1. Measuring Market Opportunities
PPT 5
Prof. S.Venkat

3. Discussion Question
1. What is market potential and why is
it important?
Market potential is the demand from all
actual and potential buyers of a product
or product class.

4. Discussion Question
2. Of the two main approaches for sales
forecasting - top-down and bottom-up which is better?

5. DEMAND FORECASTING ENTAILS
ESTIMATING SALES OF A PRODUCT DURING
SOME FUTURE TIME PERIOD.
• A sales forecast is an estimate or probable sales for one company’s
brand of the product during a stated time period in a specific
market segment and assuming the use of a predetermined
marketing plan.
– It is based on a specific marketing plan.
– It can be expressed in dollars or product units.
– It is best prepared after market potential and sales potential
have been estimated.
– It typically covers a 1-year period but may be longer.
– Marketing goals and broad strategies must be established
before a sales forecast is made.
– Once it is made, it becomes a key controlling factor in all
operational planning throughout the company.

6. Two Approaches to Forecasting Demand
Top Down
1. Forecast
economic
conditions
2. Determine
market
potential
3. Estimate
market share
4. Forecast sales
Bottom Up
2. Add individual
estimates to
get total
forecast
1. Estimate
demand in
market
segments or
from
organizational
units in the
company
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7. THERE ARE TWO BASIC PROCEDURES USED
TO FORECAST SALES:
• A “top-down” approach in which management:
– Develops a forecast of economic conditions and industry
trends.
– Determines the market potential for a product.
– Determines the sales potential for the product.
– Measures the share of this market the firm is currently
getting or plans to capture.
– Forecasts the firm’s sales of the product.
• A “bottom-up” approach in which management:
– Generates estimates of future demand from customers or
the company’s salespeople.
– Combines the estimates to get a total forecast.
– Adjusts the forecast based on managerial insights into the
industry, competition, and general economic trends.

8. Top-Down/Bottom-Up
• Both approaches have merits:
• Using both methods concurrently adds
confidence to the forecast, if both methods
produce similar results
• If the results of the two approaches differ, useful
discussions of the underlying assumptions will
be surfaced
• Each process typically has access to different
information, and will likely result in different
forecasts

9. Discussion Question
3. What are the advantages and limitations
of the various evidence-based
forecasting methods?

10. Statistical methods: advantages
-Useful in established firms for established products
-Likely to result in a more accurate forecast than other
methods under stable market conditions
Statistical methods: limitations
-Assumes the future will look very much like the past
-Requires history
-Not useful for new products with no history
Observation: advantages
-Based on what people actually do
Observation: limitations
-Observation is typically not possible for new-to-the-world
products
-Requires prior examples to observe

11. Surveys: advantages
-Many different groups of respondents can be surveyed, from
consumers to salespeople to suppliers, etc.
-Does not require history or prior examples
Surveys: limitations
-What people say is not always what people do
-The persons being surveyed may not be knowledgeable,
but when asked their opinion, they will probably provide it
-What people imagine about a product concept in a survey
may not be what is actually delivered once the product is
launched

13. Analogy: advantages
-Requires no history nor prior examples
-Best when used for new product forecasting where neither
statistical methods nor observations are possible
-Also useful for new-to-the-world high-technology products,
for which product prototypes are often either not available or
extremely expensive to produce
Analogy: limitations
-The proposed new product is never exactly like that to which
the analogy is drawn
-Market and competitive conditions may differ considerably
from when the analogous product was launched

14. Judgment: advantages
-Those with sufficient forecasting experience in a market they
know well may be quite accurate in their intuitive forecasts.
Judgment: limitations
-It is often difficult for them to defend their forecasts against
those prepared by evidence-based methods when the two
differ.

