Corrugated Boxes Inc., manufactured corrugated and solid fiber boxes. Bill Harris, the sales manager, wanted to develop a method of estimating total market potential and his company’s sales potential in each major market in the United States. In order to study this problem, Harris used one county as model on how such a method might be developed. The county selected (Clay County) was located in the company’s home state and contained one of the company’s major markets.
Company sales in Clay County the previous year approximated $500,000, of which 80 percent was sold to firms in the food and kindred products industry (SIC 20) with remaining 20 percent being sold to electrical machinery manufacturers (SIC 36). Harris knew that company sales in Clay County were less than they could be because the company was not selling any fiber boxes to the other industries located in Clay County that were known to be moderate to heavy users of such boxes. If he could get information on these other industries and how much fiber box they purchased each year, Harris felt he could develop a good estimate of the total fiber box market potential in Clay County.
Harris developed a five step method he felt could be used to estimate the market potential for fiber boxes in Clay County. Using the most recent edition of Fiber Box Industry Statistics, published by the Fiber Box Association, Harris was able to identify 21 industries (i.e. two digit SIC codes) that consumed all of the Fiber box industry’s annual shipments. A recent edition of the Census Bureau’s annual Survey of Manufactures: General Statistics for Industry Groups and Industries revealed that total US shipments by the Fiber box industry the previous year were valued at approximately $4.36 billion. Thus, using the percentage shown, it was possible to estimate the value of Fiber box shipments used annually by each SIC industry. For example, the food and kindred products industry (SIC 20) was estimated to have used 26.9 percent of the total Fiber box industry shipments of $4.36 billion, or $1.17 billion worth of Fiber box. Similar estimates were made for each of the twenty other SIC industries. listed in Table below. These estimates represented the first step in Harris’ market potential estimation method.
The second step, was to ascertain total industry employment in each of the SIC industries listed in Table below. Harris was able to get these figures from the most recent edition of the Census Bureau’s County Business Patterns. For example, this publication showed that approximately 1,580,000 people in the United States were employed in the food and kindred products industry. US employment figures for the other 20 industries were also obtained from the same source.
In the third step, Harris the information obtained in step 1 and 2 to estimate the value of Fiber boxes annually per employees in each of the industries shown in table below. Since the food and kindred products industry had 1,580,000 employees and used $1.17 billion worth of Fiber box annually, Harris estimated that the food and kindred products industry in general used about $742 worth of Fiber box annually per employee. The same procedure was used for each appropriate SIC industry.
The fourth step in Harris’ method was to obtain from County Business Patterns the number of people employed in Clay County in each of the 21 industries using Fiber boxes. Most but not all of these industries operated in Clay County. For example, it was reported that 4,973 people were employed in the food and kindred products industry in Clay County. Harris was able to obtain the Clay county employment figures for 14 other Fiber box using industries with operations in the county.
Fiber Box Sales by Industry
SIC Industry % of total
Fiber Box Usage
20 Food and kindred products 26.9
21 Tobacco 0.8
22 Textile mill products 4.2
23 Apparel 1.6
24 Lumber products 0.9
25 Furniture and fixtures 4.1
26 Paper and allied products 9.7
27 Printing and publishing 1.5
28 Chemical products 5.9
29 Petroleum and refining 1.3
30 Rubber and plastics 3.1
31 Leather products 0.4
32 Stone, clay, and glass 10.4
33 Primary metal industries 0.9
34 Fabricated metal products 6.0
35 Machinery 2.7
36 Electrical equipment 5.5
37 Transportation equipment 3.8
38 Scientific instruments 0.6
39 Miscellaneous manufacturing9.2
90 Government 0.5
Harris then used the estimate of Fiber box usage per employee (obtained in step 3) and the Clay County employment per industry (obtained in step 4) to estimate the value of Fiber boxes consumed by industry located in Clay County. Since the food and kindred products industry used $742 worth of Fiber boxes annually per employee and currently employed 4,973 people in Clay County, Harris estimated the annual market potential for Fiber boxes from the food and kindred products industry to be $3,690,000 (or $742 times 4,973 employee). When Harris repeated this procedure for the other Fiber box using industries and summed all of the individual industry market potentials, the total was $9,230,000. Harris considered this the total annual market potential for Fiber boxes in Clay County. He also felt that similar estimates could be obtained for other markets by repeating these procedures for each of the company’s major market areas.
Company sales in Clay County last year totaled approximately $500,000 of which 80 percent (or $400,000) went to the food and kindred products industry. This meant that company sales to the food and kindred products industry in Clay County last year represented almost 11 percent of all Fiber box sales to that industry group ($400,000 divided by $3,690,000 market potential). However, the remainder of the company’s sales last year in Clay County ($100,000 — $400,000) was only a small percentage of the balance of the county’s market potential ($5,540,000 = $9,230,000 — $3,690,000). In light of these findings, Harris decided that the company’s sales potential in the Clay County market should be based upon the company’s sales accomplishments in the food and kindred products industry, where its market share was 10 – 11 percent. Thus, Harris thought Corrugated Boxes Inc., sales potential in Clay County should be set at about 10 – 11 percent of the $9,230,000 market potential estimate for Clay County, or somewhere between $923,000 and $1,016,000.