How to Analyse a Market Based on the Deman Supply Equation Sucessfully
Managers need to define
carefully what they mean by market demand. We will present several distinctions
that will help manager talk more precisely about market demand.
A Multitude of Measure of Market Demand
As part of ongoing planning , companies prepare a great number of market size estimate. Demand can be measured for six different product levels (products item, product form, product line, company sales, industry sales, national sales), five different space levels ( customers, territory, region, U.S.A world) and three different time levels (short – range, medium –range and long –range).
Each type of demand measurement serves a specific purpose. Thus a company might make a short – range forecast of the total demand for a particular products item to provide a basis for ordering raw materials , planning production, and scheduling short –run financing . Or it might make a long range forecast of regional demand for its major product line to provide a basis for considering market expansion.
Which market to measure?
Market talks about potential markets, available markets , served markets , and penetrated markets. To clarify these terms, lets us start with the notion that a market is the set of all actual and potential buyer of a product. The size of a market then hinges on the number of buyers who might exist for a particular market offer. Those who are in the market would have three characteristics: interest, income, and access.
The first thing to
estimate is the number of adults in the community with a potential interest
in a course on French culture. There are a number of ways to do this.
The chairman could contact other colleges offering this course and find
out their enrollment levels. A more direct approach would be to phone
a random sample of adults in the community and ask about their level of
interest in a French – Culture courses.
The question could be asked: “If a noncredit French – Culture course were offered in the evening at our college, would you definitely take it, probably take it, or not be interested in taking it? Suppose 4 out of 100 say they would definitely take the course, 6 say they might take it, and 90 say they would not take it .
At the most it appears that 10 percent have an interest in this course. This percentage can be multiplied by the adult population in the community to estimate the potential market for this course. The Potential market is the set of Consumers who profess some level of interest in a defined market offer.
Consumer interest is not enough to define a market. Potential consumers must have adequate income to afford the purchase. They must be able to buy besides having an interest in buying. Higher the price, fewer the number of people who will stay in the market. The size of a market is a function of both interest and income.
Market size is further reduced by personal access barriers that might prevent response to the offer. Interested consumer may not be able to take the French course at the place or at the time it is offered. Access factors will make the market smaller. The available market is the set of consumers who have interest, income, and access to a particular market offer.
In some market offers, the organization may restrict sales to certain groups. Although a college sells football tickets to every one, it may not accept every one who wants to study French. The College may accept only adults who are twenty – four years or older and have a high school diploma. These adults constitute the qualified available market, namely, the set of consumers who have interest, income, access and qualifications for the particular market offer.
A Vocabulary for Demand Management
The Field of demand measurement is filled with a confusing number of terms. Company’s executive talk of forecasts, predictions, potentials, estimates, projections, goals, targets, quotas, and budgets. Many of these terms are redundant. The major concepts in demand measurement are market demand and company demand, with in each, we distinguish between a demand function, and a potential.
Market Demand: In evaluating marketing opportunities, the first step is to estimate is to estimate total market demand. It is not a simple concept, however, as the following definition make clear:
There are eight elements in this Definition
· Total volume
· Customer Group
· Geographical Area
· Time Period
· Marketing Environment
· Marketing Program
Market Forecast - Only one of the many possible levels of industry marketing efforts will actually occur. The market demand corresponding to the expected efforts is called the market forecast. The market forecast shows the levels of market demand corresponding to the actual. The market forecast shows the levels of market demand corresponding to the actual level of industry marketing expenditure in the given environment.
Market Potential - The market forecast shows expected market demand, not maximum market demand. For the latter, we have to visualize the level of market demand for a very high level industry marketing effort, where further demand .market potential is the limits approached by market demand as industry marketing effort goes to infinity for a given environment.
Company demand: . We are now ready to define company demand. company demand is the company’s share of market demand. In symbols: Qi = siQ
Where : Qi = Company
Si = Company I’s market share
Q = total market demand
Company demand , like market demand, is a function called the company demand function or sales – response function and is subject to all the determinants of market demand plus what ever influence company market share.
Company Forecast: Its demand describes estimated company sales at alternative levels of company marketing efforts. It remains for management to choose one of the levels. The choise level of sales, which may be called the company forecast.
Company’s Potential : Company’s sales potential is the limits approached by company demand as company marketing effort increases relative to competitors. The absolute limits of company demand are of course, the market potential.
The two would be equal if the company achieved 100 percent of the market that is, if the company becomes a monopolist. In most of the cases, company’s sales potential is less than market potential, even when company marketing expenditure increase considerably relative to competitors. The reason is that each competitor has a hard core of loyal buyers who are not very responsive to other companies