Measuring Market Opportunities

Measuring Market Opportunities

Potentials and Forecasts

PotentialsPotentials

• Market potential

• Area potential

• Sales potential

Comparing Potential to ActualComparing Potential to Actual

Market Potential

Market Demand

Company Demand

Primary (Basic)Demand Gap

Selective (Company)Demand Gap

Why estimate potentials?Why estimate potentials?

How to estimate potentialsHow to estimate potentials

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

sources).• Variables that correlate closely to market

potential.

Market PotentialMarket 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?

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

Assumptions:

Area PotentialArea 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 PotentialSales Potential

• Market potential x potential market share

ForecastsForecasts

Planning AssumptionsPlanning 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

Subjective or Judgment-Based Forecasting Methods

• Naïve extrapolation

• Sales force composite

• Jury of expert (executive) opinion

Customer-Based Forecasting Methods

Customer-Based Forecasting Methods

• Market testing

• Market surveys

Sales Extrapolation Forecasting MethodsSales 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 ShareEstimating 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 IndexMarket Development Index

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

MDI= current market demand

maximum market potential

Interpreting MDIInterpreting 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.