Marketing aspects of Feasibility Study

The Marketing AspectsJeziel K. Camarillo

Marketing Aspects• To determine the extent to which the goods/ services

be generated by the project are needed or demanded and to design the appropriate marketing strategies and

plans that will help ensure that the project’s outputs will reach and be accepted by the target users.

Objectives of Marketing Study

To analyze the past and present demand and supply situations, expected future behaviours and the resulting demand –supply gaps as they relate to the outputs of the projects whether they carry market prices or not (e.g. Public goods).

To undertake the analysis, planning and formulation of workable marketing programs, product mix strategy, marketing mix and marketing organization that can effectively inform, motivate and service the markets.

Parts of Marketing Study:´1. Market Analysis

§Demand

§Supply

§Demand Supply Consolidation

´ 2. Marketing Planning

§Forecasting Techniques

Definition of a Market and General Market DefinitionMarket

an arena for potential exchanges that may involve money.

Where demand and supply conditions for goods or services are taken into account (with or without market selling price, e.g. Economic services such as primary health care, education, extension services. Etc.

It is essential for project to have a clear definition of the types and the nature of the products/ services to be generated by the projects, their specific uses, potential users, geographic influence area and other characteristics.

These type of general information will provide the basis for identifying the different areas of investigation necessary to the analysis of the product’s demand and supply and for setting the limits within which calculations have to be made.

Demand Analysis- involves the estimation of market demand for the output(s) of the proposed project.- it involves a. identification and analysis of demand determinants; b. estimation of past and present demand c. projection of future demand

Demand Determinants

Population Income Prices Substitution Possibilities Changes in users' taste rate of investments government policies and budget

* The relative importance of the above factors as demand determinants depends on whether one is analyzing consumer or producer demand for non marketed goods, such as social services

Consumer Demand or final demand reflects the demand for a product for final consumption

purposes (e.g. basic food commodities, housing, clothing, health care, basic educational services)

important consumer demand determinants are population, per capita income, consumer preference in the case of marketed goods and services.

population characteristics or may have to be specified as to age, gender, geographic distribution, social background, income class for more meaningful consumer demand analysis.

the relationship between some determinants such as income and prices and the demand for a consumer good can often be described mathematically (e.g. demand and income can be reflected in terms of income elasticity of demand)

Producer Demand or intermediate demand is the demand for a product which is used as

an input to the production of other goods and services: also called derived demand (e.g. demand for lumber, furniture, fuels for industrial purposes, demand for research, training, skills for various productive applications.

producers demand for the project's output depends on the nature of their production processes, scale of operations, rate of investment and ultimately on the level of demand for thier own product.

Demand for Social Services is a special case of consumer demand where services have no market

price, where needs are virtually unlimited, and where limiting factors is governments ability to pay, rather than consumer's income.

the demand for social services can be undertaken through an assessment of the adequacy of various type of social services provided by the public sector.

For instance the Health Sector the estimation of the level of need for public health services may be based on an analysis of health and nutrition indicators, e.g. disease patterns (morbidity rates), or proportion of people suffering from different types of diseases; disease mortality rates, or number of deaths due to these diseases; nutritional deficiencies which can be measured from the occurrence of diseases related through malnutrition, or through various antrometric measures like height and weight -for-age, or birth weight

Estimating Past and Present Demand

- once the determinants of demand have been identified, the past and present behavior of these determinants are examined to measure the prospective demand for the project's output. - the choice of quantitative and qualitative data to be analyzed should be highly selective and directly relevant to this purpose.

Sources of Data

data on demand can be obtained either first hand or from existing documentation or both. Proper judgment must be exercises in deciding which methods to use.

Existing Documentation(secondary statistics)- includes: statistics generated by government agencies, trade associations and firms; general surveys such as economic census, research institute studies; social services surveys (e.g. data on consumption of imported commodities may be obtained from the Department of Economic Research, Central Bank of the Philippines; National Census and Statistics Office; Bureau of Customs and private firms that compile data on imports.

* There is a tendency for some project planners to over-indulge in secondary data even when firsthand information is access able and cheap to generate.

*There is likewise an unfortunate tendency for planners to be selective in the secondary data used to avoid presenting data that will tarnish the image of the product of being laid out.

