1. Measuring Market Opportunities: Forecasting and Market Knowledge
Chapter 5
Measuring Market Opportunities: Forecasting and Market Knowledge

2. Sales Forecast Top-down approach Bottom-up approach
A central person takes responsibility for forecasting
and prepares an overall forecast
Bottom-up approach
Common in decentralized firms
Each part of the firm prepares its own sales forecast
Advantages of bottom-up approach
Forces them to think clearly about the drivers of demand for each market segment or product line and thus better understand the real potential of their business and its parts.
Forced to make explicit:
Assumptions about the drivers of demand in each category.
Assumptions they could debate.
Support with evidence gathered from their research—with prospective investors and which they could later verify as the business unfolds.
Facilitated “what if” planning.

3. Statistical Methods Advantages Limitations
Useful in established firms for established products
Results in a more accurate forecast
Limitations
Assumes the future will look very like the past
When product or market characteristics change:
Statistical models used without adequate judgment may not keep pace
Statistical methods: Use past history and various statistical techniques, such as multiple regression or time series analysis to:
Forecast the future based on an extrapolation of the past.

4. Observation Advantage Limitation Based on what people actually do
Not possible for new-to-the-world products
Directly observe or gather existing data about what real consumers do in the product-market of interest.

5. Surveys or Focus Groups
Advantage
Methods can be done with various kinds of respondents and increasingly done online

6. Surveys or Focus Groups
Limitations
What people say is not always what they do
People may not be knowledgeable when asked their opinion
What people imagine about a product concept in a
survey:
May not be what is actually delivered once the product is launched

7. Analogy Advantages Used for new product forecasting where:
Neither statistical methods nor observations are possible
Useful for new-to-the-world high-technology products
Product is compared with similar historical data that are available.

8. Analogy
Limitations
New product and its pricing are never exactly like that to which the analogy is drawn
Market and competitive conditions may vary from when the analogous product was launched

9. Judgment Advantage Limitation
Is quite accurate when there is sufficient forecasting experience in known market
Limitation
Difficult to defend against evidence based methods

10. Experiments and Market Tests
Done:
Under controlled experimental conditions
In live test markets with real advertising and promotion and
distribution in stores
Limitations of test markets
Expensive to conduct
Competitors can engage in marketing tactics to mislead the company

11. Other Mathematical Approaches
Chain ratios and indices
Market potential is estimated and multiplied by fractional factors
Predict the portion of the overall market potential that one firm or product can expect to obtain
Instructor: See Exhibits 5.3 and 5.4

12. Diffusion of Innovation Theory
Explains the adoption of an innovative product or service over
time among a group of potential buyers
Useful to managers in predicting the likely adoption rate for:
New and innovative goods or services

13. Attitudinal changes experienced by individuals from:
The Adoption Process
Attitudinal changes experienced by individuals from:
The time they first hear about a new product, until they adopt it

14. Speed of the process depends on:
The Adoption Process
Speed of the process depends on:
Risk
Relative advantage
Relative simplicity
Compatibility with previously adopted ideas and behavior
Extent to which its trial can be accomplished on a small-scale basis
Ease with which the central idea of the new product can be communicated

15. Size and Characteristics of Individual Adopter Group
Innovators: Venturesome than later adopters
Receptive to new ideas and have high incomes
Reduces the risk of a loss arising from an early adoption
Early adopters: Opinion leaders
Serve as vital links to members of the early majority group
Participate more in community organizations than do later adopters

16. Size and Characteristics of Individual Adopter Group
Early majority: Display less leadership than early adopters
Active in community affairs
Do not like to take unnecessary risks
Want to be sure that a new product will prove successful before they
adopt it

17. Size and Characteristics of Individual Adopter Group
Late majority: Adopt a new product because they are forced to
do so for either economic or social reasons
Laggards: Participate less in community matters than members
of the other groups and stubbornly resist change

18. Exhibit 5.5 - Diffusion of Innovation Curve
Instructor: See Exhibit 5.8
Way to estimate how quickly an innovation is likely to move through the diffusion process is to construct a chart that rates the adoption on the six key factors influencing adoption speed.

19. Cautions and Caveats in Forecasting
Psychological biases
Common sources of error
Forecasters are subject to anchoring bias
Capacity constraints are sometimes misinterpreted as forecasts
Incentive pay
Unstated but implicit assumptions can overstate a well-intentioned forecast
Instructor: See Exhibit 5.10

20. Cautions and Caveats in Forecasting
Keys to good forecasting
Make explicit the assumptions on which the forecast is based
Use multiple methods

21. Market Knowledge Systems
Four commonly used market knowledge systems
Internal records systems
Marketing databases
Competitive intelligence systems
Systems to organize client contact
Instructor: See Exhibit 5.12
Internal records are needed to track what is selling, how fast, in which locations, to which customers, and so on.
Marketing databases capture information about:
Transactions
Instances of customer contact
Customer demographics
Customer responses
Competitive intelligence systems is a systematic and ethical approach for gathering and analyzing information about competitors’ activities and related
business trends.
Client contact systems
Salesforce automation software.

22. Intended to address carefully defined marketing problems or
Marketing Research
Intended to address carefully defined marketing problems or
opportunities
Questions to be asked by a critical user of marketing research
What are the research objectives? Will the data to be collected meet them?
Instructor: Refer to Exhibit 5.14

23. Marketing Research
Are the data sources appropriate? Is secondary data used?
Qualitative or quantitative?
Is the research designed well?
Are the planned analyses appropriate