Download - Unit 2-Chapter 5
DR. SILKY VIGG KUSHWAH
Market & Demand Analysis
MARKET & DEMAND ANALYSIS It involves the estimation of the
potential size of the market for the proposed product or service.
Basically it tries to answer 2 questions: What is the likely aggregate demand for
the product/service? What share of the market will the proposed
project enjoy?
STEPS INVOLVED IN MARKET & DEMAND ANALYSIS
Situational analysis & specification of objectives
Collection of secondary information Conduct of market survey Characterization of the market Demand forecasting Uncertainties in demand forecasting Market planning
SITUATIONAL ANALYSIS & SPECIFICATION OF OBJECTIVES
The project analyst may informally talk to customers, competitors, middlemen, and others in the industry.
Specification of objectives can be in the form of questions like: Who is the buyer of the product? What is the total current demand of it? How is the demand distributed over the
year and geographically?
What price will be the customers will be willing to pay for the product?
How can potential customers be convinced about the product?
What channels of distribution are most suited for the product?
COLLECTION OF SECONDARY INFORMATION
In order to answer the questions listed in the previous slide, information may be obtained from secondary data and/or primary data.
The important sources of secondary data in India are as follows: Census of India National sample survey reports Plan reports Statistical year book Guidelines to industries
CONTINUE… Annual survey of industries Stock exchange directory Monthly bulletin of RBI Other publication Various association bodies
CONDUCT OF MARKET SURVEY Define the target population Select the sampling technique and
sample size Develop a questionnaire Recruit and train the field investigators Get the questionnaire filled Scrutinise the information gathered Analyse and interpret the information
CHARACTERISTICS OF THE MARKETBased on the information gathered form
secondary and primary data, market for the product/service may be described in terms of the following:
Effective demand in the past and the present Production + imports-exports-changes in
stock level
BREAKDOWN OF DEMAND
To get a deeper insight into the nature of demand, the aggregate demand may be broken down into demand for different segments of the market. Market segments may be defined by
Consumer groups Consumers of a product may be divided into
industrial consumers and domestic consumers. Industrial consumers may be sub-divided industry
wise. Domestic consumers may be divided into different
income groups.
Nature of product One product may be used for production of
different products. Ex: SteelPricePrice statistics must be gathered along
with statistics pertaining to quantities. It distinguish prices like wholesale price, retail price, etc
METHODS OF DISTRIBUTION & SALES PROMOTION
The method of distribution and sales promotion may vary with the nature of the product.
Such method and sales promotion employed presently and their rationale must be specified.
SUPPLY AND COMPETITION It is necessary to know the existing
sources of supply and whether they are foreign and domestic.
Competition from substitutes should be specified because almost any product may be replaced by some other product.
GOVERNMENT POLICY Govt. plans and policies, which have a
bearing on the market and demand of the product should be spelt out.
These are reflected in: Production targets in national plans Import and export trade controls Industrial licensing Credit controls Financial regulations subsidies
DEMAND FORECASTING An attempt is also made to estimate
future demand. Methods of demand forecasting are as follows:
Qualitative methods These methods rely essentially on the
judgement of experts to traslate qualitative information into quantitative estimates. The methods are
Jury of executive method Delphi method
TIME SERIES PROJECTION METHODS These methods generate forecasts on
the basis of an analysis of the historical time series. The important methods are: Trend projection method Exponential smoothing method Moving average method
Exponential smoothing methodIn this methods, forecasts are modified in the
light of observed errors. If the forecast value for a particular year is less than the actual value for that year than an observed error is entered for the future years.
Moving average methodAs per this method, the forecast for the next
period is equal to the average of the sales for several preceding periods.
Trend projection methodIt involves determining the trend of
consumption by analyzing the past and than project the future consumption.
CAUSAL STUDYThis method seeks to develop forecasts
on the basis of cause and effect relationship. The methods are:
Chain ratio method Consumption level method Leading indicator method Econometric method
CHAIN RATIO METHODThe potential sales of a product is
estimated by applying a series of factors to a measure of total demand.
Consumption level methodThis method estimates consumption
level on the basis of elasticity coefficients like income elasticity of demand. The formula is
Projected present per 1+ per capita Income
Per capita = capita change in elasticity
Demand demand income of
level demand
LEADING INDICATOR METHOD Leading indicators are variables which
change ahead of other variables, lagging variables. Hence, observed changes in leading indicators may be used to predict the changes in the lagging variables.
ECONOMETRIC METHOD This method uses the relationship
between the dependent and the independent variable to forecast the future demand.
The demand of a particular product is dependent on the price of the product at a given point of time.
UNCERTAINTIES IN DF Methods of forecasting
Inability to handle unquantifiable factors Unrealistic assumptions
Data about past an present market Few observations Lack of standardization of product, price,
quantity, cost etc Influence of abnormal factors like natural
calamity, war etc
Environmental changes Technological changes Change in govt. policy Discovery of new sources of raw material Monsoon Developments on the international scene
MARKET PLANNINGA marketing plan usually has the following
components: Current market situations
Market situations Size, growth, consumer aspiration & buying beh.
Competitive situations Major competitors, their objectives, strategies,
strength Distribution situations
Dist. Capabilities of the competitors Macro environment
Effect of social, political, economic, technological on the market
Opportunity and issue analysisA SWOT analysis is conducted and the
core issues before the product are identified.
ObjectivesObjectives have to be clear cut, specific
and achievable
MARKETING STRATEGIES Target segment Positioning
How a product is placed in the mind of customers
Product line One variant or more than one
Price Distribution Sales force Sales promotion Advertising
ACTION PROGRAMME
Action programme operationalise the strategy for the product.