Chapter 5. MARKET MEASUREMENT BA 315 - L.P.Chew

OUR TERMINOLOGY…

POTENTIAL= POSSIBILITIES

FORCAST = EXPECTATIONS

MARKET = INDUSTRY

SALES = COMPANY

Market Potential and Sales Forecasting• Potential: The maximum sales

reasonably attainable under a given set of conditions within a specified period of time.

–An upper limit or ceiling on sales.

Market Potential and Sales Forecasting

• Forecast: The amount of sales expected to be achieved under a set of conditions within a specified period of time.

–What you expect to sell.

Estimating Market Potential• Determine the potential buyers

or users of the product.• Determine how many individual

customers are in the potential groups of buyers defined in step 1.

• Estimate the potential purchasing or usage rate.

now review a regional player…..DOBBS AUTO

Estimate the potential

purchasing or usage rate &

forecast

Forecasting• Sales forecasts are essential for production

planning.• Scenario planning, asking “what-if”

questions.• Judgement methods, which rely on pure

opinions.• Counting methods, which use customer

data.• Time-series methods.• Association/causal methods, model relating

market factors to sales.

Time-Series Methods• Moving Averages - uses averages of

historical sales figures to make a forecast.

• Exponential Smoothing - relies on the historical sales data and is more complicated than the moving average.

• Extrapolation - linearly extrapolates data.

Association/Causal Methods

• Correlation.

• Regression Analysis.

Market potential & sales forecasts Market potential estimates and sales forecasts

complement each other in the marketing

planning process. Market potential data is used

to help the firm decide which opportunities to

pursue & the level of expenditure to apply to

each opportunity. The sales forecast is applied

to: making decisions on short term,tactical

issues; planning production inventory &

working capital; and the like.

The formulation of market strategy is planned on the basis of the marketing potential associated with each of the firm's target segments Once marketing

strategy plans are set, a sales forecast

can be developed and then used to guide tactical production,

advertising, and logistics decisions

Chapter 5. Organizational Demand Analysis

•pivotal role of market potential analysis and sales forecasting in planning and controlling marketing activities, and to provide a firm understanding of the various approaches for measuring potential and forecasting sales.

Chapter 5. Organizational Demand Analysis• chapter focuses on the different

approaches for calculating market and sales potentials

• qualitative and quantitative forecasting approaches are discussed in terms of the applicability to various forecasting situations. Executive judgment, sales force composite, and the Delphi method are the qualitative forecasting methods

Chapter 5. Organizational Demand Analysis•Quantitative methods, including

time series analysis and causal techniques

•Executive judgment, sales force composite, and the Delphi method are the qualitative forecasting methods

•These qualitative methods are most effectively applied to forecasts for new products or in situations where little historical data exists

Methods of Sales Forecasting (1)1.1. Simple Trend AnalysisSimple Trend Analysis—sales forecast

based on firm’s recent performance.2.2. Market Share AnalysisMarket Share Analysis—similar to trend

analysis but assumes market share will stay the same.

3.3. Jury of ExecutivesJury of Executives—company experts predict sales.

4.4. Sales Force SurveysSales Force Surveys——salespeople share experiences and customer feedback.

5.5. Consumer SurveysConsumer Surveys—measure attitudes, purchase intentions, expectations, consumption rates, and SWOT.

Methods for Sales Forecasting (2)6.6. Chain-Ratio MethodChain-Ratio Method—firm starts with general

market information and then computes a series of more specific information. Combined data yield a sales forecast.

7.7. Market Build Up MethodMarket Build Up Method—firm gathers data from small, separate market segments and aggregates them.

8.8. Test MarketTest Market—sales estimate from short-run, geographically limited sales of new products.

9.9. Advanced Statistical AnalysesAdvanced Statistical Analyses—methods for sales forecasting that include computer simulations

TIME SERIES

• Time series models are based on the accuracy of historical sales patterns when sales trends are not likely to change in the future. Time series models are most useful when market forces are relatively stable within forecasting horizon.

Moving averages/ exponential smoothing • Moving averages is a method based

upon a specified historical period to forecast the value for a future period.

• When differential weights are desired, such as for recent years, exponential smoothing can be used.

Multiple regressions models• Multiple regressions models, employed

when a number of factors have an impact on sales, allow managers to forecast industry sales, as well as incorporate the expected effects of any controllable marketing variables which are likely to be significant when forecasting company sales.

Sales penetration is the degree to which a company achieves its sales potential. A high level of sales penetration usually means there is little room for growth. 1. Sales penetration = Actual sales/Sales potential. 2. A firm with high sales penetration must realize that diminishing returns may occur if it attempts to convert remaining nonconsumers, since costs may outweigh revenues. Other

segments may be better opportunities.

•

LINDELL MANUFACTURES INK FOR FOUR TYPES OF PRINTERS IN FIVE STATES.HISTORICAL SALES DATA SHOWS THAT INK COSTS THESE PRINTERS .1% OF EACH SALESDOLLAR.• HOW MUCH INK DID THEY CONSUME IN THE MOST RECENT

YEAR THAT YOU ARE ABLE TO FIND IN OUR LIBRARY. I SUGGEST THAT YOU USE THE 1997 CENSUS OF MANUFACTURESOR THE MOST CURRENT ANNUAL SURVEY OF BUSINESS (MANUFACTURES).

LINDELL MANUFACTURES INK FOR FOUR TYPES OF PRINTERS IN FIVE STATES.

• PLEASE CONSULT YOU PACKET FOR A LIST OF SECONDARY DATA SOURCES TO ACCESS INCLUDING THE AFOREMENTIONED. KEY: USE $ VALUE OF SHIPMENTS.

• YOU MAY WORK WITH THE SIC CODES, RATHER THAN THE NAICS CODES, BECAUSE THEDATA MAY BE EASIER TO FIND IN SIC, WHILE WE ARE IN TRANSITION FROM SIC TO NAICS

LINDELL MANUFACTURES INK FOR FOUR TYPES OF PRINTERS IN FIVE STATES..

• STATES.....PENNSYLVANIA, OHIO, MICHIGAN, INDIANA AND ILLINOIS

• SIC / NAICS CODES OF PRINTERS.........

• 2711- NEWSPAPERS

• 2721- MAGAZINES

• 2732- BOOK

• 2741- OTHER PRINTING

LINDELL MANUFACTURES INK.

• A- WHAT WAS THE TOTAL INK/PRINTER MARKET FOR THIS FIVE STATE REGION?

• B- WHAT IS THE TOTAL MARKET BY STATE?

• C- WHAT IS THE RELATIVE MARKET FOR EACH STATE?

• D- HOW WOULD YOU PROJECT THE $ MARKET FOR THE COMING YEAR 2003?

PLEASE PREPARE THE EXERCISES AT THE END OF THE CHAPTER AND THOSE CASES IN YOUR PACKET. NOW GO FOR IT!!!

• OPPORTUNITYISNOWHERE!!!