Sources of Data cont., Interviews and special surveys are usually used to supplement the

data collected from existing secondary sources.

For many projects however, it makes a lot of sense to rely on firsthand rather than structured surveys These should, however, be conducted with proper expertise.

In addition, costs of conducting the interviews/survey should be weighted against the quality and the extent of data needed.

Historical Data Coverage The period from which data on the quantitative and qualitative

aspects of demand are collected and synthesized depends on the following:

(1) Homogeneity of Statistics- statistics availed of should be comparable over the period, i.e.the same definitions are used, same geographical coverage holds,etc.

*In general the longer the period considered, the better the demand analysis and estimate. In some cases, however, the data available are limited to a few years, leaving no choice in the length of period to be used

Historical Data Coverage cont., (2) Factors which may have significantly changed the trend of demand for

the project output. It is important to take account of recent events and changes in government policies that may have affected the market.

For instance, historical data on log exports are no longer relevant in the face of recent policies limiting log exports. The project planner will thus have to rely on his own judgment when fixing a limit to his own inquiries into the past.

In general, statistics on basic products (steel, rice) can be used over a longer period while those on less essential goods and services, particularly those which are subject to dynamic changes in technology and involve wide product ranges (electronic devices) are significant for shorter period of 5 to 10 years.

Techniques for Demand Estimation (1) Standards Coefficients- for example the market demand for a

certain food product in a specific location maybe derived from actual per capita consumption estimates. Similarly, the demand for classrooms may be calculated on the basis of an accepted national planning standard such as classroom-pupil ratio.

(2) Chain Ratio Method- An example of the application of this method is when the demand for cow’s meat is estimated to be equal to: Population X Personal discretionary income per capita X Average percentage of food expenses spent on meat X average percentage of food expenses spent on cow’s meat.

Techniques for Demand Estimation cont.,(3) Market- Build-up Method- this is an aggregation of the potential

beneficiaries in each market. Since this method is a more direct approach to demand estimation, it is generally preferable.

• A good illustration is the project study on the feasibility of a poultry dressing plant for backyard raisers in particular province to be owned and operated by the government.

• *If the outlets of dressed chicken will be mainly the public markets, the potential demand estimated is shown below.

Name of Public Market No. of Poultry Meat Stalls Average No. of Dressed Chicken Sold Daily

Municipality A 15 450-500

Municipality B 16 400-600

Municipality C 4 100-150

Municipality D 7 250-300

Municipality E 8 350-400

Municipality F 10 300-400

Total 60 1,850-2,350

Projecting Demand-these are the various methods for estimating future demand, among which are the following:

-(1)Are based on the potential clients’ say they will do, a)survey of the people’s intentions and b) needs assessments;- -(2) Base on clients’ expected to do, a)expert’s opinions) b)time series analysis(trend projection);c)statistical demand analysis, d)use of planning standards (coefficients, international, or interregional data comparisons) and e)market (pilot project) testing.

* The choice of forecasting technique would depend on various factors including the quality and quantity of data available.

Techniques in Projecting Demand(1)Survey of people’s intentions and Needs Assessment- the

determination of whether and to what extent the target population feels a need for the outputs of a proposed project.

In general it entails the collection of information through field investigations where specific questions relating the outputs of the project under consideration to the actual and perceived needs of the target population are asked through direct contact with a sample of the population.

The results of needs assessment can also be used to verify what the intended beneficiaries want in contrast to the project designer’s assumptions.

Techniques in Projecting Demand cont.,(1)Survey of people’s intentions and Needs Assessment-

A useful way of finding out how the target market will react to the project output is by asking the potential beneficiaries themselves. (Random Sampling)

Example: Do You intend to use X product/ service

Yes ________ No ______ Don’t Know___

Total Market = Yes: Yes and No

(a)Don’t know= Yes/No (b) Don’t know = No

Refinements of this method can be made by incorporating the concept of probability.

A crude way is to include “Maybe” and give it 50% probability against 100% for Yes and 0 % percent for N0

Techniques in Projecting Demand cont.,(1)Survey of people’s intentions

and Needs Assessment-

A more elaborate way is to us e a

probability scale such as the example below:

most applicable in the following

circumstances: when number of beneficiaries

Is relatively small; the cost of reaching them

Is small; they follow their original intentions;

They are willing to disclose their intentions;

And when new good/service will be introduced

and thus no past data exist.

