Analysis for Marketing Planning Market Sensing: Measuring Marketing Opportunities Industry Analysis

What is Market Sensing? Open-minded inquiry about market, competitors, and customers Disseminating the information Making sense about the information Using the information to make strategic decisions Evaluating outcomes

Measuring Marketing Opportunities Potentials Market potential Area potential Sales potential

Comparing Potential to Actual Market Potential Primary (Basic) Demand Gap Market Demand Selective (Company) Demand Gap Company Demand

Why Estimate Potentials? To evaluate market opportunities, i.e., entry/exit decisions To make resource-level decisions To make location, salesforce, and advertising decisions To set objectives and evaluate performance To help with developing forecasts

How to Estimate Potentials Often relies on: Assumptions. Published data (industry publications, gov’t sources). Variables that correlate closely to market potential.

Market Potential MP=N x P x Q MP=market potential N=number of possible buyers P=average selling price Q=average number purchased by each buyer

Example: What’s the market potential for CD’s? Assumptions: Everyone in U.S. > 14 years buys, on average, 4 CD’s per year at ave. price of $14/CD

Area Potential General Sales and Marketing Management buying power index: Area potential = 0.2 x (% of area population) + 0.3 x (% of area retail sales) + 0.5 x (% of area disposable income)

Sales Potential Market potential x potential market share

Demand: Forecasts To answer “what-if” questions To help set budgets To provide a basis for a monitoring system To aid in production planning To help financial analysts value a company

Planning Assumptions Forecasts are based on assumptions about: customer behavior past and planned product strategies competitor actions the environment Forecast a range of possible outcomes

Subjective or Judgment-Based Forecasting Methods Naïve extrapolation Sales force composite Jury of expert (executive) opinion

Customer-Based Forecasting Methods Market surveys Market tests

Sales Extrapolation Forecasting Methods Moving Average 1st Qtr 2000 $500K 2nd Qtr 2000 $600K 3rd Qtr 2000 $700K 4th Qtr 2000 $600K 1st Qtr 2001 $633.3K Average = $600K Average = $633.3K Average = $644.4K

Percent Rate of Change 1st Qtr 1998 $100K 1st Qtr 1999 $125K To predict sales for 1st quarter 2000: % change=25% Sales = $125K + ($125K x .25) = $125K + $31.25K = $156.25K

Regression Sales = b0 + b1(time) (base + trend) Sales = b0 + b1(advertising) + b3(price) + b4(competitors’ prices) + b5(competitors’ advertising) + b6(disposable income)

Leading Indicators

Estimating Market Share Market share index = product awareness x (70%) product attractiveness x (65%) intention to buy x (60%) product availability x (60%) product purchase (50%) = 8%

Market Development Index What’s the potential for the market to develop? MDI= current market demand maximum market potential X 100

Interpreting MDI MDI < 33 Considerable market growth potential. Can grow market with high prices and basic benefits.

MDI 33-67 Growth is possible, but need to offer more product variations and lower prices; expanded distribution.

MDI>67 Still room for market growth, but more difficult. Need very customer-focused solutions.

Industry Analysis Why is industry analysis an essential component of marketing planning?

Market Attractiveness Size, growth, & competitive intensity of a market Is the industry sufficiently attractive to warrant investment in it?

What are the Bases for Industry Analysis? Aggregate market factors Competitive factors Environmental factors

Five Forces Model New Entrants Industry Competitors Intensity of Threat of new entrants Industry Competitors Intensity of Rivalry Suppliers Bargaining power of suppliers Bargaining power of buyers Buyers Threat of substitutes Substitutes

Attractiveness to Entrants