demand Forecasting.ppt

MKT501 MARKETING MANAGEMENT
After this session, you will be able to:
1. Understand the concept of market
demand and market potential.
2. Discuss different methods of
calculating market potential and
forecast demand.
Learning Outcomes

Expectations Possibilities
Firm/Brand Sales Forecast Sales Potential
Category Market Forecast Market Potential
Forecasts vs. Potential

 Market: A set of all actual and potential buyers of a
product or service.
 Potential Market: A set of consumers who profess a
sufficient level of interest in a product or service.
 Available Market: A set of consumers who have
interest, income and access to a particular product or
service.
Measures of Market Demand

 Qualified Available Market: A set of consumers
who have interest, income, access and
qualifications for the particular product or service.
 Target Market: Part of the qualified available market the
company decides to pursue.
 Penetrated Market: A set of consumers who are buying
the company’s product or service
Measures of Market Demand

 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 Demand

 Market demand is not a fixed number but
function of stated conditions
Market Demand Function

 The Market demand corresponding to
the industry marketing expenditure
 This would be lower than the market
potential
 The market forecast shows expected
market demand, not maximum market
demand.
Market Forecast

 Market potential is the limit approached by
market demand as industry marketing
expenditures approach infinity for a given
marketing environment.
 It is upper bound to actual sales, based on
a set of assumptions about future market
conditions.
 The maximum sales reasonably attainable
by all suppliers under a given set of
conditions within a specified period of
time.
Market Potential

Company Demand
• Company demand is the company’s estimated share of
market demand at alternative levels of company
marketing effort in a given time period.
• Other things equal, the company’s market share depends
on the relative scale and effectiveness of its market
expenditures
• Marketing model builders have developed sales
response functions to measure how a company’s sales
are affected by its marketing expenditure level, marketing
mix, and marketing effectiveness

Company Sales Forecast
• Once marketers have estimated company demand, their
next task is to choose a level of marketing effort.
• The company sales forecast is the expected level of
company sales based on a chosen marketing plan and an
assumed marketing environment.

12
Market
Potential
Industry
Sales
Company
Sales
Actual
Forecast
Primary
demand
gap
Sales (in
units
Secondary
demand
gap
Current Time Period
Concept of market demand

1. Total Market Potential
Total market potential is the maximum sales available to all
firms in an industry during a given period, under a given level
of industry marketing effort and environmental conditions.
Estimating Current market Demand
Total Market Potential is a function of:
 The potential number of Buyers (Prospective Buyers) (B)
 The Average Quantity Purchased (Q)
 The Price of an Average Unit (P)
Total Market Potential = B x Q x P

Cola Example (Chain Ratio Method)
Market Potential for cola-flavored carbonated drink in India:
1. Population (P) = 32,000,000
2. Proportion of P that consumes carbonated beverages (R) = 95%
3. Proportion of R that consumes cola-flavored carbonated beverages
(C) = 70%
4. Average number of liters of cola consumed per cola-consumer per
week (L) = 1.7 liters
5. Average price per liter of cola (A) = $ 0.50
Market Sales Potential = P x R x C x L x A
= 32 Million x 0.95 x 0.70 x 1.7 x 52 x 0.50 = $94.06 Million

2. Area Market Potential
A. Market-Buildup Method (Business
Marketers)
– Identify all the potential buyers in each market
– Estimate their potential purchases

(b) Multiple Factor Index (Consumer Marketers)
A drug manufacturer might assume the market potential for drugs is directly
related to population size. If the state of Virginia has 2.55 percent of the
U.S. population, Virginia might be a market for 2.55 percent of total drugs
sold.
A single factor is rarely a complete indicator of sales opportunity.
Regional drug sales are also influenced by per capita income and the
number of physicians per 10,000 people.
Thus, it makes sense to develop a multiple-factor index and assign each
factor a specific weight.
Suppose Virginia has 2.00 percent of U.S. disposable personal income,
1.96 percent of U.S. retail sales, and 2.28 percent of U.S. population, and
the respective weights are 0.5, 0.3, and 0.2.
The buying-power index for Virginia is then 2.04 [0.5(2.00) 0.3(1.96)
0.2(2.28)].
Thus 2.04 percent of the nation’s drug sales (not 2.28 percent) might be
expected to take place in Virginia.