Probability (Expected Value)

Description

1.00 Certain/ Absolutely

.90 Almost Certain

.80 Very Probably

.70 Probably

.60 Good Possibility

.50 Average Chance

.40 Fair Possibility

.30 Some Possibility

.20 Very Slight Possibility

.10 Absolutely No chance

Techniques in Projecting Demand cont., (2) Expert’s Opinion- a substitute for a survey of people’s intentions

or needs assessment, it is a systematic determination of the views and opinions of those who “know” these beneficiaries.

These “experts” are themselves potential beneficiaries and can speak for the rest of the beneficiaries and are therefore familiar with the latter thinks( e.g. feed producers or distributors may be asked about the preferences of the chicken growers) and those who have undertaken some studies on the subject.

Methods in extracting demand forecast from experts are through: group discussion method; pooled individual estimate method; Delphi approach.

Techniques in Projecting Demand cont., (2) Trend Analysis - - use to determine pattern or movements of an

economic variable over time that may indicate the direction in which it will proceed over time. historical demand data is collected for a number of years. The rate of growth of demand data is collected during the past years is extrapolated and is for projecting the future demand over a period of time.

A relatively long series of historical data is required to ensure that short term economic fluctuations or changes in the social environment do not unduly affect the median line to be extrapolated .

Trend projections assumes that factors affecting past demand will continue to prevail in the future

Fro preliminary estimation purposes or for small scale projects, this method is usually sufficient.

Techniques in Projecting Demand cont., (d) Statistical Demand Analysis- quantifying the functional relationship

between the level of demand and various demand determinants.

(e)Use of Planning Standards- the use of comparisons of market data from other regions or other countries in cases where local data for the project’s output are limited.

* Cautions should be exercised in the selections of regions/ countries with which the data are indeed comparable . Some factors to account for are possible differences in the demand determinants, levels of development, definitions used and statistical coverage.

Techniques in Projecting Demand cont., (f). Market Testing- a more direct approach, when the potential beneficiaries are not

clear about their preferences or are not quite consistent in what they say or do or where experts cannot make good guesses.

For instance if the planner is interested in the probable demand for a new rice hybrid which is proposed for national marketing he may try to conduct pilot marketing of that product in the selected areas.

Limitations of Market Testing: a) where the basic fixed capital requirements (e.g. building, equipment) are substantial, there may be no middle ground between doing it fully or not doing it at all; b) where the approach is applicable, the problem include selecting market segments that will reasonably represent the market as a whole estimating the future on the basis of past market conditions and the existence of exogenous factors that could affect the outcome on the test(e.g. water)

Supply AnalysisAn evaluation of existing supply conditions towards bridging the gap between the level of supply and the level of demand for the proposed

project’s output.

Steps in Supply Analysis (1) Identifying Supply Resources- the examination of supply resources

with respect to volume of each output, capacity distribution, service area and other relevant characteristics.

*For social services, various supply can be analyzed by specifying the agencies rendering such social services and evaluating the levels of services provided and the respected service areas.

Steps in Supply Analysis (2) Estimating Past and Present Supply- employing of historical

estimates of supply and some knowledge of its historical trends/ fluctuations that may be due to the influence of economic and social policies and technological changes on the supply determinants (e.g. the effect of imports constraints, shortages of raw materials, innovation in productions process, changes in social environment.)

*For Social services, the use of social service indicators may be particularly helpful in the analysis of past and present supply situations , for instance health service indicators (e.g. no. of people per heath worker, midwife, doctor, clinic/ health center hospital)

Steps in Supply Analysis (3)Projecting Supply

The approach and considerations are essentially similar to those relating to demand.

The methodology and factors used in forecasting should be cited. Two sets of supply projections are made (with or without the project). In

both sets, rated capacities and production efficiencies assumed for the different producers should be made.

Expected market should be cited in the case of projections of the project. For social services, the targeted level and volume of specific types of social

services to be provided by each agency and their respected areas should also be cited.

Demand and Supply Consolidation

- Determines whether and to what extent there is a market for the project’s output of good and services.

Steps in Demand- Supply Consolidation (1) Past and Present Supply- Demand Gap- to provide indications of

total current shortage, if any, and to specify the areas affected by said shortage.

