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Measuring market opportunities forecasting and market knowledge


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  • Both approaches have merits: Each process typically has access to different information, and will likely result in different forecasts Using both methods concurrently adds confidence to the forecast, if both methods produce similar results If the results of the two approaches differ, useful discussions of the underlying assumptions will surface
  • Instructor: See Exhibits 5.3 and 5.4 What’s the logic behind the chain ratio method? # of households in target market times concept purchase intent = # of households that will try if aware # of households that will try if aware times awareness adjustment = # of households will try if they find product at their store # of households will try if they find product at their store times distribution adjustment = # who will try the product What’s the logic behind brand or category indices? Category Development Indices report the ratio of consumption in a certain category to population in a defined geographical area. Brand Development Indices compare sales for a given brand to population in a defined geographic area Commonly used to assess whether a category or brand has above-average or below-average penetration in different geographic markets
  • Ask: “What are the implications of diffusion theory for forecasting new product market penetration?” Diffusion theory suggests that high penetration levels are rare at the outset. Typically, first-year penetration levels include some but not all of the innovators, i.e., less than 2½ percent will likely adopt in year one.
  • Instructor: See Exhibit 5.5
  • Instructor: See Exhibits 5.8 and 5.9
  • Instructor: Refer to Exhibit 5.10
  • Transcript

    • 1. Keshav,Raman,Narayanan,Keyur1Measuring Market Opportunities:Measuring Market Opportunities:Forecasting and Market KnowledgeForecasting and Market Knowledge
    • 2. Keshav,Raman,Narayanan,Keyur2Chapter SummaryThis Chapter will introduce you to the following:TelstraTelecommunications in AustraliaA Forecaster’sToolkitRate of Diffusion of InnovationsCautions and Caveats in ForecastingMarket Intelligence and Knowledge SystemsMarketing Research
    • 3. Keshav,Raman,Narayanan,Keyur3A Forecaster’s Toolkit Before choosing a method by which to prepare a forecast, one mustknow what is to be estimated or forecast Firstly, there’s the size of the potential market (likely demand fromall actual and potential buyers) Market potential estimate often serves as a starting point forpreparing a sales forecast There is also the size of the currently penetrated market (if acompany has existing sales in products)
    • 4. Keshav,Raman,Narayanan,Keyur4Sales ForecastTwo broad approaches for preparing a sales forecastare:Top-down approachA central person takes responsibility for forecastingand prepares an overall forecastBottom-up approachEach part of the firm prepares its own sales forecast,and the parts are aggregated to create the forecast forthe firm as a wholeCommon in decentralized firms
    • 5. Keshav,Raman,Narayanan,Keyur5Methods for Estimating Market Potentialand Forecasting SalesStatistical methodsObservationSurveys (and qualitative research)AnalogyJudgmentMarket tests
    • 6. Keshav,Raman,Narayanan,Keyur6Statistical Methods Use history and various techniques to forecast the future basedon extrapolation of the pastAdvantagesUseful in established firms for established productsLikely to result in a more accurate forecast than othermethods under stable market conditionsLimitationsAssumes the future will look very much like the pastOther techniques have been developed to improve newproduct forecasts (diffusion of innovations and conjointanalysis)
    • 7. Keshav,Raman,Narayanan,Keyur7ObservationAnother method for forecasting is to directlyobserve or gather data about what real customersdo in the market of interestAdvantagesBased on what people actually doLimitationsTypically not possible for new-to-the-world productsRequires prior examples to observe
    • 8. Keshav,Raman,Narayanan,Keyur8SurveysA common way to forecast sales or estimatemarket potential is to conduct a surveyAdvantagesMany different groups of respondents can be surveyedDoes not require history or prior examplesLimitationsWhat people say is not always what they doPeople may not be knowledgeable, but when asked theiropinion, they may provide itWhat people imagine about a product concept in a surveymay not be what is actually delivered
    • 9. Keshav,Raman,Narayanan,Keyur9QualitativeQualitative research is often conducted alongwith empirical market surveys to aid inforecasting salesQualitative research such as focus groups anddepth interviews can help in finding out muchabout marketing issues and key trendsFor example, can use industry experts tocompare empirical survey findings
    • 10. Keshav,Raman,Narayanan,Keyur10Analogy It can be useful to forecast sales or market potential byinvestigating similar products Advantages Requires no history nor prior examples Best for new product forecasting where neither statistical methodsnor observations are possible Useful for new-to-the-world high-technology products Limitations The proposed new product is never exactly like that to which theanalogy is drawn Market and competitive conditions may differ considerably fromwhen the product was launched
    • 11. Keshav,Raman,Narayanan,Keyur11JudgmentAlthough not really a forecasting method on itsown, sometimes forecasts are made by intuition(gut feeling)AdvantagesThose with sufficient forecasting experience in a market theyknow well, may be quite accurate in their intuitive forecastsLimitationsOften difficult to defend forecasts against those prepared byevidence-based methods when the two differ
    • 12. Keshav,Raman,Narayanan,Keyur12Market testsUsed mainly for new products. Methods such asexperimental or live test markets have sometimesbeen adopted.AdvantagesClosest forecasting method to the true marketLimitationsExpensive to conductCompetitors can deliberately distort market conditions toinvalidate the test
    • 13. Keshav,Raman,Narayanan,Keyur13Mathematics Entailed in ForecastingRegardless of the method used, the ultimatepurpose of the forecasting exercise is to end upwith numbers that reflect the dataTwo key mathematical approaches that are used todetermine ultimate numbersChain ratio methodBrand or category indices
    • 14. Keshav,Raman,Narayanan,Keyur14Rate of Diffusion of Innovations: AnotherPerspective on Forecasting The adoption process Involves the attitudinal changes experiencedby individuals from the time they first hearabout a new product, until they adopt it Five stages in the adoption process:1. Awareness2. Interest3. Evaluation4. Trial5. Adoption
    • 15. Keshav,Raman,Narayanan,Keyur15Speed of AdoptionSpeed of the process depends heavily on:RiskRelative advantageRelative simplicityCompatibility with current ideas and behaviorEase of small-scale trialEase of communication of benefits
    • 16. Keshav,Raman,Narayanan,Keyur16Diffusion of Innovation Curve
    • 17. Keshav,Raman,Narayanan,Keyur17Cautions and Caveats in ForecastingKeys to good forecastingMake explicit the assumptions on which theforecast is basedUse multiple methodsCommon sources of error in forecastingForecasters are subject to anchoring biasCapacity constraints are sometimesmisinterpreted as forecastsIncentive pay: bonus plans cause managers toartificially inflate or deflate forecastsUnstated but implicit assumptions can overstate awell-intentioned forecast
    • 18. Keshav,Raman,Narayanan,Keyur18Market Intelligence and Knowledge SystemsFour commonly used market knowledge systemsare:Internal marketing information systemsMarketing databasesCompetitive intelligence systemsClient contact and salesforce automation systems
    • 19. Keshav,Raman,Narayanan,Keyur19Marketing ResearchQuestions to be asked by a critical user ofmarketing research:What are the research objectives?Will theproposed study meet them?Are the data sources appropriate? Secondary orprimary?Are the planned qualitative or quantitativeresearch approaches suited to the objectives?Is the research well designed?Are the planned analyses appropriate?