Measuring market opportunities forecasting and market knowledge

Keshav,Raman,Narayanan,Keyur1

Measuring Market Opportunities: Measuring Market Opportunities: Forecasting and Market KnowledgeForecasting and Market Knowledge


Chapter Summary

This Chapter will introduce you to the following:Telstra Telecommunications in

AustraliaA Forecaster’s ToolkitRate of Diffusion of InnovationsCautions and Caveats in ForecastingMarket Intelligence and Knowledge

SystemsMarketing Research


A Forecaster’s Toolkit

Before choosing a method by which to prepare a forecast, one must know what is to be estimated or forecast

Firstly, there’s the size of the potential market (likely demand from all actual and potential buyers)

Market potential estimate often serves as a starting point for preparing a sales forecast

There is also the size of the currently penetrated market (if a company has existing sales in products)


Sales Forecast

Two broad approaches for preparing a sales forecast are:

Top-down approachA central person takes responsibility for

forecasting and prepares an overall forecast

Bottom-up approach Each part of the firm prepares its own

sales forecast, and the parts are aggregated to create the forecast for the firm as a whole

Common in decentralized firms


Methods for Estimating Market Potential and Forecasting Sales

Statistical methodsObservationSurveys (and qualitative research) AnalogyJudgmentMarket tests


Statistical Methods

Use history and various techniques to forecast the future based on extrapolation of the pastAdvantages

Useful in established firms for established products

Likely to result in a more accurate forecast than other methods under stable market conditions

LimitationsAssumes the future will look very much

like the past Other techniques have been developed to

improve new product forecasts (diffusion of innovations and conjoint analysis)


Observation

Another method for forecasting is to directly observe or gather data about what real customers do in the market of interestAdvantages

Based on what people actually doLimitations

Typically not possible for new-to-the-world products

Requires prior examples to observe


Surveys

A common way to forecast sales or estimate market potential is to conduct a surveyAdvantages

Many different groups of respondents can be surveyed

Does not require history or prior examplesLimitations

What people say is not always what they doPeople may not be knowledgeable, but when

asked their opinion, they may provide itWhat people imagine about a product concept

in a survey may not be what is actually delivered


Qualitative Qualitative research is often

conducted along with empirical market surveys to aid in forecasting sales

Qualitative research such as focus groups and depth interviews can help in finding out much about marketing issues and key trends

For example, can use industry experts to compare empirical survey findings


Analogy

It can be useful to forecast sales or market potential by investigating similar products

AdvantagesRequires no history nor prior examplesBest for new product forecasting where neither

statistical methods nor observations are possible

Useful for new-to-the-world high-technology products

LimitationsThe proposed new product is never exactly like

that to which the analogy is drawnMarket and competitive conditions may differ

considerably from when the product was launched


Judgment

Although not really a forecasting method on its own, sometimes forecasts are made by intuition (gut feeling)Advantages

Those with sufficient forecasting experience in a market they know well, may be quite accurate in their intuitive forecasts

LimitationsOften difficult to defend forecasts against

those prepared by evidence-based methods when the two differ


Market tests

Used mainly for new products. Methods such as experimental or live test markets have sometimes been adopted.Advantages

Closest forecasting method to the true market

LimitationsExpensive to conductCompetitors can deliberately distort market

conditions to invalidate the test


Mathematics Entailed in Forecasting

Regardless of the method used, the ultimate purpose of the forecasting exercise is to end up with numbers that reflect the data

Two key mathematical approaches that are used to determine ultimate numbersChain ratio methodBrand or category indices


Rate of Diffusion of Innovations: Another Perspective on Forecasting

The adoption process Involves the attitudinal changes

experienced by individuals from the time they first hear about a new product, until they adopt it

Five stages in the adoption process:1. Awareness2. Interest3. Evaluation4. Trial5. Adoption


Speed of Adoption

Speed of the process depends heavily on:RiskRelative advantageRelative simplicityCompatibility with current ideas and

behaviorEase of small-scale trialEase of communication of benefits


Diffusion of Innovation Curve


Cautions and Caveats in Forecasting

Keys to good forecastingMake explicit the assumptions on which

the forecast is basedUse multiple methods

Common sources of error in forecastingForecasters are subject to anchoring biasCapacity constraints are sometimes

misinterpreted as forecastsIncentive pay: bonus plans cause

managers to artificially inflate or deflate forecasts

Unstated but implicit assumptions can overstate a well-intentioned forecast


Market Intelligence and Knowledge Systems

Four commonly used market knowledge systems are:Internal marketing information systemsMarketing databasesCompetitive intelligence systemsClient contact and salesforce

automation systems


Marketing ResearchQuestions to be asked by a critical

user of marketing research:What are the research objectives?

Will the proposed study meet them?Are the data sources appropriate?

Secondary or primary? Are the planned qualitative or

quantitative research approaches suited to the objectives?

Is the research well designed?Are the planned analyses

appropriate?

Measuring market opportunities forecasting and market knowledge

Business

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