Area Market Potential
1. Category Development Index
The percentage of category sales in a geographic area divided by the
percentage of population in the same geographic area, converted to a
percentage
Population Data Market Data
India = 300 million Sales = $250 million
Mumbai = 600,000 Sales in Mumbai= $4.5 million
Mumbai population percentage =
600,000/300 million = 2 percent
Mumbai percentage of sales =
4.5/250 = 1.8 percent
Category development index (CDI)
= Percent market sales/Percent population: Mumbai
= 1.8/2 = 90 percent

Area Market Potential
2. Brand Development Index (BDI)
The percentage of brand sales in a geographic area
divided by the percentage of population in the same
geographic area, converted to a percentage
Population Data Market Data
India = 300 million Sales = $50 million
Mumbai = 600,000 Sales in Mumbai = $1.2 million
Mumbai population percentage =
600,000/300 million = 2% percent
Mumbai percentage of sales =
1.2/50 = 2.4 %
Brand development index (BDI)
= Percent market sales/Percent population: Mumbai
= 2.4/2 = 120 percent

In most markets, in contrast, good forecasting is a key factor
in success
• How do firms develop their forecasts?
• They may create their own or buy forecasts from outside
sources such as marketing research firms, which interview
customers, distributors, and other knowledgeable parties.
• Forecasts are built on:
– What People say: (a) Survey of buyers intentions (b) Sales
force opinion (c) Expert Opinion
– What People do: Putting the product into test market
– What people have done: Past buying behaviour, time series
analysis or statistical demand analysis
Estimating Future Demand

Forecasting
Quantitative Qualitative
Causal Model
Time series
Expert
Judgment
Trend
Stationary
Trend
Trend +
Seasonality
Delphi Method
Grassroots

A. Judgment-base Methods
 Naïve Extrapolation
 Sales force composite
 Jury of expert opinion
 Delphi method
 Historical analysis

 Uses last period sales level to estimate the
expected percentage change in sales.
 The application of a simple assumption
about the economic outcome of the next
time period, if subjective, extension of the
results of current events.
1. Naïve Extrapolation

Naive Trend
This model guesses that the difference between the last two data
periods will be repeated
In Data Set 2, the prediction for May would be 1210 + (1210 -
1202) or 1218.
Month Data
February 1079
March 1202
April 1210

2. Sales Force Composite
 a method of forecasting future demand for a
product by adding together what each member
of the sales force expects to be able to sell in
his or her territory.
 Sales people are asked to make sales forecast.
Their forecast is can be aggregated to create
sales forecast for the product or product line.
 A compilation of estimates by salespeople (or
dealers) of expected sales in their territories,
adjusted for presumed biases and expected
changes.

3. Jury of Expert Opinion
 Variant-panel consensus method
 This approach collects forecasts from
number of experts. The forecasts are
then combined in a particular
manner, such as a simple or weighted
average, in which the weights can be
level of expertise.

4. Delphi Method
• It is a variant of panel consensus method
• 'It is a survey which is steered by a monitor group, comprises
several rounds of a group of experts, who are anonymous
among each other.
• After each survey round, a standard feedback about the
statistical group judgment is given and the arguments and
counterarguments of the extreme answers are fed back...‘
• Analysis should be carried out using statistical analysis (for
example cluster analysis) to identify convergences and
divergences in responses.

6. Historical Analogy
• Predictions based on elements of past events that are
analogous to the present situation.

Bottom Up Approach - Tomatology

CALCULATING MARKET SHARE

Any Questions?

As the manager of an organization that is attempting to build a Marketing Information System (MIS), you have
been informed that an MIS is built upon three fundamental information sources. The sources are ________,
marketing intelligence activities, and marketing research.
A) external records and documents
B) databases found on the Internet
C) consultant reports
D) internal company records
E) secondary data from government sources such as the Better Business Bureau
The company's marketing information system should be a mix of what managers think they need, what
managers really need, and ________.
A) what the marketing research department is able to do
B) what consumers are willing to consume
C) what the government policies allow
D) what is acceptable at the industry level
E) what is economically feasible
The heart of the internal records system is the ________ because customers favor firms that can promise
timely delivery.
A) sales information system
B) data mining system
C) order-to-payment cycle
D) information needs probe
E) data warehouse

By equipping its sales force with handheld devices with barcode readers and Internet connections to speed
inventory assessment, TaylorMade allows sales executives to have significantly more time to interact with their
consumers. This is an example of the use of technology in improving ________.
A) sales information systems
B) payroll systems
C) cookies
D) cohort segmentation
E) competitive intelligence gathering
Companies can practice targeted marketing by using ________, which are records of Web site usage stored on
personal browsers.
A) plug-ins
B) black swans
C) cookies
D) trolls
E) honey-pots
The internal records system supplies results data, but the marketing intelligence system supplies ________
data.
A) internal
B) revenue
C) thematic
D) happenings
E) process

A ________ is a set of procedures and sources managers use to obtain everyday information about
developments in the marketing environment.
A) data warehousing system
B) viral marketing campaign
C) product management system
D) marketing intelligence system
E) sales information system
A company can take several steps to improve the quality of its marketing intelligence. Which of the following best
describes the practice used by McDonald's when it sent pseudo customers to assess stores' internal speed
standards?
A) training and motivating the sales force to spot and report new developments
B) motivating intermediaries to pass along important intelligence
C) networking externally
D) purchasing information from outside research firms and vendors
E) using the sales information system to get accurate sales reports
Elance.com is a service provider that allows contractors to describe their level of satisfaction with subcontractors.
This is an example of a(n) ________.
A) independent customer goods and service review forum
B) public blog
C) customer complaint site
D) combo site offering customer reviews and expert opinions
E) distributor or sales agent feedback site

