Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Measuring Market Opportunities: Forecasting and Market Knowledge 5 C H A P T E R FIVE

5-2 A Forecaster’s Toolkit oImportance of knowing the size of the potential market oMarket potential estimate as a starting point for preparing a sales forecast

5-3 Sales Forecast oTwo broad approaches for preparing a sales forecast are: oTop-down approach oA central person takes responsibility for forecasting and prepares an overall forecast oBottom-up approach oEach part of the firm prepares its own sales forecast, and the parts are aggregated to create the forecast for the firm as a whole oCommon in decentralized firms

5-4 Methods for Estimating Market Potential and Forecasting Sales oStatistical methods oObservation oSurveys or focus groups oAnalogy oJudgment oMarket tests

5-5 Statistical Methods oAdvantages oUseful in established firms for established products oLikely to result in a more accurate forecast than other methods under stable market conditions oLimitations oAssumes the future will look very much like the past oRequires history oNot useful for new products with no history

5-6 Observation oAdvantages oBased on what people actually do oLimitations oTypically not possible for new-to-the-world products oRequires prior examples to observe

5-7 Surveys or Focus Groups oAdvantages oMany different groups of respondents can be surveyed oDoes not require history or prior examples oLimitations oWhat people say is not always what they do oPeople may not be knowledgeable, but when asked their opinion, they may provide it oWhat people imagine about a product concept in a survey may not be what is actually delivered once the product is launched

5-8 Analogy oAdvantages oRequires no history nor prior examples oBest for new product forecasting where neither statistical methods nor observations are possible oUseful for new-to-the-world high-technology products oLimitations oThe proposed new product is never exactly like that to which the analogy is drawn oMarket and competitive conditions may differ considerably from when the product was launched

5-9 Judgment oAdvantages oThose with sufficient forecasting experience in a market they know well, may be quite accurate in their intuitive forecasts oLimitations oOften difficult to defend forecasts against those prepared by evidence-based methods when the two differ

5-10 Market tests oAdvantages oClosest forecasting method to the true market oLimitations oExpensive to conduct oCompetitors can deliberately distort market conditions to invalidate the test

5-11 Mathematics Entailed in Forecasting oChain ratio method oBrand or category indices

5-12 The Adoption Process oInvolves the attitudinal changes experienced by individuals from the time they first hear about a new product, until they adopt it

5-13 The Adoption Process (continued) oAdoption rate of the process depends heavily on: oRisk oRelative advantage oRelative simplicity oCompatibility with current ideas and behavior oEase of small-scale trial oEase of communication of benefits

5-14 Diffusion of Innovation Curve

5-15 Cautions and Caveats in Forecasting oKeys to good forecasting oMake explicit the assumptions on which the forecast is based oUse multiple methods oCommon sources of error in forecasting oForecasters are subject to anchoring bias oCapacity constraints are sometimes misinterpreted as forecasts oIncentive pay: bonus plans cause managers to artificially inflate or deflate forecasts oUnstated but implicit assumptions can overstate a well-intentioned forecast

5-16 Market Knowledge Systems oFour commonly used market knowledge systems are: oInternal records systems oMarketing databases oCompetitive intelligence systems oClient contact and salesforce automation systems

5-17 Marketing Research oIntended to address carefully defined marketing problems or opportunities. oQuestions to be asked by a critical user of marketing research: oWhat are the research objectives? Will the proposed study meet them? oAre the data sources appropriate? Secondary or primary? Qualitative or quantitative? oIs the research itself well designed? oAre the planned analyses appropriate?