* Specific reasons (e.g. Technical, financial, administrative) behind current bottlenecks should likewise be identified to arrive at proper solutions to the problems.

Steps in Demand- Supply Consolidation (2) Future Demand – Supply Gap, Without the project

Yields information on the expected shortages/surpluses in supply according to the type of demand, sources of production, seasonal variations, geographic fluctuations, etc.

The analysis, therefore, serves as a basis for the identification of alternative sizes, locations, production processes and other specifications of the proposed projects.

Steps in Demand- Supply Consolidation (3) Future Demand –

Supply Gap, With the project

The addition to supply provided by the project, reduces, if not altogether closes, the projected gap between future demand and supply.

Before the Project

X1 X2Project Implementation

X3Project in Implementation

Time

Supply Without the Project

Demand/Supply with the Project

Demand Supply Curve Relationship With and Without

the Project

Other Major Market Considerations Instances where demand and supply gap may not be necessary to justify a project

(Market goods/services): Exportation of a good or services despite the adequacy supply in the world market in

view of a comparative advantage enjoyed by the country resulting in the price competitiveness of the product.

Setting up hydroelectric power plant despite adequacy of power supply in the project influence area in view of lower power generation costs relative to, say, power generation using oilfired plants.

For social services, supply and demand have a different meaning, particularly where the purpose of the project is to help eradicate a social problem(e.g. poor health, low levels of education), the demand-supply gap in this case becomes “relevant”.

Other Major Market Considerations Competitiveness of a Product

For producing market goods/services, its competitive position can be analyzed in terms of the price of the project output with that of competing products in the market should be made to determine the extent of price competitiveness.

This involves the knowledge of past price behaviour and expected future price movement of a certain products.

The comparison of the quality specifications of the project’s output to determine the extent of quality competitiveness.

* For social projects , the associated costs that the user bears in utilizing the project services should be compared with the costs of other alternative available (e.g. the interest cost differential between credit from project subloans and from traditional money lenders can be lost if users have to spend time and money travelling between project offices and villages to collect signatures and complete the paper work of loan processing.)

Other Major Market Considerations Competitiveness of a Product

For producing market goods/services, its competitive position can be analyzed in terms of the price of the project output with that of competing products in the market should be made to determine the extent of price competitiveness.

This involves the knowledge of past price behaviour and expected future price movement of a certain products.

The comparison of the quality specifications of the project’s output to determine the extent of quality competitiveness.

* For social projects , the associated costs that the user bears in utilizing the project services should be compared with the costs of other alternative available (e.g. the interest cost differential between credit from project subloans and from traditional money lenders can be lost if users have to spend time and money travelling between project offices and villages to collect signatures and complete the paper work of loan processing.)

Other Major Market Considerations Government Policies

Specific policies directly affecting the industry or sector to which the project belongs should be analyzed.

In the case of marketed goods, these would include existing trade agreements, tariff rates, quantitative import or export restrictions, and financial and tax incentives, all of which might affect the overall marketability of project’s output.

Other Major Market Considerations Marketing Program

Is a basic consideration in the market study, and is often a critical determinant of the success of the project.

Strong marketing program of a project which promises to yield market shares can be rated feasible even in the absence of a shortage of supply or a relative advantage in production, at least in a market standpoint.

Marketing Planning A market study serves as the bases of marketing plan typically deals with four areas: market segmentation and targeting, product mix strategy,

marketing mix, and marketing organization. These aspects should be viewed in the context of specific projects, since the relevance of

these aspects vary according to project.

4 Areas of Marketing Plan

Market Segmentation and Targeting

Market segmentation is a marketing strategy that involves dividing a broad target market into subsets of consumers who have common needs and priorities, and then designing and implementing strategies to target them.

Market Segmentation

Segmentation Variables Geography Demographic Psychographics

Market Targeting

Target Market Strategies

Undifferentiated Marketing- broad largest Market

Differentiated Marketing- separate product/segment for each market segment

Concentrated Marketing- Select one or Few submarkets and design appropriate Marketing Plans

Product Mix Strategy

Marketing Organization

[Full Name] Project Manager

[Full Name] Administrative Assistant

[Full Name] Member Role

[Full Name] Member Role

[Full Name] Member Role

[Full Name] Member Role