Demand Estimation
When a company finds an attractive market, it must estimate that market's current size and future potential carefully. From these estimates profit estimates and project feasibility is ascertained. Also for each planning period, say a year, demand estimate or forecast needs to be prepared to guide annual plan of the firm.
Demand is measured and forecast on many levels. Kotler gives 90 types of demand measurement. Demand might be measured for six different product levels (product item, product form, product line, company sales, industry sales and total sales); five different apace levels (customer, territory, country, region, world); and three different time levels (short range, medium range and long range). [6*5*3 = 90].
Measuring Current Market Demand
Marketers need to estimate total market demand; area (sales territory) market demand; and actual sales and market shares.
Estimating Total Market Demand of the Industry
The total market demand for a product or service is the total volume that would be bought by a defined consumer group in a defined geographic area in a defined time period in a defined marketing environment under a defined level and mix of industry marketing effort.
Estimating Area and Market Demand
Companies face the problem of estimating sales of various territories to allocate their marketing budget optimally among these territories. Therefore they need to estimate the market potential of different cities, regions and even nations (in case of global marketing budget). Two main methods are available; the market-build-up method, used primarily by business-goods firms; and the market-factor index method, used primarily by consumer-goods firms.
The market-build-up method identifies all the potential buyers in each market and estimates their potential purchases.
Estimating Actual Sales and Market Shares
Besides estimating total and area demand, a company will want to know the actual industry sales in its market. It would also identify its competitors and estimate their sales.
The industry's trade association will often collect and publish total industry sales, although not listing individual company sales separately. Because the company knows its own sales, each company can determine its market share. Another way to know actual sales of various companies in the industry is to buy reports from marketing research firms that audit total sales and brand sales.
Forecasting Future Demand
Forecasting is the art of estimating future demand by anticipating what buyers are likely to do under a given set of Conditions,
Companies commonly use a three-stage procedure to arrive at a sales forecast. First they make an economy-wide forecast for GDP or GNP, followed by an industry forecast, followed by a company sales forecast. The macroeconomy forecast calls for projecting inflation, interest rates, consumer spending and saving, business investment, government expenditures, net exports and other economic information important to the company. The result is a forecast of gross national product, which is used along with other indicators to forecast industry sales. Then the company prepares its sales forecast assuming a certain share of industry sales.
Companies use several specific techniques to forecast their sales. All forecasts build on one of three information bases: what people say, what people do, or what people have done.
To know what people say, surveys of the opinions of buyers or those close to them, such as salespeople or outside experts are conducted. It includes three methods: surveys of buyer intentions, composites of sales force opinions and expert opinion. Building a forecast on what people do involves the test market method to assess buyer response to various types of offer involving the product. The final basis —'what people have done —involves analyzing records of past buying behavior or using time-series analysis or statistical demand analysis.
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