Uses of Potentials

Allocation of marketing Resources: The primary use of information on market potentials has been in the allocation of marketing resources, especially the allocation of salesman. It is difficult to estimate a market-response function that is, the way a given group of potential customers will respond to various combinations of marketing inputs. Under ideal conditions, resources will be invested in each market until the incremental returns for each unit of resources invested is equal in each market and until further investment will yield a return smaller than could be obtained by investing elsewhere.

All selling efforts – sales force, advertising and non-advertising promotion should be allocated only after a consideration of potentials. In the most simple situation a market with 10 percent of the total potential should receive 10 percent of the sales effort say if New York has twice as much potential as Chicago.

Potential Not Sole Criterion for Allocating Sales Effort: The primary usefulness of market potentials is to focus attention on the relative worth of individual markets. No firm should, however, rely completely on such rankings as a basis for allocating sales resources. Potentials do not reveal the competitive structure of the market and the firm’s ability to exploit that market. For example, Los Angeles may represent a high potential to a given firm, but competition may be so strongly entrenched that the expenditures needed to gain a satisfactory brand share would be too great.

Actually, market responsiveness is a function of the potential, the competitive structure, and the firm’s input into the market. The latter includes managerial ability as well as adequate finances. Thus, the firm must appraise realistically its own abilities – both qualitatively and quantitatively.

The firm needs to augment its potential data with information about the competitive structure of the individual markets. One firm, for example ascertains the following information about each of its markets:

1. Number of brands in the market and the brand share of each.
2. Trend of each major brand’s market share over the past several years.
3. Amount of money spent by the major brands in advertising currently and over the past several years.
4. Price structure
5. Distribution structure with particular reference to the leading retail outlets and exclusive distributor franchises
6. Availability of evening local station television time.

These data are then used in connection with the company’s experience in the market plus the data on market potential. These factors form the basis for this firm’s allocation of its sales resources to the various markets.

In the Lotus super car illustration there was an unusual market potential situation. The company identified the potential customers as a small group of individuals (10,000-20,000) with high incomes and in a small age range. In a short time the firm would probably have a list of such individuals and would be able to measure relative potential by location with great accuracy. This situation occurs more frequently in industrial markets where the potential customers (firms in a given industry) may be known by the seller.

The ultimate objective is to make an optimum allocation of the sales resources among the alternative markets. This cannot be done precisely since it would require exact measurements, both short and long run, of the effect of a given increment of sales effort. However, a careful study of the potential and competitive structure should permit the firm to array the markets in order of their likelihood of response to sales efforts.

In general, sales resources (salesmen, supervisors, advertising, promotions) are allocated in proportion to potential; but as pointed out above, this is not always wise because of other factors, particularly competition. One firm, for example, decided to concentrate more of its sales resources in markets with smaller potentials because competition was less severe there and, it was concluded, more sales could be obtained per dollar spent than in the larger potential markets. —