15. Market tests: advantages
-Closest forecasting method to the true market
Market tests: limitations
-Expensive to conduct
-For consumer products sold through supermarkets and
mass merchants, competitors can buy the data collected
through scanners at the checkout and learn the results
of the test market without bearing the expense.
-Competitors can deliberately distort market conditions
to invalidate the test

16. Discussion Question
4. How does one go from
methods to math?
• Chain ratio method
• Brand or category indices

17. Chain-Ratio Method
• What’s the logic behind the chain ratio
method?
1.# of households in target market times concept
purchase intent = # of households that will try if
aware
2.# of households that will try if aware times
awareness adjustment = # of households will try
if they find product at their store
3.# of households will try if they find product at
their store times distribution adjustment = #
who will try the product

19. Brand/Categories Indices
• What’s the logic behind brand or category
indices?
• Category Development Indices report the ratio of
consumption in a certain category to population in a
defined geographical area.
• Brand Development Indices compare sales for a given
brand to population in a defined geographic area
• Commonly used to assess whether a category or brand
has above-average or below-average penetration in
different geographic markets

21. Discussion Question
5. Why is looking at adoption
and diffusion important?

22. Ideas for new products or new
ventures: How do we know how fast
customers will adopt?
Source: Adapted with permission from Marketing, 11/e, Acetate 8-8, by Michael J. Etzel, Bruce J. Walker, and William J. Stanton. The McGraw-Hill Companies, Inc. © 1997.
All rights reserved.

24. ADOPTERS
Early
Late
Younger
Well educated
Older
Less educated
Higher income
Lower income
Innovators; cosmopolitan Totally local
Higher social status
Lower social status
Uses wider variety of
information sources and
many media
Limited media exposure;
limited reliance on outside
media; rely on local peer
groups
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25. WHAT IS ADOPTION AND DIFFUSION?
• > Adoption Process Stages
Awareness
– Individual is exposed to the innovation
– Becomes a prospect
• Interest
– Prospect is interested enough to seek information
25

26. WHAT IS ADOPTION AND DIFFUSION?
• > Adoption Process Stages
Evaluation
– Prospect judges the advantages and
disadvantages of a product and decides whether
to try it.
• Trial
– Prospect tries the product on limited basis. If
possible tries a sample.
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27. WHAT IS ADOPTION AND DIFFUSION?
• > Adoption Process Stages
Adoption
– Prospect decides whether to use the innovation
on a regular basis
• Confirmation
– Becomes a user who seeks assurances that the
decision to purchase the product is correct.
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28. Discussion Question
6. How fast will the adoption curve move
for a particular innovation?
Diffusion theory suggests that high penetration levels
are rare at the outset. Typically, first-year penetration
levels include some but not all of the innovators, i.e.,
less than 2½ percent will likely adopt in year one.

29. CHARACTERISTICS AFFECTING THE
ADOPTION RATE
• Relative advantage
– the degree to which an innovation is superior to
preceding ideas
• Compatibility
– the degree to which an innovation is consistent with the
cultural values and experiences of adopters
• Complexity or simplicity
– the degree to which an innovation is difficult to
understand or use
29

30. CHARACTERISTICS AFFECTING THE
ADOPTION RATE
• Trialability (Divisibility)
– the degree to which the new idea may be sampled
on some limited basis.
• Observability (Communicability)
– the degree to which the results of using the
innovation are observable or communicable to
others.
• Risk
– the degree to which buyer may lose money or not
get needs met
30

31. CHARACTERISTICS AFFECTING THE
ADOPTION RATE
Adoption Rate
Relative Advantage
Compatibility
Complexity
Trialability
Observability
Risk
31

33. Discussion Question
7. What makes for good forecasting?
What are common pitfalls?

34. Keys to improve the credibility and accuracy of forecasts of
sales and market potential
•Make explicit the assumptions on which the forecast is based
•Use multiple methods
Biases in forecasting
•Forecasters are subject to anchoring bias
•Capacity constraints are sometimes misinterpreted as
forecasts (production or service capacity is not a forecast)
•Incentive pay: bonus plans can cause managers to artificially
inflate or deflate forecasts
•Unstated but implicit assumptions can overstate a
well-intentioned forecast

35. Discussion Question
8.Where does the market knowledge come
from to help us assess markets and
industries, understand buyer
behavior, and prepare forecasts?

36. Four key kinds of systematic market knowledge systems
•Internal records
•Marketing databases
•Competitive intelligence systems
•Client contact systems
What are these? Explain
Plus marketing research targeted at particular marketing
challenges

38. Discussion Question
8. What questions should informed users
of marketing research ask, before
approving a study?

39. Questions to Ask Before Approving Research
1.
What are the research objectives?
Will the proposed study meet them?
2. Are the data sources appropriate?
Secondary or primary? Qualitative or quantitative?
3. Is the research itself well designed?
4. Are the planned analyses appropriate?