Session Market Scanning

Session Outline Micro-environment Factor Analysis Market Build-up Method Market Share Analysis

This Session Weekly Activity: ANZSIC Codes Visit the Australian Bureau of Statistics website (www.abs.gov.au) and find out what are the 2 digit codes for each of the industry group categories Also determine what are the additional digit codes for the particular industry Using your business idea, match this with an industry code Locate an ABS publication that lists these codes for you If you have problems try searching under Catalogue number 1292.0 Report on your research (Word Count: 200 – 300).

Microenvironment The forces close to the organization that impact on marketing decisions and affects its ability to serve its customers: Organization itself Direct suppliers Market channel members Customer markets Direct competitors

Topic Example Video The following video outlines how the Micro-environment relates to the Macro-environment. Take note of the key points. http://www.youtube.com/watch?v=YfR2Qq7plvQ

Market Definition—A place where buyers and sellers meet, products or services are offered for sale, and transfer of ownership occurs. Demand made by a group of potential buyers for a product or service. Market demand factors: People or firms with needs and wants. Their purchasing power. Their buying behaviour.

Total Market Potential It is the maximum number of sales that might be available in an industry for a given period. A common way to estimate this is as follows: Q = n x q x p where Q = total market demand n = number of buyers in the market q = quantity purchased by an average buyer in one year p = price of an average unit

Topic Example Video The following video outlines how you can calculate market potential. Take note of the key points. http://www.youtube.com/watch?v=6CMkJQQxVWA

Activity: Book Buyers Team-based exercise: Potential Book Buyer Market Estimate the number of book buyers in a year In groups of 3 – 4, estimate the number of people you believe would buy books each year in Brisbane. Issues you might want to consider would include: Total population less “non buyers” (suspect pool) Average number of books purchased per person Average price per book Discuss the accuracy of this estimate and how you might verify your estimate with other methods Time: 15 – 20 minutes.

Current Market Demand There are three aspects of current market demand that should be estimated: total market demand area market demand actual sales and market share

Market Demand The total volume for a specific product, purchased by a given market segment, from a defined geographical area where maximum output and set environmental conditions exist.

Market share The proportion of the business’ sales compared with the total industry. Usually expressed as a percentage.

Topic Example Video The following video explains how to calculate market share. Take note of the key points. http://www.youtube.com/watch?v=3Y5KdCr2aog

Forecasting Market Share 1. Calculate market demand 2. Determine number of competitors 3. Estimate market share Industry averages method Pareto principle method 4. Set yearly market share targets.

Example: Coffee Shop Using the Industry Averages Method to estimate market share: 1. Determine if there are any statistics specifically relating to coffee shops. Australian Bureau of Statistics – Cafes and Restaurants (8655.0) 2. Review what statistics are provided.

Example: Coffee Shop Cafes and Restaurants: No. of businesses No. of persons employed Income Expenses Operating profit before tax Operating profit margin Periods: 1998-99 and 2003-04 Is there enough data provided to a market share average? Can a forecast trend be calculated?

Example: Coffee Shop Specific business: Unlicensed café and restaurant 2003-04 3167/15083 (21%) businesses $10129.6M x 21% = $2126.9M incomes $2126.9M/3167 = $671,600 per business PA 1998-99 2861/12845 (22.3%) businesses $7174.3M x 22.3% = $1599.9M income $1599.9M/2861 = $559,200 per business PA

Example: Wine in China Obtain information from various websites to estimate market share: 1. Determine if there are any statistics specifically relating to importing Australian wine into China. www.austrade.gov.au www.winechina.com 2. Review what statistics are provided.

Example: Wine in China Available data: market growth main consumption areas major importing countries total market size import wine market size major Australian suppliers Chinese wine drinker preferences Chinese wine drinker profile product preferences

Pareto Principle Application Using the Pareto Principle From ABS, all that is required are: No. of Businesses Income Pareto Principle Large: 80% revenue/20% businesses Medium: 15% revenue/30% businesses Small: 5% revenue/50% businesses

Example: Coffee Shop 1998-99 Large: Medium: Small 2003-04 Large: ($7174.3M x .8) / (12845 x .2) = $2.24M per business Medium: ($7174.3M x .15) / (12645 x .3) = $283,700 per business Small ($7174.3M x .05) / (12845 x .5) = $55,900 per business 2003-04 Large: ($10129.6M x .8) / (15083 x .2) = $2.69M per business Medium ($10129.6M x .15) / (15083 x .3) = $335,600 per business Small ($10129.6M x .05) / (15083 x .5) = $67,200 per business