What are the various steps a company can take to improve the quality of its marketing intelligence function?
Answer: The steps are:
1. a company can train and motivate the sales force to spot and report new developments
2. a company can motivate distributors, retailers, and other intermediaries to pass along important intelligence
3. a company can network externally
4. a company can set up a customer advisory panel
5. a company can take advantage of government data resources
6. a company can purchase information from outside suppliers
7. a company can use online customer feedback systems to collect competitive intelligence
A ________ is "unpredictable, short-lived, and without social, economic, and political significance."
A) fad
B) fashion
C) trend
D) megatrend
E) Style
A growing population does not mean growing markets unless ________.
A) the people are under a democratic system of government
B) there is common ownership of all resources
C) people have sufficient purchasing power
D) there is adequate governmental intervention in the market
E) the government has a budget surplus

What are the various steps a company can take to improve the quality of its marketing intelligence function?
Answer: The steps are:
1. a company can train and motivate the sales force to spot and report new developments
2. a company can motivate distributors, retailers, and other intermediaries to pass along important
intelligence
3. a company can network externally
4. a company can set up a customer advisory panel
5. a company can take advantage of government data resources
6. a company can purchase information from outside suppliers
7. a company can use online customer feedback systems to collect competitive intelligence
A ________ is "unpredictable, short-lived, and without social, economic, and political significance."
A) fad
B) fashion
C) trend
D) megatrend
E) Style
A growing population does not mean growing markets unless ________.
A) the people are under a democratic system of government
B) there is common ownership of all resources
C) people have sufficient purchasing power
D) there is adequate governmental intervention in the market
E) the government has a budget surplus

The traditional household consists of ________.
A) a husband, wife, and children (and sometimes grandparents)
B) a group of related persons living together
C) two or more families living together
D) a man and a woman living together (whether married or not)
E) related or unrelated persons who share living arrangements
Today, corporations need to make sure that they are good corporate citizens and that their consumer messages
are honest in order to positively align themselves with consumers' views of ________.
A) others
B) organizations
C) themselves
D) the universe
E) society
People vary in their views of society and their consumption patterns often reflect their social attitudes. ________
are a major market for movies, music, surfing, and camping.
A) Makers
B) Preservers
C) Escapers
D) Changers
E) Developers

________ Americans, the second-largest Asian population in the United States, is generally affluent, well-
educated, and attractive to marketers.
A) Korean
B) Japanese
C) Chinese
D) Filipino
E) Indian
Which of the following would be the best illustration of a secondary belief or value?
A) belief in work
B) belief in giving to charity
C) belief in getting married
D) belief in getting married early
E) belief in being honest
Which of the following economies provide limited opportunities to international marketers to develop product
sales?
A) capitalist economies
B) subsistence economies
C) raw-materials-exporting economies
D) industrializing economies
E) industrialized economies

47
Deriving Market Potential Estimates
Secondary data
Primary data
From survey
Past sales
Market / Statistical
Method
Calculation
Judgment
Potential
Estimates

 To make entry / exit decisions
 To make resource level decisions
 To make location and other resource
allocation decisions
 To set objectives and evaluate performance
 As an input to forecast.
Why estimate market potential?

 Company Demand: is the co’s estimated share of
market demand at alternative levels of co’s
marketing effort in a given time period.
 Company Sales Forecast: is the expected level of
company sales based on a chosen marketing plan
and an assumer marketing environment.
 Company Sales Potential: is the sales limit
approached by company demand as co. marketing
efforts increases relative to that of competitors.
Company

Time
Period
Market
Segments
Total
Number of
Customers
in Each
Segment
(millions)
A
Percent
Likely to
Buy
B
Number of
Customers
Likely to
Buy
C = A x B
(millions)
Number of
Units
Purchasers
Are Likely
to Buy
D
Segment
Potential
Calculation
E = C x D
(millions
of units)
Market
Potential
(millions
of units)
Sum of the
Es
6 years
after launch
Seg 1 11 70% 7.7 6 46.2
58.6
Seg 2 6 40% 2.4 4 9.6
Seg 3 7 10% 0.7 4 2.8
Market Potential: Illustration
Sales Potential: Illustration
Time Period
Market Potential
(millions of units)
A
Firm’s Potential
Market Share (%)
B
Sales Potential
(millions of units)
C = A x B
6 years after launch 58.6 20% 11.72

demand Forecasting.ppt

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