Understanding the marketing environment and conducting marketing research can help
to identify marketing opportunities. The company must then measure and forecast the size, growth, and profit
potential of each new opportunity. Sales forecasts prepared by marketing are used by finance to raise cash for investment and operations; by manufacturing to establish capacity and output; by purchasing to acquire the right amount of supplies; and by human resources to hire the needed workers. If the forecast is off the mark, the company will face excess or inadequate inventory. Because it’s based on estimates of demand, managers need to define what they mean by market demand. DuPont’s Performance Materials group knew that even when DuPont Tyvek had 70 percent of the $100 million market for air-barrier membranes, there was greater opportunity with more products and services to tap into the entire multi-billion-dollar U.S. home construction market.
The Measures of Market Demand
Companies can prepare as many as 90 different types of demand estimates for six different product levels, five space levels, and three time periods (see Figure 3.1). Each serves a specific purpose. A company might forecast short-run demand to order raw materials, plan production, and borrow cash. It might forecast regional demand to decide whether to set up regional distribution.
There are many productive ways to break down the market
to identify marketing opportunities. The company must then measure and forecast the size, growth, and profit
potential of each new opportunity. Sales forecasts prepared by marketing are used by finance to raise cash for investment and operations; by manufacturing to establish capacity and output; by purchasing to acquire the right amount of supplies; and by human resources to hire the needed workers. If the forecast is off the mark, the company will face excess or inadequate inventory. Because it’s based on estimates of demand, managers need to define what they mean by market demand. DuPont’s Performance Materials group knew that even when DuPont Tyvek had 70 percent of the $100 million market for air-barrier membranes, there was greater opportunity with more products and services to tap into the entire multi-billion-dollar U.S. home construction market.
The Measures of Market Demand
Companies can prepare as many as 90 different types of demand estimates for six different product levels, five space levels, and three time periods (see Figure 3.1). Each serves a specific purpose. A company might forecast short-run demand to order raw materials, plan production, and borrow cash. It might forecast regional demand to decide whether to set up regional distribution.
There are many productive ways to break down the market
- The potential market is the set of consumers with a sufficient level of interest in a market offer. However, their interest is not enough to define a market unless they also have sufficient income and access to the product.
- The available market is the set of consumers who have interest, income, and access to a particular offer. The company or government may restrict sales to certain groups; a state might ban motorcycle sales to anyone under 21. Eligible adults constitute the qualified available market the set of consumers who have interest, income, access, and qualifications for the market offer.
- The target market is the part of the qualified available market the company decides to pursue. The company might concentrate its marketing and distribution effort on the East Coast
- 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 isn’t satisfied with its current sales, it can try to attract a 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
A Voc abulary for Demand Measurement
The major concepts in demand measurement are market demand and company demand. Within each, we distinguish among a demand function, a sales forecast, and a potential. Market Demand The marketer’s first step in evaluating marketing opportunities is to estimate total market demand. Market demand for a product is the 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 program.
A Voc abulary for Demand Measurement
The major concepts in demand measurement are market demand and company demand. Within each, we distinguish among a demand function, a sales forecast, and a potential. Market Demand The marketer’s first step in evaluating marketing opportunities is to estimate total market demand. Market demand for a product is the 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 program.
Market demand is not a fixed number, but rather a function of the stated conditions. For this reason, we call
it the market demand function. The horizontal axis shows different possible levels of industry marketing expenditure in a given time period. The vertical axis shows the resulting demand level. The curve represents the estimated market demand associated with varying levels of marketing expenditure.
Some base sales called the market minimum and labeled Q1 in the figurewould take place without
any demand-stimulating expenditures. Higher marketing expenditures would yield higher levels of demand,
first at an increasing rate, then at a decreasing rate. Take fruit juices. Given the indirect competition they
face from other types of beverages, we would expect increased marketing expenditures to help fruit juice
products stand out and increase demand and sales.
The distance between the market minimum and the market potential shows the overall marketing sensitivity
of demand. We can think of two extreme types of markets, the expansible and the nonexpansible. An expansible market, such as the market for racquetball playing, is very much affected in size by the level of industry marketing expenditures. In terms of Figure 3.2(a), the distance between Q1 and Q2 is relatively large. A nonexpansible market for example, the market for weekly trash or garbage removal—is not much affected by the level of marketing expenditures; the distance between Q1 and Q2 is relatively small. Organizations selling in a nonexpansible market must accept the market’s size the level of primary demand for the product class and direct their efforts toward winning a larger market share for their product, that is, a higher level of selective demand for their product.It pays to compare the current and potential levels of market demand. The result is the market-penetration index.
it the market demand function. The horizontal axis shows different possible levels of industry marketing expenditure in a given time period. The vertical axis shows the resulting demand level. The curve represents the estimated market demand associated with varying levels of marketing expenditure.
Some base sales called the market minimum and labeled Q1 in the figurewould take place without
any demand-stimulating expenditures. Higher marketing expenditures would yield higher levels of demand,
first at an increasing rate, then at a decreasing rate. Take fruit juices. Given the indirect competition they
face from other types of beverages, we would expect increased marketing expenditures to help fruit juice
products stand out and increase demand and sales.
The distance between the market minimum and the market potential shows the overall marketing sensitivity
of demand. We can think of two extreme types of markets, the expansible and the nonexpansible. An expansible market, such as the market for racquetball playing, is very much affected in size by the level of industry marketing expenditures. In terms of Figure 3.2(a), the distance between Q1 and Q2 is relatively large. A nonexpansible market for example, the market for weekly trash or garbage removal—is not much affected by the level of marketing expenditures; the distance between Q1 and Q2 is relatively small. Organizations selling in a nonexpansible market must accept the market’s size the level of primary demand for the product class and direct their efforts toward winning a larger market share for their product, that is, a higher level of selective demand for their product.It pays to compare the current and potential levels of market demand. The result is the market-penetration index.
A low index indicates substantial growth potential for all the firms. A high index suggests it will be
expensive to attract the few remaining prospects. Generally, price competition increases and margins fall when the market-penetration index is already high. Comparing current and potential market shares yields a firm’s share-penetration index. If this index is low, the company can greatly expand its share. Holding it back could be low brand awareness, low availability, benefit deficiencies,or high price.
expensive to attract the few remaining prospects. Generally, price competition increases and margins fall when the market-penetration index is already high. Comparing current and potential market shares yields a firm’s share-penetration index. If this index is low, the company can greatly expand its share. Holding it back could be low brand awareness, low availability, benefit deficiencies,or high price.
A firm should calculate the share-penetration increases from removing each factor to
see which investments produce the greatest improvement.
Remember that the market demand function is not a picture of market demand over time. Rather, it shows
alternate current forecasts of market demand associated with possible levels of industry marketing effort.
see which investments produce the greatest improvement.
Remember that the market demand function is not a picture of market demand over time. Rather, it shows
alternate current forecasts of market demand associated with possible levels of industry marketing effort.
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