Example: Coffee Shop Conclusions: Growth market: $22,480 average growth per year. Business Income Projection Large: $2.69M Medium: $335,600 Small: $67,200 Average: $671,600 What would be other factors that could influence revenue projection? Floor space Location

Example: Coffee Shop So what does this all mean when it comes to making a forecast? Use your judgement! The revenue projection for a small coffee shop appears to be quite low. 5 years time: medium size business Revenue $335,600 PA Start up: $223,200 PA ($335,600 – $112,400) Average growth per year: $22,480

Example: Wine in China Conclusions: Growth market: 1.3M litres average growth per year. Australian Wine Sales Revenue: $86M ($4 per 1 litre) Chinese Target Market Cities: Shenzhen & Chenghu Red Wine Flavour Preference: fruity, berry, vanilla with a touch of sweetness (50% preference for light flavours) Target customer: middle class Chinese Major Australian player: Orlando What would be other influence factors? Screw caps - better for premium and aged wines.

Example: Wine in China So what does this all mean when it comes to making a forecast? Use your judgement! Can I get a list of Australian wine exporters into China? What about promoting Queensland wines, ie Granite Belt? (suit Chinese wine preferences) What import requirements are there for wine into China? (check with Austrade) Can I calculate my market share?

Activity: Data Projector Market In groups of 3 – 4, Discuss how you might calculate the size of the data projector market. What factors do you think need to be considered to arrive at an accurate estimate? Comment on the use of ABS statistics in this scenario and explain your options. Each group to explain their reasoning. Time: 10 – 15 minutes.

International Statistics It is important to cross-reference international statistics with other sources. For example, you visited the Chinese Government website (www.gov.cn/english) for statistics and it directed you to the statistics website: www.stats.gov.cn/english/index.htm Statistics from a country’s government website needs to be compared against other countries foreign trade statistics to determine accuracy.

Foreign Trade Statistics Australia www.austrade.gov.au www.dfat.gov.au USA http://dataweb.usite.gov www.buyusainfo.net United Kingdom www.uktradeinfo.com Foreign Trade Portal www.foreign-trade.com

International Statistics Australia www.abs.gov.au USA www.census.gov United Kingdom www.statistics.gov.uk United Nations http://unstats.un.org China www.stats.gov.cn/english/index.htm

Foreign Language Websites Make a note (save or copy) of the Foreign Language website URL that requires translation. In the internet browser bar, enter: http://translate.google.com.au. This will bring up the Google Translate website. In the Google Translate toolbar, enter in the Foreign Language website URL details and select the language that it needs to be translated into. Briefly wait until the website appears in the language selected.

Activity: Floor Cleaner Suppliers Using at least 2-3 of Yellow Pages directories determine how many Floor Cleaner Liquid suppliers there are in South Korea. Try using as references: www.koreayellowpage.net and www.southkoreapages.com Were you successful? Consider how difficult or easy it was. Now use the supplier database (www.alibaba.com) for local suppliers in South Korea Use Boolean Operators to narrow your search Analyse your search results and list organisations.

Estimating Area Market Demand There are two major methods or approaches to estimate market potential in different cities, states or countries: market buildup method is used primarily by business goods firms market factor index method is used primarily by consumer goods firms

Chain Ratio Method This method involves multiplying a base number by several adjusting percentages. It provides a rough estimate of potential demand however using additional qualifying factors will yield more accurate refined estimates.

Activity: Light Beer Drinkers Team-based exercise: Potential Light Beer Market Estimate the market potential for a new light beer In groups of 3 – 4, determine what you might use as your base number and then decide what qualifying factors you would consider to estimate. Qualifying factors might include: Discretionary income Alcoholic beverage expenditure Light beer consumption comparisons Discuss what other qualifying factors you additional consider to improve the accuracy of your estimate Time: 15 – 20 minutes.

Market Build-up Method A forecasting method that calls for identifying all the potential buyers in each market and estimating their potential purchases.

Market Build-up Method This is often referred to as zero-based sales forecasting. 1. Market identification Define market for product/service being researched by checking all the applicable industries (ANZSIC manual). 2. Market diagnosis (a) Diagnose the basis for estimating the number of organisations within that industry that are likely to use the product/service.

Market Build-up Method (b) Estimate the extent of market saturation: User industry Number of competitors Market growth rate. 3. Market demand Determine the product/service business potential, ie. (no. of units) an organisation of a particular sized should have in their possession or consume within a given timeframe.

Market Build-up Method 4. Market potential (a) compute the market potential for each size of organisation (b) compute the total market potential by totalling up all the different organisational size market potentials When working out market potential, it should be calculated both by: Number of units and Dollar value (average $ value per unit).

