Market

Measurement
&
Forecasting
Presented by:
Ishan Shukla
M.Pharma(I year,I sem )
MARKETMEASUREMENT AND
FORECASTING
n One major reason for undertaking marketing research is to
identify market oppertunities. once the research is complete,
the company must measure and forecast the size, growth, and
profit potential of each market opportunity.
n sales forecast are used by finance to raise the needed cash for
investment and operations.
n By manufacturing dept. to establish capacity and output levels,
by purchasing to acquire the right amount for supplies.
n By human recourse to hire the needed numbers of workers.
n Marketing is responsible for preparing the sales forecast ,if its
forecast is far off the mark, the company will face excess or
inadequate inventory. sales forecast are based on estimates of
demand .
 THE MEASURE OF MARKET DEMAND

 Companies can prepare as many as 90 different types of demand estimates for

six different product levels, five space levels, three time periods.
 The Measures of Market Demand
Each demand measure serve 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. the size of the 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.
1.THE POTENTIAL MARKET

2.THE AVAILABLE MARKET

3.THE TARGET MARKET

4.THE PENETRATED MARKET.

 Terms commonly used in Market
Demand and Forecasting.
 Market potential is a quantitative estimate of the total possible sales by all
firms selling the same product in a given market. It gives an indication of the
ultimate potential for the product for the industry as a whole, assuming that
the ideal marketing effort is made.
 Company potential refers to a part of the market potential; what an
individual firm can achieve at the maximum in a given market; again under
ideal conditions and on the assumption that the ideal marketing effort is
made.
 Market demand and company demand refer to those portions of that are
achievable under existing conditions.
 Market forecast is narrower in scope in comparison to market demand. It
refers to that part of the market demand that will materialize with the level
of marketing effort the industry will put in during the period of the forecast.
 Company forecast means the sales forecast of the company. It refers to that
portion of the company demand, which the company expects to capture with
the chosen marketing effort.
 MARKET FORECASTING
One of the steps , May the very first one, in the process of
management is planning .Planning is understood as the process
of setting goals and choosing the means to achieve these goals.
Planning is essential for, without it, managers cannot organize
people and resources effectively.
 Meaning and Definition
Forecasting is fundamental to planning .Forecasts are
statements about future, specifying the volume of sales to be
achieved and equipment , materials and other inputs needed
to realize the expected sales
A popular definition of forecasting is that, “It is estimating
the future demand for products and services and the resources
necessary to produce these outputs.”
Starting point in forecasting is sales or demand forecasting.
Sales forecasts trigger all other forecasts in production
 Market Demand
 Its total volume that would be bought by a defined customer group in a
defined geographical area in a defined time period in a defined
marketing environment under a defined marketing programme.

•Market penetration index

•Share penetration index.
 Need for Sales Forecasting
 New Facility Planning : Strategic activities such as designing and
building a new factory or designing and implementing a new
production process, might take a long time, say five years. This
requires long range forecasts of demand for existing and new
products,
2. Production Planning : The rate of production must vary to meet the
fluctuating demand from time to time (usually6 month to month) .A
time period of several months may be necessary to change the
capacities of production processes .Intermediate range demand
forecast, helps operations managers get the lead time necessary to
provide the capacity to produce the products to meet the variable
monthly demands.
3. Work Force Scheduling: Where the demand for products and services
varies from week to week, it is necessary to vary the work force levels
to meet the varying demands by using overtime, lay-offs or hiring.
4.Financial Planning: Sales forecasts are the driving force in budgeting is
used by many operations managers to plan and control the financial
performance of their production department.
 Measuring Market Demand

Firms need to assess,

(i) Current market demand
(ii) Future market demand.
Measuring Current Market Demand
Here again, firms need to assess
a. Total demand.
b. Area demand.
Measuring area market demand:
Area market demand refers to the demand within a particular city,
district, state, zone, or country. The two main methods used for
estimating area market demand are: the market-buildup method and
the market index method.
 The market-build up method calls for identifying how many
potential buyers there are in each market and estimating the size
of their potential purchases.
 The market-factor index method identifies market factors that
correlate with market potential and then combines them into a
weighted index, such as the index of buying power.
 Forecasting future Market
demand
In forecasting future market demand too, we have two
components:

 Forecasting total demand

 Forecasting area demand.

