MARKET MEASUREMENT AND FORECASTING
by Sreeram
A few years ago one of the industrial group’s application for financial assistance was not accepted by a leading financial institution .The reason given was that the
demand FORECAST for the product was over-estimated . In another case the same financial institution felt that the
environment factors considered for expansion were too optimistic.
The
marketing director took the credit when his company’s actual sales were 25% more than the budgeted or planned sales for the year But the market, as a whole, had grown by about 20% in the same year. This was brought to his notice. He had no alternative but to accept the fact that his sales forecast did not reflect the reality.
Demand forecasting and sales forecasting are important for any marketing planning and control as it serves the basis for comparison over a period of time. Forecasting helps in identifying and solving marketing and sales problems. Further ,they are also used for setting performance standards.
If the marketer knows the different tools and their application and is familiar with the market forces, most often, 90-95% of the forecast is good. Besides, it is increasingly felt that the forecast should generally be in a range rather than just having a single point forecast.
Forecasting exercise involve understanding market potential .Consider the example of a product such as a T.V set .To estimate the market potential for T.V
sets in India, we have to know the number of households .Assuming that each household will have a T.V set ,we can sat that that the market potential for T.V sets is equal to the number of households in the country .And if we assume that six people constitute a household, we have about 142 million households Ideally, this is the market5 .But then ,we know that 25% of Indian population is below the poverty line and hence will not be able to buy T.V sets Besides ,almost 40% of Indians are in low income group and given the prices of T.V sets ,they too may not be able to afford it .So, one is left with only 35% of the total population which is the real market that needs to be targeted .One might ask why this is so? The answer lies in the fact that the size of any market is based on the number of buyers who might exist for a particular marketing offer. These buyers need to have three characteristics:
Interest in the product
Income to be able to afford the product
Access to the product
Based on these characteristics .we have arrived at 35% of the total Indian population to be the size of the total market. Market potential is the limit approached by the market demand as industry’s marketing expenditures approach infinity , for a given environment ,In other words, market potential refers to the upper limit of market demand .It is important for us to understand that there are three key terms involved in defining the market potential. These are
Market demand
Marketing expenditure by the industry
Defined MARKET environment
.
Market demand refers to the total volume that could 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 .It is important to note that demand could be measured in physical or monetary terms. Demand is always for a specific time frame.
An important dimension to be understood is also the fact that market demand is not a fixed number but a function of specific conditions. It is for this reason that it is called market demand function of market response function, In the above example of T.V sets, as more income is generated in the Indian economy following higher economic growth rate, the demand for T.V sets will increase .The demand for
Color T.V sets boomed in 1982-84 as Doordarshan started color telecast, went commercial and beamed popular soap operas.
We know that at any given time there is only one level of industry marketing expenditure. The market demand corresponding to thiis level is called market forecast.
Marketing demand as a function of industry marketing expenditure (assumes a given marketing environment)
Marketing demand in two different marketing environments
This refers to a company’s share of the total market demand ,It is subject to all the determinants of the market demand ,plus the determinants of the company’s market share.
Company Potential is the limit approached by company demand as its marketing effort increases relative to its competitors .The absolute limit to this potential is the market potential and this will be so only in a monopolistic situation.
Sales Forecast refers to the estimates of future sales of company’s products .
‘Sreeram’ is the pen name of the above abstract writer. His name in the professional field is V.Sree Rama Rao, B.E. ( Mech ), MIMA, M.I.E. is a Techno- commercial business consultant based at Mumbai the financial capital of India. He can be cotacted on
e-mail : vsramarao1@rediffmail.com