5.

Market Measurement

Vojtch Spil

The Importance of Market Measurement

Assessment of company competitiveness Base for financial plan company sales forecast Base for formulation of company strategy issued from market potential and sales potential

5.1 Absolute Market Indicators

Market size Market potential Market forecast Company sales Potential sales Sales forecast

The Scheme of Structure of Absolute Market Indicators

Future max Sales potential estimate Sales forecast

Past, present
One supplier

Company sales

All suppliers

Market size

Market potential

Market forecast

The Scheme of Structure of Absolute Market Indicators

Sales (K) Primary demand gap Selective demand gap
Market potential Market forecast
Market size

Sales potential Sales forecast

Company sales

time

5.1.1 Market Size

past or actual level of demand satisfied by all suppliers in given relevant market Leasing market
84,5 bil.K (2000), 96 bil.K (2001), 97 bil.K (2002)
Source : LN 21.2.2003

Mobile phone market

2.2 mil.units (2002), 2.7 mil. units (2001) Source : M&M
15/2003

5.1.2 Market Potential

Maximum sales opportunity that can be achieved by all sellers in a defined period of time
Number of PC (mil.unit)

Personal computer market development

1000 900 800 700 600 500 400 300 200 100 0

Diffusion
Market

potential

Market
penetration
1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030

Market Potential and Current Market Demand

Maximum Number of Potential Customers

Not Affordable
Lacks Benefits
Untapped Market Opportunity

Unable to use Not Available Not Aware

Current Market Demand

Developed Market

Untapped Market Opportunities

awareness
Potential customers are unaware of a product or do not fully or accurately understand its benefits

availability
Potential customers are aware, able to buy, have the desire to buy, but this product or service is not available in their geographic market

ability to use
Although the product is affordable and attractive, customers are not able to use it because of the use environment in which they operate, these customers lack the knowledge, other resources and/or requirements to make the product or service workable

Untapped Market Opportunities Benefit deficiency

The key benefits of the product or service are not important (or are even unattractive) to a subset of potential customers

Affordability
Regardless of product attractiveness or perceived benefits, the cost is simply too high for some consumers

5.1.3 Market Forecast

The estimate of future level of demand that will be met by all suppliers in the market

5.1.4 Company Sales

Past or actual level of demand which will be met by one supplier (company) Depends on market size and market share of company

5.1.5 Sales Potential

Maximum sales opportunity that can be achieved by one company in a defined period of time Depends on production capacity, on performance of distribution channels, on effectivity of communication, on buying behaviour

5.1.6 Sales Forecast

the estimate of future level of demand which will be met by one supplier (company) is based on a chosen marketing plan and an assumed marketing environment (market forecast and forecast of market share of company) is planned in years horizon

5.2 Relative Market Indicators

Market share (MS)
MS = company sales/market size

Penetration (PN)
PN = market size/market potential

Market share forecast (MSF)

MSF=sales forecast/market forecast

5.2.1 Market Penetration

Market penetration determines how many households from total population own given product (in the case of durables), in that case the product ownership is more important than purchase Market penetration also informs how many households from total population regularly or occasionally buy given product (in the case of FMCG e.g.cornflakes) Market penetration is described in percentage

5.3 Absolute Market Potential

Importance
Evaluating market opportunities Determining sales quotas and objectives Determining the number of retail outlets

Measurement

5.3.1 Importance of Absolute Market Potential

Evaluating market opportunities

for decision if introduce new product for decision if increase sales volume (market potential is significantly larger than market size) or if improve market share (market potential is pretty close to the market size)

Determining sales quotas and objectives Determining the number of retail outlets

5.3.2 Measurement of Absolute Market Potential (AMP)

Market-buildup method
AMP = n x p x q
n ... number of potential customers p ... average price of one product q ... average size of purchase (in units) in given period

Method of Chain Indeces

5.3.2.1 Method of Chain Indeces

Consecutive multiplying of initial numeric base by some indeces

Example of Method of Chain Indeces

Market potential for sales of CD ROMs in consumer market (Germany)
Household equipment with PC ..36 % Using PC for non-personal purposes ..78 % Household equipment with CD mechanics 81 % Household equipment with sound card ..76 %

K= 0,36 x 0,78 x 0,81 x 0,75 = 0,17 Potential market for selling of CD is calculated for 17 % of German households.

5.4 Relative Market Potential

Importance
Allocating promotion expenditures Allocating salespeople among territories Locating facilities

Measurement
Single-corollary factor approach Multiple-corollary factor approach

Targeting high potential markets

Buying Power Index (BPI)

BPIi = 0,5 dpi + 0,3 mi + 0,2 pi
pi ... percent of population mi ... percent of retail sales dpi ...percent of disposable net income

Measurement of Multiple Colorally Index (BPI)

BPI = buying power index

Region Olomouc Perov Vsetn Nov Jin

Population Net income per Retail sales per head (K) head (K) 169 000 90 800 86 200 115 600 14 759 12 010 12 045 12 263 6 600 6 089 5 425 6 713

MCI 91,33 51,41 49,17 61,48

5.4.3 Targeting High Potential Markets

Category development index (CDI) Helps to identify territories in which primary demand gaps are relatively large or small Brand development index (BDI) Assess selective demand gaps across territories PRIZM (Potential Rating Index by ZIP markets) Geo-demographic analysis split US populations to 40 clusters, each of which is internally similar on demographic and lifestyle grounds

Calculation of Category Development Index

Region Total A B C

Annual sales (th.K) 1 600 000 420 500 635 000 544 500

Number of households 80 000 29 000 17 000 34 000

Sales per one household (th.K) 20 15 37 16

Index 100 73 187 80

Summary of Strategies According to CDI and BDI

Brand development index
Supporting selective demand

Keeping position

Category development index

Withdraw from market ?

Supporting primary demand