Once total demand is forecast, area demand can be forecast, using

the same principles as in the case of measuring current demand.
 Period Range of
demand/Sales forecasts
One can group demand forecasts into
forecast.
three types on the basis of time frame of the

Short-range forecast.
Long-range forecast
Perspective planning forecast.
Short-range forecast helps in the year-to-year business/marketing planning. Such
forecasts are usually made for one year and reviewed monthly, quarterly or half
yearly. They are used for projecting cash flow of the enterprise and for planning
various marketing activities like personal selling, advertising and warehousing.
They are also used for planning the functions outside marketing, such as
production, manpower and materials.
Long-range forecast facilitates investment decisions at the time of starting a new
industrial unit or while attempting expansion or diversification. Since industrial
investment is often irrevocable and the pay-off period extends over a long term,
demand forecasting for a longer term, say five to ten years will be essential for
investment decisions. The margin of error may be relatively higher in such long-
term forecasts. Yet, they would help the planning purpose. Sometimes, one comes
across a still longer-term forecast, say for 15 or 20 years. Such forecasts are
normally used for the purpose of perspective planning.
 Sales Forecasting Methods
1. Jury method/ Executive opinion method (a) Top jury method. (b)
Percolated jury method.
2. Sales forecasting serves as the starting point for all activities of the
firm and gives direction to all activities. It helps the firm to decide which
produces are to be continued, which ones are to be dropped, which
ones are to be added and which need modification. 3. The Delphi
method.
4. Sales force composite method.
5. User expectation or End-use method or Survey of intentions.
6. Market share method.
7. Substitution/Replacement method.
8. Market tests/Test marketing.
9. Analytical and Statistical methods.
10. (a) Simple projection method) Extrapolation method (c) Moving
averages method (d) Exponential smoothing) Time series analysis (f)
Regression analysis (g) complex econometric models
11. Market survey method.
 Market Share Method
Market Share Method: Sales forecast can be developed by yet
another method – the market share method. The planned
market share of the firm is the key factor in this method. The
firm first works out the industry forecast, applies the market
factor and deduces the company forecast. The market share
factor is developed based on past trend, company’s present
competitive position, its plans for the future, brand preference,
etc. Such conversion of industry forecast into company sale
forecast requires considerable expertise. Through a detailed
marketing audit, the firm must correctly appraise its market
standing, brand image, market share and strengths and
weaknesses as compared with those of it’s the competitors in
the industry. It must also correctly assess, through reliable
marketing intelligence, its competitor’s plans, policies and
activities. Only then, the market factor and therefore the sales
forecast arrived at by this method will have a good degree of
reliability. Retail audit will also be of considerable help in
employing the market share method; it will help assess the
industry position as well as the individual firm’s market share
 Importance of Sales
 Forecasting
Sales forecasting serves as the starting point for all activities of the firm and
gives direction to all activities. It helps the firm to decide which produces are to
be continued, which ones are to be dropped, which ones are to be added and
which need modification.
 It enables the firm to identify its precise position in the market, this in turn,
facilitates optimum utilization of resources, optimum penetration of markets, and
optimum gains from marketing opportunities.
 Sales forecasting forms the backbone of marketing. It provides not only the
numbers regarding sales, but also vital clues regarding tastes, preferences and
needs. Only with proper sales forecasting can the firm meaningfully handle its
marketing planning and marketing strategy formulation. Only with sales
forecasting again, can the firm fine tune its marketing objectives. And, only with
sales forecasting can it develop its budgets. The sales forecast is the foundation
for all marketing on physical distribution, promotion, sales force and pricing.
In short, the entire marketing mix, i.e. product, price, promotion, and
distribution, revolves around the sales forecast
Expert Opinion
Companies can also obtain forecasts from experts, including dealers, distributors,
suppliers, marketing consultants, and trade associations. Large appliance companies
periodically survey dealers for their forecasts of short-term demand, as do car
companies. Dealer estimates are subject to the same strengths and weakness as
sales force estimates. Many companies buy economic and industry forecasts from
well-known economic forecasting firms. These specialists are able to prepare better
economic forecasts than the company because they have more data available and
more forecasting expertise.
Past Sales Analysis
Sales forecasts can be developed on the basis of past sales. Time series analysis
consists of breaking down past time series into four components (trend cycle,
seasonal, and erratic) and projecting these components into the future. Exponential
smoothing consists of projecting the next sales by combining an average of past
sales and the most recent sales, giving more weight to the latter. Statistical demand
analysis consists of measuring the impact level of each of a set of causal factors (e.g.
income, marketing expenditures, Price) on the sales level.
Market-test Method
When buyers do not plan their purchases carefully or experts are not available or
reliable, a direct market test is desirable. A direct-market test is especially desirable
in forecasting new-product sales or established product sales in a new distribution
channel or territory.
Thank You