Market Market MeasurementMeasurement & & Forecasting Forecasting

Presented by:

Ishan Shukla

M.Pharma(I year,I sem )

MARKETMEASUREMENT AND FORECASTING1. One major reason for undertaking marketing research is to

identify market oppertunities. once the research is complete, the company must measure and forecast the size, growth, and profit potential of each market opportunity.

2. sales forecast are used by finance to raise the needed cash for investment and operations.

3. By manufacturing dept. to establish capacity and output levels, by purchasing to acquire the right amount for supplies.

4. By human recourse to hire the needed numbers of workers. 5. Marketing is responsible for preparing the sales forecast ,if

its forecast is far off the mark, the company will face excess or inadequate inventory. sales forecast are based on estimates of demand .

THE MEASURE OF MARKET DEMAND

Companies can prepare as many as 90 different types of demand estimates for

six different product levels, five space levels, three time periods.

Each demand measure serve a specific purpose. a company might forecast short-run demand for a particular product for the purpose of ordering raw materials, planning production, and borrowing cash it might forecast regional demand for its major product line to decide whether to set up regional distribution. the size of the market hinges on the number of buyers who might exist for a particular market offer. But there are many productive ways to break down the market.

1.THE POTENTIAL MARKET

2.THE AVAILABLE MARKET

3.THE TARGET MARKET

4.THE PENETRATED MARKET.

The Measures of Market Demand

Terms commonly used in Market Demand and Forecasting.

Market potential is a quantitative estimate of the total possible sales by all firms selling the same product in a given market. It gives an indication of the ultimate potential for the product for the industry as a whole, assuming that the ideal marketing effort is made.

Company potential refers to a part of the market potential; what an individual firm can achieve at the maximum in a given market; again under ideal conditions and on the assumption that the ideal marketing effort is made.

Market demand and company demand refer to those portions of that are achievable under existing conditions.

Market forecast is narrower in scope in comparison to market demand. It refers to that part of the market demand that will materialize with the level of marketing effort the industry will put in during the period of the forecast.

Company forecast means the sales forecast of the company. It refers to that portion of the company demand, which the company expects to capture with the chosen marketing effort.

MARKET FORECASTING

One of the steps , May the very first one, in the process of management is planning .Planning is understood as the process of setting goals and choosing the means to achieve these goals. Planning is essential for, without it, managers

cannot organize people and resources effectively. Meaning and Definition Forecasting is fundamental to planning .Forecasts are

statements about future, specifying the volume of sales to be achieved and equipment , materials and other inputs needed to realize the expected sales

A popular definition of forecasting is that, “It is estimating the future demand for products and services and the resources necessary to produce these outputs.”

Starting point in forecasting is sales or demand forecasting. Sales forecasts trigger all other forecasts in production function.

Market Demand Its total volume that would be bought by a defined customer group in a

defined geographical area in a defined time period in a defined marketing environment under a defined marketing programme.

•Market penetration index

•Share penetration index.

Need for Sales Forecasting1. New Facility Planning : Strategic activities such as designing and

building a new factory or designing and implementing a new production process, might take a long time, say five years. This requires long range forecasts of demand for existing and new products,

2. Production Planning : The rate of production must vary to meet the fluctuating demand from time to time (usually6 month to month) .A time period of several months may be necessary to change the capacities of production processes .Intermediate range demand forecast, helps operations managers get the lead time necessary to provide the capacity to produce the products to meet the variable monthly demands.

3. Work Force Scheduling: Where the demand for products and services varies from week to week, it is necessary to vary the work force levels to meet the varying demands by using overtime, lay-offs or hiring.

4.Financial Planning: Sales forecasts are the driving force in budgeting is used by many operations managers to plan and control the financial performance of their production department.

Measuring Market Demand

Firms need to assess, (i) Current market demand

(ii) Future market demand.Measuring Current Market DemandHere again, firms need to assess a. Total demand.

b. Area demand. Measuring area market demand: Area market demand refers to the demand within a particular

city, district, state, zone, or country. The two main methods used for estimating area market demand are: the market-buildup method and the market index method.

The market-build up method calls for identifying how many potential buyers there are in each market and estimating

the size of their potential purchases. The market-factor index method identifies market factors

that correlate with market potential and then combines them into a weighted index, such as the index of buying power.

Forecasting future Market demand

In forecasting future market demand too, we have two components:

Forecasting total demand

Forecasting area demand.

Once total demand is forecast, area demand can be forecast, using the same principles as in the case of measuring current demand.

