demand forecasting

5/20/2018 demand forecasting

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Market-Based Management

Defining Market Space andEstimating Market Potential

Understanding Dynamics ofMarket Demand and theProduct Lifecycle

Understanding How MarketShare is Achieved andEvaluating Share Strategies

A narrow market definition limits your business opportunities.You have to see more to sell more.

Jack Welch, CEO, 19812000 General Electric


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Customer Focus, CustomerPerformance, and Profit Impact

Defining Market Space andEstimating Market

Potential

Copyright Roger J. Best, 2012

In this section we will look at how the greatest threat toa businesss survivaland a major cause of missedmarket opportunitiesis a narrow focus on existing

product-markets.


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Product-Market Structure

Forty years ago, several of these products did not exist, whileothers had not yet reached their tipping point.


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Market Definitions

A broad market definition is essential for any business in order to understandandmeasuremarket demand, market potential, and market share.

A narrow market definition, one adopted by design, is not always a limitation.


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Personal Computer Market Demand

Knowing the maximum number of units that can be consumed by the definedmarket is of great strategic importance to a business: After a market reaches

its full potential and saturates, new customers will be hard to find.


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Estimating Market Potential - PCs MBM6Chapter 3

The first step is to define the geographical boundaries and the consumingunits. The consuming units could be defined in terms of individuals, families,

households, businesses, or other purchasing entities.

MarketingPerformance

Tool 3.1


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Innovation and Market Potential

In order for the market to develop further, there must be a disrupt iveinnovat ionor a discont inuou s innovat ion.

New technology application essentially goes unnoticed until it reaches a tipping

point, then develops more rapidly through cont inuous innovat ion.


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Types of Innovation


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Continuous Innovations

Continuous innovations:A modification to anexisting product

Sets a brand apart from

the competition Consumers dont need to

learn anything new;change is minimal

Knockoffs copy (with slight

changes) the design of anoriginal product


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Dynamically Continuous Innovation

Dynamically continuous innovation:A pronounced modification to an existingproduct

Requires a modest amount of learning or behaviorchange


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Discontinuous Innovations

Discontinuous innovation:

A totally new product

Creates major changes in the way we live

Consumers must engage in a great deal of new

learning


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Market Development and Potential

Each of these productshad a well-defined

tipping point, followedby periods of rapid

growth and eventually

a leveling-off period asmarket demand

approached its marketpotential.

C F C


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Understanding Dynamicsof Market Demand

Throughout the ProductLifecycle

In this section we will look at howunderstanding market demand over time is an

important aspect of market planning andstrategy development.


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Factors of Market Development

Many new markets and most global markets are well belowtheir market potentials because large numbers of potential

customers have not yet entered them.


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Forces that Shape Market Growth

Developing and delivering a complete solution requires morethan improving the product and making it affordable to the

mainstream market.


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Forces Driving Market Growth

Products or serviceswith weak overallscores for bothcustomer forces andproduct forces

experience very slowmarket growth.

The best resultsnaturally occur when

both the customerforces and theproduct forces arestrong overall.


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Product-Market vs. Product Life Cycle

As the personal computer market has grown, along with the demandfor greater speed and capacity, Intel has gone through entire product

life cycles for several products, as the graph illustrates.

P d t Lif C l M k t


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Product Life Cycle, MarketDemand, and Profits

In the early stages of the product life cycle the net marketingcontribution (NMC) is negative. As the product moves through the

lifecycle, NMC will reach break-even, grow, peak, flatten, and beginto decline as market demand decreases.


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Average Selling Price

One of the reasons that demand grows as a productmoves through the growth stages is an ongoing decline

in the average selling price of the product.

Estimating Prod ct Life C cle


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Estimating Product Life-CycleDemand and Sales

Recognizing that volumes grow and prices decline in thegrowth stages of the product life cycle, we can estimate future

market demand and the MDI by projecting the assumed marketgrowth rate over a 3-year planning period.

Estimating Growth for


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Estimating Growth forMarket Demand and Sales

One of the benefits of estimating market potential is the ceiling it placeson market demand. Businesses that have enjoyed years of growth will

often project continued growth beyond the market potential.

Life Cycle Demand Margins and


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Life-Cycle Demand, Margins, andMarketing and Sales Expenses

Volume grows while theaverage price declines over theproduct life cycle

Prices tend to decrease fasterthan unit costs decrease

Margins per unit tend to

decline over the product lifecycle

MSE increase over theintroductory and early growthphases of the product life cycle

MSE as a percentage of salestend to level off as a productapproaches the maturity stage,and they decrease during thedecline stage

Marketing


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PC Life-Cycle Sales and Gross Profit MBM6Chapter 3


Tool 3.3

Profits can vary over the

product life cycle.

For PCs, we seecontinued growth beyondthe late growth stage inboth sales revenues and

market demand in units.

Slower growth in volumeand declining prices willcontribute to lowermargins and lowerindustry gross profits.

This modest declineoccurs as the PC marketmoves from late growth tothe maturity stage.

Customer Focus Customer


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Understanding How MarketShare is Achieved and

Evaluating ShareStrategies

In this section we will look at how, for a given market andthe markets potential for development, a business can

determine its best opportunities for sales growth,depending on its potential to grow share.

MBM6

Marketing


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Market Share Performance Tree MBM6Chapter 3Marketing

PerformanceTool 3.2

Moving from bottom to top, each stage of the market share performancetree indicates how the customer response to a strategy influences market

share. The first step is to identify the sequence of events that have totake place for a customer purchase to occur.


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Market Share Index vs Actual

Benefits of MSI:

Helps identify the majorcauses of lost market shareopportunity

Provides a mechanism forassessing market share

change when improvementefforts are directed to an areaof poor performance

Enables a business toestimate a reasonable

potential for its market share


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Market Share Potential Index

For each level of the tree, the share performance gap indicates the extentof lost market sharedue to the lower customer response rates.

Establishing a desired level of respons eat each level of the performance

tree provides a basis for estimating market share potential.


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MDI vs SDI

By combining the Market Development Index(MDI)with the ShareDevelopm ent Index(SDI), a business can discover whether they should focus

on market development or share development or both, depending on theproducts position in the growth opportunity portfolio.

Using Market and Share Metrics MBM6

Marketing


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Using Market and Share Metricsto Build Sales Forecast

MBM6Chapter 3


Tool 3.4

Adding the MDIand SDIto a sales forecast provides a way to understandthe potentialfor future sales growth. Above we see that there is plenty of

market growth beyond year 3 of the sales forecast.

demand forecasting

Documents

market share

market development

market reachesits

market potentialin order

marketbased management

narrow focus

new product

customer focus