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Measuring Market Opportunities

Measuring Market Opportunities. Potentials and Forecasts. Potentials. Market potential Area potential Sales potential. Comparing Potential to Actual. Market Potential. Primary (Basic) Demand Gap. Market Demand. Selective (Company) Demand Gap. Company Demand. Why estimate potentials?.

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Measuring Market Opportunities

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  1. Measuring Market Opportunities Potentials and Forecasts

  2. Potentials • Market potential • Area potential • Sales potential

  3. Comparing Potential to Actual Market Potential Primary (Basic) Demand Gap Market Demand Selective (Company) Demand Gap Company Demand

  4. Why estimate potentials?

  5. How to estimate potentials • Often relies on: • Assumptions. • Published data (industry publications, gov’t sources). • Variables that correlate closely to market potential.

  6. Market 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

  7. Example: What’s the market potential for CD’s? Assumptions:

  8. Area 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)

  9. Sales Potential • Market potential x potential market share

  10. Forecasts

  11. Planning Assumptions • Forecasts are based on assumptions about: • customer behavior • past and planned product strategies • competitor actions • the environment • Forecast a range of possible outcomes

  12. Subjective or Judgment-Based Forecasting Methods • Naïve extrapolation • Sales force composite • Jury of expert (executive) opinion

  13. Customer-Based Forecasting Methods • Market testing • Market surveys

  14. Sales Extrapolation Forecasting Methods Moving Average 1st Qtr 2000 $500K 2nd Qtr 2000 $600K 3rd Qtr 2000 $700K 4th Qtr 2000 $600K 1st Qtr 2001 $633.3K Average = $600K Average = $633.3K Average = $644.4K

  15. Percent Rate of Change 1st Qtr 1998 $100K 1st Qtr 1999 $125K To predict sales for 1st quarter 2000: % change=25% Sales = $125K + ($125K x .25) = $125K + $31.25K = $156.25K

  16. Regression Sales = b0 + b1(time) (base + trend) Sales = b0 + b1(advertising) + b3(price) + b4(competitors’ prices) + b5(competitors’ advertising) + b6(disposable income)

  17. Leading Indicators

  18. Estimating 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%

  19. Market Development Index • What’s the potential for the market to develop? MDI= current market demand maximum market potential

  20. Interpreting MDI • MDI < 33 • Considerable market growth potential. • Can grow market with high prices and basic benefits.

  21. MDI 33-67 • Growth is possible, but need to offer more product variations and lower prices; expanded distribution.

  22. MDI>67 • Still room for market growth, but more difficult. • Need very customer-focused solutions.

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