 : Define the problemStep 1 : Define the problem

Exploratory:Exploratory: to gather preliminary data to shed light on the real nature of the problem and possibly suggest some hypotheses or new ideas.

Descriptive:Descriptive: to describe certain magnitudes Causal:Causal: to test a cause-effect relationship

Step 2: Develop theStep 2: Develop the research planresearch plan

Data sources Research approaches Research instruments Sampling plan Contact methods

DataData sourcessources Primary data Secondary data

1. Internal sources

2. Government publications

3. Periodical and books

4. Commercial data

Research approachesResearch approaches Observation research Focus-group research: b4 designing large-scale

survey Survey research Behavioral data Experimental research

Research InstrumentsResearch Instruments Questionnaires

1. Closed-end questions --- dichotomous, multiple choice, Likert scale, semantic differential, importance, rating scale, intention-to-buy scale2. Open-end questions --- completely unstructured, word association, sentence completion, story completion, picture, thematic apperception test (TAT)

Mechanical instruments:Lie-detecting tools, eye camera, audiometer,etc.

Psychological tools: to probe a buyer’s deeper beliefs and feelings using psychological tool e.g., laddering techniques, depth interviews.

Qualitative measures: e.g., sending handheld videocameras into consumers’ homes

Research Instruments (2)Research Instruments (2)

Sampling planSampling plan Sampling unit: Who is to be surveyed?

Individual, or Industrial Org, or Household ???

Sample size: How many people? Sampling procedure: How should the respondents

be chosen?

1. Probability sampling --- Simple random, Stratified random, and Cluster samples

2. Non-probability sampling ---Convenience, Judgment, and Quota samples

Contact methodContact method Mail questionnaire Telephone interview Personal interview: arranged interviews, and

intercept interviews On-line interviewing

Step 3: Collect the informationStep 3: Collect the information

This stage is most expensive and most prone to error.

Beware of 4 problems:1. Not-at-home2. Refusal to co-operate3. Biased or dishonest answers of interviewee.4. Biased or dishonest interviewer.

Step 4: Analyze the informationStep 4: Analyze the information

Extract findings from collected data. Tabulate the data and develop

frequency distribution.

Step 5: Present the findingsStep 5: Present the findings Data presented to relevant parties. Findings must be presented in a way which is relevant

to the major marketing decision

Step 6: Make the decisionStep 6: Make the decision

MMarketing arketing DDecision ecision SSupport upport SSystemystem (MDSS) (MDSS)

A coordinated collection of data, systems, tools, and A coordinated collection of data, systems, tools, and techniques with supporting software and hardware techniques with supporting software and hardware by which an organization gathers and interprets by which an organization gathers and interprets relevant information from business and environment relevant information from business and environment and turns it into a basis for marketing action.and turns it into a basis for marketing action.

An Overview of Forecasting and An Overview of Forecasting and Demand MeasurementDemand Measurement

90 different types of demand estimates90 different types of demand estimates

1. Product levelProduct level (all sales, industry sales, company sales, product line sales, product form sales, product item sales)

2. Space levelSpace level (customer, territory, region,

country, world)

3. Time levelTime level (short run, medium run, long

run)

Why study those three levels? They help you make your sales (demand)

estimates. For example, NOKIA may want to forecast the sales level

of NOKIA 7650 (Product level) worldwide (Space level) in 2 years ahead (Time level).

Definitions Definitions (Which market to measure?)(Which market to measure?)

MarketMarket is the set of all actual and potential buyers of a market offer.

Potential marketPotential market is the set of consumers who profess a sufficient level of interest in a market offer( and may have enough income).

Available marketAvailable market is the set of consumers who have interest, income and access to a particular offer.

(continued)

Definitions 2Definitions 2(Which market to measure?)(Which market to measure?) Qualified available marketQualified available market is the set of

consumers who have interest, income, access and qualifications for the particular market offer.

Target market (served market)Target market (served market) is the part of the qualified available market the company decides to pursue.

