Measures of market demand

One major reason for undertaking marketing research is to identify market opportunities. Once the research is complete, the company must measure and forecast the size, growth, and profit potential of each market opportunity. Sales forecasts are used by finance to raise the needed cash for investment and operation; by the manufacturing department to establish capacity and output level; by purchasing to acquire the right amount of suppliers; and by human resources to hire the needed number of workers.

Marketing is responsible for preparing the sales forecasts. If its forecast is far off the mark, the company will be saddled with excess inventory or have inadequate inventory. Sales forecasts are based on estimated of demand. Managers need to define what they mean by market demand. Here is a good example of the importance of defining the market correctly.

Coca – Cola

When Roberto Goizueta became CEO of Coca-Cola, many people thought that Coke’s sales were maxed out. Goizueta, however, reframed the view of Coke’s market share. He said Coca–Cola accounted for less than 2 ounces of the 64 ounces of fluid that each of the world’s 4.4 billion people drank on average every day. “The enemy is coffee, milk, tea, water,� he told his people at Coke, and he ushered in a huge period of growth.

The Measures of Market Demand

Companies can prepare as many as 90 different types of demand estimates. Demand can be measured for six different product levels, five different space levels, and three time levels.

Each demand measure serves a specific purpose. A company might forecast short –run demand for a particular product for the purpose of ordering raw materials, planning production, and borrowing cash. It might forecast regional demand for its major product line to decide whether to set up regional distribution.

Forecasts also depend on which type of market is being considered. The size of a market hinges on the number of buyers who might exist for a particular market offer. But there are many productive ways to break down the market.

The potential market is the set of consumers who profess a sufficient level of interest in market offer. However, consumer interest is not enough to define a market. Potential consumers must have enough income and must have access to the product offer.

The available market is the set of consumers who have interest, income, and access to a particular offer. For some market offers, the company or government may restrict sales to certain groups. For example, a particular state might ban motorcycle sales to anyone less than 21 years of age. The eligible adults constitute the qualified available market — the set of consumers who have interest, income, access, and qualifications for the particular market offer.

The target market is the part of the qualified available market the company decides to pursue. The company might to concentrate its marketing and distribution effort on the East Coast. The company will end up selling to a certain number of buyers in its target market.

The penetrated market is the set of consumers who are buying the company’s product.

These definitions are a useful tool for market planning. If the company is not satisfied with its current sales, it can take a number of actions. It can try to attract larger percentage of buyers from its target market. It can lower the qualifications for potential buyers. It can expand its available market by opening distribution elsewhere or lowering its price; or it can reposition itself in the minds of its customers.