chapter _ 5 measuring market opportunities
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Measuring MarketOpportunities: Forecasting
and Market KnowledgeChapter 5
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A Forecasters toolkit
Statistical and other quantitativemethods
Statistical methods use past history and variousstatistical techniques, such as multiple
regression or time series analysis, to forecast
the future based on an extrapolation of thepast.
Not useful for entrepreneurs.
In established firms, for established products,
statistical methods are extremely useful.
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Limitations of S & Q methods
As with all forecasting methods, statistical
methods have limitations. Most important oneis that they generally assume that future will
look very much like past.
If product or market characteristics change,
statistical models used without adequate
judgment may not keep pace.
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Observation.
This method is to directly observe or gather existing
data about what real consumers do in the productmarket of interest.
Observation based forecasting is attractive because itis based on what people actually do.
If data can be found from existing secondry sources-in company files, at the library, or on the internet-data collection is both faster and cheaper than a new
study, from scratch. Does not apply to new products.
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Surveys or Focus Groups
These surveys can be done with different
groups of respondents. Consumers after being shown a statement or a
prototype or sample of the product, can be
asked how likely they are to buy, creating asurvey of buyers intentions.
The sales people can be asked how much they
are likely to sell, completing a survey of salesforce opinion.
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Limitations of Focus groups
What people say is not always what people do.
The persons who are surveyed may not be
knowledgeable.
What people imagine about a product conceptin a survey may not be what is actually
delivered once the product is launched.
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Analogy
Used when neither statistical method nor
observations are possible to forecast the salesor market potential for a new product .
Then in such case analogy is used.
Under this method, the product is comparedwith similar products for which historical dataare available.
Limitation is that new product is never exactlylike that to which the analogy is drawn.
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Judgment
Sometimes forecasts are made solely on the basis of
experienced judgment or intuition. Some decisionmakers are intuitive in their decision processes andcannot always articulate the basis for their judgments.
Those sufficient forecasting experience in a marketthey know well, may be quite accurate in theirintuitive forecasts.
As a limitation judgment cannot be defended
compared to evidence-based methods, when the twodiffer.
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Market test
Market tests of various kinds are the last of our
most commonly used methods. Used largelyfor new products, market tests such as
experimental test markets may be done under
controlled experimental conditions in research
laboratories, or in live test markets with real
advertising and promotion and distribution instores.
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Mathematics entailed in Forecasting
The combination of judgment and other
methods often leads to the use of either of twomathematical approaches to determine the
ultimate numbers: the chain ratio calculation or
the use of indices.
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Rate of diffusion of innovations
This theory seeks to explain the adoption of an
innovative product or service overtime among agroup of potential buyers.
This is particularly useful for entrepreneurs or other
marketers to see if the investment in development andintroduction of the new product will be adopted by
the target market or not.
This is useful to mangers in predicting the adoptionrate.
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The adoption process
This involves the attitudinal changes
experienced by individuals from the time theyfirst hear about a new product , service, or idea
until they adopt it. Some tend to adopt early,
some late, and some never.
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Five stages of adoption process
1. Awareness. In this stage the person is only
aware about the product, and is motivated toseek information about the product.
2.
Interest. Here individual is sufficientlyinterested in it but has not yet involved.
3. Evaluation. Here the individual is mentally
applying the product to his own requirementsand anticipating the results.
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Five stages of adoption process
4. Trial. Here the individual actually uses the
product, but will not yet adopt it.
5. Adoption. In this stage the individual not only
continues to use the new product but alsoadopt it.
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The rate of adoption
Those who adopt a product go through the
five stages in adoption process.
1. The risk , cost of product failure or
dissatisfaction.2. The relative advantage over other products.
3. The relative simplicity of the new product.
4.Its compatibility with the previously adopted
ideas and behavior.
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The rate of adoption
5. The extent to which its trial can be
accomplished on a small scale basis.
6. The ease with which the central idea of the
new product can be communicated.
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Adopter categories
Using time of adoption as a basis for
classifying individuals, five major groups canbe distinguished:
Innovators.
Early adopters
Early majority
Late majority
Laggards.
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These adopter groups can be considered marketsegments.
One would use a different set of strategies tomarket a new product to the early adopter groupthan to market it to the late majority group.
Commercial sources are most important at theawareness stage in the adoption process, while
personal influence is most important at
evaluation stage. In the interest stage both areimportant. In trial stage marketers shouldfacilitate the prospect to try the product .
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Implications of diffusion of
innovation theory
A good way to estimate how quickly an
innovation is likely to move through thediffusion process is to construct a chart that
rates the adoption on the six key factors
influencing adoption speed.
View Exhibit 5.7
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Keys to good forecasting
The first key is to make explicit the assumptions on
which the forecast is based. This way if there isdebate or doubt about the forecast, the assumptions
can be debated, and data to support the assumptions
can be obtained.. The second key is to use multiple methods. When
forecasts obtained through different methods,
converge near a common figure, greater confidencecan be placed in that figure.
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Sources of error
Forecasters are subject to anchoring bias, even
though market conditions have changed .
Capacity constraints are sometimes
misinterpreted as forecasts.
Incentive pay can be a source of bias in
forecasting.
Implicit assumptions can overstate a wellintentioned forecast.
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Market knowledge systems
Internal record systems.
Marketing databases.
Competitive intelligence systems.
Client contact and sales force Automationsystems.
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