Market Build-up Method 5. Sales potential (a) estimate the total replacement sales potential (existing user survey, ABS census, industry information ) (b) estimate the total number of new sales potential (marketing intelligence information) 6. Compare market potential with sales potential This provides useful information for future planning.

Market Build-up Method 7. Sales forecast (a) estimate market share positions (own and competition) (b) assess competitor’s marketing efforts (c) set organisational marketing strategy (d) forecast organisation’s market share for next period (13 months) (e) forecast organisation sales (eg. Sales potential x market share %) (f) prepare detailed sales forecast (monthly sales) (g) incorporate sales forecast into business plan.

Market Build-up Method Source ANZSIC codes, ABS User surveys, experience ABS data, user surveys Marketing intelligence, sales reports Phases Market identification Market diagnosis Market demand Market potential Sales potential Potential comparison Sales forecast

Market Build-up Method

ANZSIC Categories

ANZSIC Codes ANZSIC range Industry group Division A Agriculture, forestry & mining Division B Mining Division C Manufacturing Division D Electricity, gas & water supply Division E Construction Division F Wholesale trade Division G Retail Trade Division H Accommodation, cafes and restaurants

ANZSIC Codes ANZSIC range Industry group Division I Transport & storage Division J Communication services Division K Finance & insurance Division L Property & business services Division M Government administration & defence Division N Education Division O Health & community services Division P Cultural & recreational services Division Q Personal & other services

ANZSIC Codes ANZSIC code sub-classification for the clothing and footwear category: ANZSIC code Industry group 22 Textile & footwear, leather 224 Clothing 2241 Men’s trousers & shorts; work wear 2242 Men’s suits & coats; waterproof clothing

Identify Market (Mining)

Market Diagnosis (Mine Types)

Market Demand (Location)

Market Potential

Activity: Wood Lathe Buyers Team-based exercise: Potential Wood Lathe Buyers Estimating the market potential for wood lathes In groups of 3 – 4, map out the approach you would adopt to determine the market potential for a wood lathe manufacturer based on the east coast of Australia. What strategy would your group recommend to the manufacturer? Discuss the various options. Time: 15 – 20 minutes.

Market factor-index method A forecasting method that identifies market factors that correlate with market potential and combines them into a weighted index.

Topic Example Video The following video provides some tips on analysing buying power. Take note of the key points. http://www.youtube.com/watch?v=RBb16H8PHdA

Buying Power Index A buying power index is based on three factors: the areas share of the nations disposable personal income, , retail sales and population. Each factor is weighted in accordance with it’s impact or the strength of the characteristic. Each weighting is made relative to the other factors and is therefore proportional. B% = (x)Y% + (y)R% + (z)P%

Buying Power Index B% = (x)Y% + (y)R% + (z)P% B% = % of total national buying power in area Y% = regional income / national income % R% = regional retail sales/national retail sales % P% = regional population/national population % (x) = product category $ / disposable income $ (y) = product category $ / retail sales $ (z) = product user population / product category user population

Buying Power Index

Example: Business Shirts A business shirt manufacturer wants to determine the Victorian market share. The estimate of the national market for business shirts is about $150M. The manufacturer’s current nationwide sales is $20M, about 16.7% of total potential market.

Example: Business Shirts To calculate the regional market potential for a location in question. (ie. Victoria) need to: 1. Determine the buying power index for business shirts. This is done using “household expenditure information or syndicated market research from research firms. 2. Use the BPI to calculate the regional market potential (ie. Victoria) The regional market potential is then used to calculate an organisation’s regional market share, ie. % of actual $ sales / regional market potential.

Example: Business Shirts B% = (x)Y% + (y)R% + (z)P% B% = % of total national buying power in area Y% = 24.8% = $1,151.5M / $4,649.0M R% = 14% = $100.0M / $715.6M P% = 25.2% = 1,617,281/6,430,171 males > 14 (x) = 0.5 (clothing $ / disposable income $) (y) = 0.3 ($1.65M / $7.16M) retail clothing (z) = 0.2 white collar workers / workers

Example: Business Shirts If the assumption is that the total national potential for business shirt sales in Australia is $150 Million, then Victoria’s share would be $32.46M. ($150M x 21.64%)

Next Session Weekly Activity: Understanding Markets Select a category of passenger car from the list used by VFACTS. To find this list, go to www.fcai.com.au and click on “sales”, “cars” & “segmentation criteria” in the top menu With this category as a basis, describe (or profile) a market segment that would be interested in buying a new vehicle, using each of the segmentation approaches discussed as sub-headings. Explain your approach for each sub-heading.