Penetrated marketPenetrated market is the set of consumers who have already bought the company’s product.

(continued)

DefinitionsDefinitions(Vocabs for DD measurement)(Vocabs for DD measurement) Market demandMarket demand 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. Market DDMarket DD is not a fixed number but rather a a

function of the stated conditions.function of the stated conditions.

(continued)

Market Demand Functions

Mkt Poten

(Pros)

Mkt Poten

(Rec)

Prosperity

Recession

Industry Mkting Expenditures Industry Mkting Expenditures

Mkt Min

Mkt Fore

Mkt Poten

Mkt DD Mkt DD

Planned

Expenditures

Questions Why does market potential curve become

straight? What does it mean by the market minimum?

Market potentialMarket potential is the limit approached by market demand as industry marketing expenditures approach infinity, for a given environment.

Base salesBase sales is the market minimum. Market sensitivityMarket sensitivity of DDof DD is the distance

between the market minimum and the market potential.

Market Demand Functions (2)

Vocabs 2Vocabs 2 Expansible market: Expansible market: affected much by the level of

mkting expenditures Non-expansible market: Non-expansible market: not affected much by the

level of mkting expenditures Primary demandPrimary demand --- demand for product class Selective demandSelective demand --- demand for particular brand Company demandCompany demand --- company’s estimated share of

market demand at alternative levels of company marketing effort in a given time period.

Company demandCompany demand --- company’s estimated share of market demand at alternative levels of company marketing effort in a given time period. QA = sAQ

QA = company A’s demand

sA = company A’s market share

Q = total market demand

Vocabs 3Vocabs 3

Company sales forecastCompany sales forecast --- expected level of company sales based on a chosen marketing plan and an assumed marketing environment. Sales quotaSales quota --- is the sales goal set for a

product line, company division, or sales representative.

Sales budgetSales budget --- conservative estimate of the expected volume of sales.

Vocabs 4Vocabs 4

Company sales potentialCompany sales potential --- sales limit approached by company demand.

Total market potentialTotal market potential --- maximum amount of sales available to all firms in an industry. Q = nqp

Vocabs 5Vocabs 5

Question

When does the market potential equal to a company potential?

Current Demand Estimation Current Demand Estimation MethodsMethods

Chain-ratio methodChain-ratio method Market-buildup methodMarket-buildup method Multiple-factor index methodMultiple-factor index method Brand development index (BDI)Brand development index (BDI)

1. Chain Ratio Method1. Chain Ratio Method Starting from the entire population (macro

point of view) in a study area and multiply by ratios that discard non-using segment.

Example of Chain Ratio Method

Suppose we are estimating the demand for organically grown vegetables in Bangkok, assuming the price of organic vegetables is 30% higher than ordinary vegetables.Thus, the target group must have income a little higher than the average.

Demand for organically = Number of Population in Bangkok x PercentageGrown vegetables in population in Bangkok with income moreBangkok than B15,000 per month x Personal discretionary

income per capita x Avg percentage of discretionary income spent on food x Avg Percentage of food budget spent on vegetables x Avg Percentage of the amount spent on organic vegetables

2. Market Build-Up Method2. Market Build-Up Method Identifying all the potential buyers in each

market and estimating their potential purchases.

Starting from the particular area to the entire market.

Example of Example of Market Build-UpMarket Build-Up MeMethodthodSuppose you are selling metal-sheet punching and cutting machine, there are 2 markets which you can sell to:1. Electrical switchboard manufacturing sector2. Metal furniture SectorEach electrical switchboard manufacturing factory which has sales volume of less than 50 million baht per year would need one machine but that which has sales volume more than 50 million baht per year would need 2 machines.For metal furniture sector. The metal-furniture factory which has sales volume of less than 50 million baht per year would need 3 machines and those with more than 50 million of sales per yearwould need 5 machine.Find the total market potential.

