Unit 2-Chapter 5

DR. SILKY VIGG KUSHWAH

Market & Demand Analysis

MARKET & DEMAND ANALYSIS It involves the estimation of the

potential size of the market for the proposed product or service.

Basically it tries to answer 2 questions: What is the likely aggregate demand for

the product/service? What share of the market will the proposed

project enjoy?

STEPS INVOLVED IN MARKET & DEMAND ANALYSIS

Situational analysis & specification of objectives

Collection of secondary information Conduct of market survey Characterization of the market Demand forecasting Uncertainties in demand forecasting Market planning

SITUATIONAL ANALYSIS & SPECIFICATION OF OBJECTIVES

The project analyst may informally talk to customers, competitors, middlemen, and others in the industry.

Specification of objectives can be in the form of questions like: Who is the buyer of the product? What is the total current demand of it? How is the demand distributed over the

year and geographically?

What price will be the customers will be willing to pay for the product?

How can potential customers be convinced about the product?

What channels of distribution are most suited for the product?

COLLECTION OF SECONDARY INFORMATION

In order to answer the questions listed in the previous slide, information may be obtained from secondary data and/or primary data.

The important sources of secondary data in India are as follows: Census of India National sample survey reports Plan reports Statistical year book Guidelines to industries

CONTINUE… Annual survey of industries Stock exchange directory Monthly bulletin of RBI Other publication Various association bodies

CONDUCT OF MARKET SURVEY Define the target population Select the sampling technique and

sample size Develop a questionnaire Recruit and train the field investigators Get the questionnaire filled Scrutinise the information gathered Analyse and interpret the information

CHARACTERISTICS OF THE MARKETBased on the information gathered form

secondary and primary data, market for the product/service may be described in terms of the following:

Effective demand in the past and the present Production + imports-exports-changes in

stock level

BREAKDOWN OF DEMAND

To get a deeper insight into the nature of demand, the aggregate demand may be broken down into demand for different segments of the market. Market segments may be defined by

Consumer groups Consumers of a product may be divided into

industrial consumers and domestic consumers. Industrial consumers may be sub-divided industry

wise. Domestic consumers may be divided into different

income groups.

Nature of product One product may be used for production of

different products. Ex: SteelPricePrice statistics must be gathered along

with statistics pertaining to quantities. It distinguish prices like wholesale price, retail price, etc

METHODS OF DISTRIBUTION & SALES PROMOTION

The method of distribution and sales promotion may vary with the nature of the product.

Such method and sales promotion employed presently and their rationale must be specified.

SUPPLY AND COMPETITION It is necessary to know the existing

sources of supply and whether they are foreign and domestic.

Competition from substitutes should be specified because almost any product may be replaced by some other product.

GOVERNMENT POLICY Govt. plans and policies, which have a

bearing on the market and demand of the product should be spelt out.

These are reflected in: Production targets in national plans Import and export trade controls Industrial licensing Credit controls Financial regulations subsidies

DEMAND FORECASTING An attempt is also made to estimate

future demand. Methods of demand forecasting are as follows:

Qualitative methods These methods rely essentially on the

judgement of experts to traslate qualitative information into quantitative estimates. The methods are

Jury of executive method Delphi method

TIME SERIES PROJECTION METHODS These methods generate forecasts on

the basis of an analysis of the historical time series. The important methods are: Trend projection method Exponential smoothing method Moving average method

Exponential smoothing methodIn this methods, forecasts are modified in the

light of observed errors. If the forecast value for a particular year is less than the actual value for that year than an observed error is entered for the future years.

Moving average methodAs per this method, the forecast for the next

period is equal to the average of the sales for several preceding periods.

Trend projection methodIt involves determining the trend of

consumption by analyzing the past and than project the future consumption.

CAUSAL STUDYThis method seeks to develop forecasts

on the basis of cause and effect relationship. The methods are:

Chain ratio method Consumption level method Leading indicator method Econometric method

CHAIN RATIO METHODThe potential sales of a product is

estimated by applying a series of factors to a measure of total demand.

Consumption level methodThis method estimates consumption

level on the basis of elasticity coefficients like income elasticity of demand. The formula is

Projected present per 1+ per capita Income

Per capita = capita change in elasticity

Demand demand income of

level demand

LEADING INDICATOR METHOD Leading indicators are variables which

change ahead of other variables, lagging variables. Hence, observed changes in leading indicators may be used to predict the changes in the lagging variables.

ECONOMETRIC METHOD This method uses the relationship

between the dependent and the independent variable to forecast the future demand.

The demand of a particular product is dependent on the price of the product at a given point of time.

UNCERTAINTIES IN DF Methods of forecasting

Inability to handle unquantifiable factors Unrealistic assumptions

Data about past an present market Few observations Lack of standardization of product, price,

quantity, cost etc Influence of abnormal factors like natural

calamity, war etc

Environmental changes Technological changes Change in govt. policy Discovery of new sources of raw material Monsoon Developments on the international scene

MARKET PLANNINGA marketing plan usually has the following

components: Current market situations

Market situations Size, growth, consumer aspiration & buying beh.

Competitive situations Major competitors, their objectives, strategies,

strength Distribution situations

Dist. Capabilities of the competitors Macro environment

Effect of social, political, economic, technological on the market

Opportunity and issue analysisA SWOT analysis is conducted and the

core issues before the product are identified.

ObjectivesObjectives have to be clear cut, specific

and achievable

MARKETING STRATEGIES Target segment Positioning

How a product is placed in the mind of customers

Product line One variant or more than one

Price Distribution Sales force Sales promotion Advertising

ACTION PROGRAMME

Action programme operationalise the strategy for the product.