Period Range of demand/Sales forecasts One can group demand forecasts into three types on the basis of time

frame of the forecast.Short-range forecast. Long-range forecast Perspective planning forecast.Short-range forecast helps in the year-to-year business/marketing planning. Such forecasts are usually made for one year and reviewed monthly, quarterly or half yearly. They are used for projecting cash flow of the enterprise and for planning various marketing activities like personal selling, advertising and warehousing. They are also used for planning the functions outside marketing, such as production, manpower and materials.Long-range forecast facilitates investment decisions at the time of starting a new industrial unit or while attempting expansion or diversification. Since industrial investment is often irrevocable and the pay-off period extends over a long term, demand forecasting for a longer term, say five to ten years will be essential for investment decisions. The margin of error may be relatively higher in such long-term forecasts. Yet, they would help the planning purpose. Sometimes, one comes across a still longer-term forecast, say for 15 or 20 years. Such forecasts are normally used for the purpose of perspective planning.

Sales Forecasting Methods

1. Jury method/ Executive opinion method (a) Top jury method. (b) Percolated jury method.2. Sales forecasting serves as the starting point for all activities of the firm and gives direction to all activities. It helps the firm to decide which produces are to be continued, which ones are to be dropped, which ones are to be added and which need modification. 3. The Delphi method.4. Sales force composite method.5. User expectation or End-use method or Survey of intentions.6. Market share method.7. Substitution/Replacement method.8. Market tests/Test marketing.9. Analytical and Statistical methods.10. (a) Simple projection method) Extrapolation method (c) Moving averages method (d) Exponential smoothing) Time series analysis (f) Regression analysis (g) complex econometric models11. Market survey method.

Market Share Method

Market Share Method: Sales forecast can be developed by yet another method – the market share method. The planned market share of the firm is the key factor in this method. The firm first works out the industry forecast, applies the market factor and deduces the company forecast. The market share factor is developed based on past trend, company’s present competitive position, its plans for the future, brand preference, etc. Such conversion of industry forecast into company sale forecast requires considerable expertise. Through a detailed marketing audit, the firm must correctly appraise its market standing, brand image, market share and strengths and weaknesses as compared with those of it’s the competitors in the industry. It must also correctly assess, through reliable marketing intelligence, its competitor’s plans, policies and activities. Only then, the market factor and therefore the sales forecast arrived at by this method will have a good degree of reliability. Retail audit will also be of considerable help in employing the market share method; it will help assess the industry position as well as the individual firm’s market share

Importance of Sales Forecasting Sales forecasting serves as the starting point for all activities of the firm and

gives direction to all activities. It helps the firm to decide which produces are to be continued, which ones are to be dropped, which ones are to be added and which need modification.

It enables the firm to identify its precise position in the market, this in turn, facilitates optimum utilization of resources, optimum penetration of markets, and optimum gains from marketing opportunities.

Sales forecasting forms the backbone of marketing. It provides not only the numbers regarding sales, but also vital clues regarding tastes, preferences and needs. Only with proper sales forecasting can the firm meaningfully handle its marketing planning and marketing strategy formulation. Only with sales forecasting again, can the firm fine tune its marketing objectives. And, only with sales forecasting can it develop its budgets. The sales forecast is the foundation for all marketing on physical distribution, promotion, sales force and pricing.

In short, the entire marketing mix, i.e. product, price, promotion, and distribution, revolves around the sales forecast

Expert Opinion Companies can also obtain forecasts from experts, including dealers, distributors,

suppliers, marketing consultants, and trade associations. Large appliance companies periodically survey dealers for their forecasts of short-term demand, as do car companies. Dealer estimates are subject to the same strengths and weakness as sales force estimates. Many companies buy economic and industry forecasts from well-known economic forecasting firms. These specialists are able to prepare better economic forecasts than the company because they have more data available and more forecasting expertise.

Past Sales AnalysisSales forecasts can be developed on the basis of past sales. Time series analysis consists of breaking down past time series into four components (trend cycle, seasonal, and erratic) and projecting these components into the future. Exponential smoothing consists of projecting the next sales by combining an average of past sales and the most recent sales, giving more weight to the latter. Statistical demand analysis consists of measuring the impact level of each of a set of causal factors (e.g. income, marketing expenditures, Price) on the sales level.

Market-test Method When buyers do not plan their purchases carefully or experts are not available or

reliable, a direct market test is desirable. A direct-market test is especially desirable in forecasting new-product sales or established product sales in a new distribution channel or territory.

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