Sector Annual sales No. of Firms Potential Market in million Number of Potential

Machine Soldper 1 Customer

Switchboard < 50 3 1 3>50 6 2 12

Furniture <50 6 3 18>50 12 5 60

Total 93

3. Multiple-Factor Index3. Multiple-Factor Index Buying power IndexBuying power Index is the function of:

W1 * market’s percent of segment’s effective buying income

+ W2 * market’s percent of segment’s retail sales

+ W3 *percent of Thai population in the segment

Method of finding buying power Method of finding buying power index by using multiple factorsindex by using multiple factors

An area is selected to find the buying power. 3 factors are involved:

Number of population Disposable personal income Amount of retail sales

Each factors will be assigned a weight. Multiply the weight of each factor with the

percentage of the factors in the whole country.

ExampleExample of Multiple-Index Method of Multiple-Index Method

Province %of Population %of Retail Spending %of Disposable(0.20) (0.35) Income (0.45)

A 0.08 0.04 0.02B 0.02 0.05 0.03

What is the buying power index of provinces A and B ?BPI of A = (0.2x0.08)+(0.35x0.04)+(0.45x0.02) =0.039 or 3.9%BPI of B = (0.2x0.02)+(0.35x0.05)+(0.45x0.03) =0.035 or 3.5%

If the expected market potential in Thailand is 250 million baht, based on the BPI, whatWill be the potential sales in provinces A and B ?Potential sales in Province A is = 0.039x250million = 9.75 million bahtPotential sales in Province B is = 0.035x 250million = 8.75 million baht

4. BDI4. BDI Category development index (primary demand

gap) = percentage of a product category sales(shampoo) in a market to the percentage of the population in the same market..

Brand development index (selective demand gap) = percentage of a particular branded product (Sunsilk) sales in a market to the percentage of the population in the same market.

Formulae for CDI and BDIFormulae for CDI and BDI CDI CDI = Category development index (used to

measure the potential of product category) CDI = %of product category total Thailand’s sales in that

market x 100

% of total Thailand’s population in that market

BDIBDI = Brand development index (used to measure the potential of a particular brand)

BDI = %of Brand Total Thailand’s sales in that market x 100

% of total Thailand’s population in that market

Example of BDI and CDIExample of BDI and CDI

Look at the BDI in Chiangmai.The number of Thailand’s population is 60 million and the population of Chiangmaiis assumed to be 6 million. Suppose there are 3 brands of shampoo in Thailand's market: 1. Sunsilk 2. Pantene3. ClairolThe sales of Sunsilk in Thailand is 600 million baht, out of which 30 million baht comes from sales in Chiangmai. The sales of Pantene in Thailand is 400 million baht out of whch 20 million baht comes fromsales in Chiangmai.The sales of Clairol in Thailand is 200 million baht out of which 50 million baht comes from sales in Chiangmai.What is CDICDI in Chiangmaiin Chiangmai?CDICDI = = %of product category total Thailand’s sales in that market%of product category total Thailand’s sales in that market

% of total Thailand’s population in that market% of total Thailand’s population in that market

= (30+20+50) / (600+400+200)

(6/ 60)

= 0.833 or 83.33%What is BDI of Sunsilk in ChiangmaiBDI of Sunsilk in Chiangmai ?BDIBDI = = %of brand total Thailand’s sales in that market%of brand total Thailand’s sales in that market

%of total Thailand’s population in that market%of total Thailand’s population in that market

= (30/ 600)

(6/ 60)

= 0. 5 or 50%

Other Points Regarding BDIOther Points Regarding BDI Taking the percent of segment’s particular

branded sales divided by the total percent of segment’s category sales *100

If the result (BDI) is less than 100,the brand is underdeveloped in the particular area.

If the result (BDI) is more than 100, the brand is more developed than the category.

Estimating future demandEstimating future demand Survey of buyer’s intentionsSurvey of buyer’s intentions Composite of sales force opinionsComposite of sales force opinions Expert opinionExpert opinion Past-sales analysisPast-sales analysis Market-test methodMarket-test method