Situational Analysis Understanding the Market Definition and Measurement.
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Transcript of Situational Analysis Understanding the Market Definition and Measurement.
Situational Analysis
Understanding the Market Definition and Measurement
Market Definition
Three dimensions of definition: Works from broad to narrow. Identifies all possible opportunities, enabling
business to be proactive and to anticipate consumer needs.
First Dimension:
Identifies competing product classes serving generic need.
Example:
Generic need = thirst
Competing product classes =
milk, soda, coffee, tea, juices, water, etc.
Second Dimension:
Identifies competing product forms within product class.
Example:
Product class = coffee
Competing forms = whole bean, ground, instant, coffee bags, etc.
Third Dimension:
Identifies competing brands within product form.
Example:
Product form = whole bean
Competing brands = Folger’s, Starbuck’s, Millstone,
Gevalia, etc.
Marketing Definition
Broad
Narrow
Thirst
Milk CoffeeSoda Tea Juice
GroundWholeBean
InstantCoffee
Bag
Folger’s Starbuck’s Millstone Gevalia
A strategic marketing definition should...
Identify opportunities.
Identify the served market.
Basic Types of Market Measurements
Market Potential The maximum sales opportunity that can
be achieved by all sellers in the market. Sets upper limit on consumption units.
Measuring 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
Example: What’s the market potential for CD’s?
Assumptions:
Everyone in U.S. > 14 years buys, on average, 4 CD’s per year at ave. price of $14/CD
Measuring Market Potential
Measuring market potential often relies on: Assumptions. Published data (industry publications, gov’t
sources). Variables that correlate closely to market
potential.
Demand
Market Demand The amount of products currently being
purchased from all sellers in the market (i.e., industry sales).
Company Demand The amount of products currently being
purchased from a company.
Gaps Between Potential and Demand
Market Potential
Market Demand
Company Demand
Primary (Basic)Demand Gap
Selective (Company)Demand Gap
Measuring Market Demand
Market demand sets upper limit on sales--i.e., 100% of market share=market demand.
MD= (EC x PA) + (NC x PA) MD=market demand EC=existing customers NC=new customers PA=purchase amount
Example: What is the market demand for the cellular phone market in 2001?
Market attracts approx. 5 million new customers/year ≈ 70 mill.
MD = (65 mill. X 400 minutes/yr.) +
(5 mill. X 200 minutes/yr.)
= 27 billion minutes/year
Measuring Company Demand: Sales Forecasting
Forecasts are predictions--they have to be continuously monitored and adjusted.
Different approaches: Top-down forecasting Build-up forecasting
Subjective Forecasting Methods
Utilize opinions of employees, managers, or customers.
Least accurate, although popular to use.
Three different types.
Sales Force Composite
Salespeople project sales volume for customers in their own territory; estimates are aggregated and reviewed at higher management levels.
Benefit:
Disadvantage:
Jury of Executive Opinion
Solicit the judgment of a group of experts or experienced managers to estimate sales.
Benefit: Disadvantage:
Customer/Industry Surveys
Survey customers to ask them how much they intend to buy in a future period.
Benefit: Disadvantage:
Extrapolation Methods
Utilizes existing sales data.
Higher accuracy than subjective methods.
Naïve Forecasting
Uses past sales data to forecast future sales, assuming that there will be no changes. Assumes that the best estimate of future
sales is the current level of sales. Often used as a standard for comparison
with other forecasts.
Moving Average
Compute the average sales volume achieved in recent periods and use the average to predict sales in the next period. Can be a conservative forecast. Can assign different weights to different time periods--
smoothing constants.
Example: Moving Average
1st 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 Change
Trend projection.
If sales have been generally increasing, forecasts with this method will be greater than forecasts using other methods.
Example: Percent Rate of Change
1st Qtr1998
$100K
1st Qtr1999
$125K
% change=25%
To predict sales for 1st quarter 2000:
Sales = $125K + ($125K x .25) = $125K + $31.25K = $156.25K
Leading Indicators
When sales are influenced by basic changes in the economy, can use leading indicators to predict sales.
Quantitative Methods
Methods that utilize numerical procedures to extend past sales into the future.
Regression.
Time series analysis.
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 Index (MDI)
What’s the potential for the market to develop?
MDI= current market demand
maximum market potentialX 100
Interpreting MDI:
MDI < 33 Considerable market growth potential. Can grow market with high prices and
basic benefits.
Interpreting MDI (continued)
MDI 33-67 Growth is possible, but need to offer more
product variations and lower prices; expanded distribution.
Interpreting MDI (continued)
MDI>67 Still room for market growth, but more
difficult. Need very customer-focused solutions.