Demand estimation through Marketing Research Approach

1. Chapter # 6 Demand estimation through Marketing Research Approach Tahir Islam Assistant professor in Economics Kardan higher Education Kabul

2. Demand estimation through marketing Research approach • In this chapter we will discuss demand estimation though marketing research • In previous chapter we estimate demand through regression analysis • Production of a good or supplying of product to the market depends on correct estimation of demand in case of incorrect estimation of demand firm would decrease the profit • Similarly excess supply of product to the market tends to fall the price of good, and profit margin of a firm would decline

3. Demand estimation through marketing Research approach (cont….) • We can estimate demand through the following techniques • Consumer surveys and observational Research • Consumer Clinics • Market Experiments

4. Demand estimation through marketing Research approach (cont…. • The survey conducted at a big shopping centers by trained interviewers with sophisticated questions • Consumers questionnaires provide useful information to the firm • We have a sample of questionnaires

5. Demand estimation through marketing Research approach (cont…. • Do you know how much your monthly consumption of beer would change if price of beer rose by 10% • If your income increase by 20% • If beer producer doubled its advertising expenditures • If alcoholic content of beer were reduced by 1% point • If price of competitor product (beer) reduced by 2%

6. Demand estimation through marketing Research approach (cont…. • Demand estimation through marketing Research approach (cont….) • Through giving answer of these questions manager can get a rough idea about the market demand • Some time consumers are unable or unwilling to provide accurate information • In this case manager is not able to estimate the market demand, so consumer survey is replace by observational research • Observational research: • This refers to the gathering of information on consumer preferences by watching them buying and using goods

7. Demand estimation through marketing Research approach (cont…. • However consumer survey is useful and is the only way to obtain information about possible consumer response • Especially if a firm is thinking of introducing a new product or changing the quality of an existing one • The only way that the firm can test consumer reaction is to directly ask them, since no other data are available

8. Consumer Clinics • Another approach to estimate demand is consumer clinics • These are laboratory experiments in which the participants are given a sum of money and asked to spend it in a simulated stores to see the react , but • change the price of product in different stores • Different product packing in different stores • Different product displays in different stores • Different price of competing product in different stores etc

9. Participants have the incentive to purchase the commodities they want the most • This method is more realistic than consumer survey, because in this method we are observing the actual market behavior • Shortcomings of this method • The results are questionable because participants know that they are in an artificial situation and that they are being observed

10. Sot they are not likely to act normally • The sample of participants must necessarily small because of the high cost of running the experiment • Inference or results from small sample are dangerous • Market Experiments • Market experiments are conducted in the actual market place • There are many ways of performing market experiments • One way is to select several markets with similar socioeconomic characteristics

11. Change the commodity price in some markets or stores Packing in other markets or stores The type and amount of promotion in still other markets and stores Then record the response (purchase) of consumers in the different markets By using census data or survey for various markets, a firm can also determine the effect of age ,sex, level of education, income, family size and so forth on demand for the commodity

12. Advantages of this method • We can ensure the validity of the results by conducting on a large scale • Consumers act /behavior is normal as consumers are not aware that they are part of an experiment

13. Disadvantages of this method: • In order to keep costs down, the experiment is likely to be conducted on too limited a scale • The experiment is conducted for short period of time • So inference or results about entire market and or more extended period of time are questionable • Irregular factors such as strike or bad weather seriously effect the result • Demand estimation through marketing Research approach (cont….)

14. Demand estimation through marketing Research approach (cont….) • Competitors could try to sabotage the experiment by changing prices and other determinants of demand under their control • Competitors also monitor the experiment and gain useful information that the firm would prefer not to disclose • Firm might permanently lose customers in the process of raising prices in the market where it is experimenting with a high price