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Market and demand analysis

A project manager should carefully study the market potential for a given project idea Conducting market surveys ,collecting primary and secondary data, studying the characteristics of the market are some of the activities to test the market environment and see if the ides is feasible. Demand analysis of a product includes the study of consumption patterns,income and price elasticity of demand,nature of competition,availabilty and prices of substitutes and complementary products

The activities of a project manager in conducting a market and demand analysis include: Situational analysis and specification of objectives Collection of secondary information Conduct of market survey Characterisation of the market Demand forecasting Uncertainties in demand forecasting Market planning

Situational analysis and specification of objectives

In order to understand the relationship between the product and its market ,the project analyst may informally talk to customers,competitors,middlemen and others in the industry Situational analysis is the process by which a project manager studies customer preferences and their purchasing capacity and strategies of the competing firms and intermediaries If there is a need for a formal study ,the project manager has to define the objectives of the study

Once the objectives are clearly stated ,the questions in the survey should be framed in such a way so as to elicit the required response

Suppose a small firm has developed an inverter that is technically competitive to the customers whenever there is power cut. The management of the firm should answer the following questions to check whether the objectives of the firm are in tune with market interests

Who are the customers of inverters? What is the existing demand for inverters? Which are the areas with higher demand for power? What are the prices and features of inverters offered by competitors? How sensitive are customers to the price of an inverter?

How many types of distribution channels are available for inverters in the market? What are the constraints faced by intermediaries to capture the market? How can existing customers be convinced to use the newly developed product? What price and warranty will ensure the products acceptance in the market?

Collection of secondary information

Secondary information is information that has been gathered in some other context and is already available Primary information ,on the other hand represents information that is collected for the first time to meet specific purpose on hand Secondary information provides the base and the starting point for the market and demand analysis

General sources of secondary information Census of India National sample survey reports Plan reports Statistical abstract of the Indian union India year book Statistical year book

Economic survey Guidelines to industries Annual survey of industries The stock exchange directory Monthly bulletin of RBI

Evaluation of secondary information The market analyst should seek to know: Who gathered the information?what was the objective? When was the information gathered ?when was it published? How representative was the period ?

Have the terms in the study been carefully and unambiguously defined? What was the target population? How was the sample chosen? How representative was the sample? How satisfactory was the process of information gathering?

What was the degree of sampling bias and non response bias in the information gathered ? What was the degree of misrepresentation by respondents? How accurately was the information edited,tabulated and analysed? Was statistical analysis properly applied?

Conduct of market survey

Secondary information often does not provide a comprehensive basis for market and demand analysis It needs to be supplemented with primary information gathered through a market survey,specific to the project being appraised The market survey may be a census survey or a sample survey

In a census survey ,the entire population is covered (population refers to the totality of all units under consideration in a specific study) Census surveys are employed for principally for intermediate goods and investment goods when such goods are used by a small number of firms

In a sample survey a sample of population is contacted and observed and relevant information is gathered On the basis of such information ,inferences about the population may be drawn

The information sought in a market survey may relate to one or more of the following Total demand and rate growth of demand Demand in different segments of the market Motives for buying Purchasing plans and intentions Satisfaction with existing products Unsatisfied needs

Attitude towards various products Distributive trade practices and preferences Socio-economic characteristics of buyers

Steps in a sample survey Define the target population Select the sampling scheme and sample size Develop the questionnaire Recruit and train the field investigators Obtain information as per the questionnaire from the sample of respondents Scrutinise the information gathered Analyse and interpret the information gathered

Problems of market researcher Heterogeneity of the country Since it is impossible to cover all the states in an all India survey,the country has to be divided into broad territories going beyond the state boundaries .However the ,the heterogeneity of the country makes the task more difficult .Presently the research agencies divide the country in a way they think appropriate.This causes problems in comparing the findings of different research agencies.

Multiplicity of languages Related to the above difficulty is the problem of multiplicity of languages confronted by a research agency interested in conducting an all india survey

Design of questionnaire Scaling techniques ,commonly recommended in marketing research involve a 5 point or a 7 point scale Such refined scales are not easily amenable to translation in regional languages Mostly in such cases the answers tend to be erratic and inconsistent It is perhaps more desirable to rely on open-ended questions and less on pre coded questions on definite scales

Characterisation of the market

Based on the information gathered from secondary sources and through the market survey,the market for the product/service may be described in the following terms: Effective demand in the past and the present Breakdown of demand

Price Methods of distribution and sales promotion Consumers Supply and competition Government policy

Demand forecasting

Demand forecasting s an estimate of future demand A wide range of forecasting methods is available to the market analyst These may be classified into three categories:

Qualitative Methods: These methods rely essentially on the judgment of experts to translate qualitative information into quantitative estimates The important qualitative methods are : Jury of executive method Delphi method

Time series projection method: These methods generate forecasts on the basis of an analysis of the historical time series The important time series projection methods are: Trend projection method Exponential smoothing method Moving average method

Casual methods: They seek to develop forecasts on the basis of cause effect relationships specified in an explicit,quantitative manner. The important methods are:

Chain ratio method Consumption level method End use method Leading indicator method Econometric method

Qualitative methods

Jury of executive opinion method It involves soliciting the opinions of group of managers on expected future sales and combining them into a sales estimate The advantages under this method are: It is a expeditious method It permits a variety of factors like economic climate,competitive environment,consumer preferences,technological development to be included in the subjective estimates provided by the experts

The disadvantages of this method are: The biases underlying subjective estimates cannot be unearthed easily The reliability of this technique is questionable

Delphi method This method is used for eliciting the opinions of a group of experts with the help of a market survey A group of experts is sent a questionnaire and asked to express their views The responses received are summarised and sent back to the experts along with a questionnaire meant to probe further the reasons for the extreme views in the first round The process may be continued till a reasonable agreement emerges in view of the experts

Time series projection Method


Trend projection Method It involves determining the trend of consumption by analysing past consumption statistics and to project future consumption by extrapolating the trend The most commonly used relationship is the linear relationship To estimate the parameters of the linear relationship ,the least squares method is used

The advantages of this method are it uses all observation and through a statistical procedure. The limitations are the method is complicated than the earlier methods and the results of such an analysis is valid only when certain conditions are satisfied

Exponential Smoothing Method In this method the forecasts are modified in the light of the observed errors A smoothing parameter is chosen which lies between 0 and 1

Moving average method As per this method the forecast for the next period is equal to the average of the sales for several preceding periods.

Casual methods

Chain ratio method The potential sales of a product may be estimated by applying a series of factors to a measure of aggregate demand The chain ratio method uses a simple analytical approach to demand estimation

This method is useful for a product which is directly consumed It estimates consumption level on the basis of elasticity coefficients The important ones being the income elasticity of demand and price elasticity of demand Income elasticity of demand reflects the responsiveness of demand to variations in income The price elasticity of demand measures the responsiveness of demand to variations in price

A firm manufactures office bags for men The firm estimates the aggregate demand of the office bags in the following manner Population of males in the country 55 crore Proportion of educated males 0.68 Population of educated males 37.4 crore Proportion of employees in the educated males 0.42 Population of male employees 15.7 crore Proportion of male employees who will purchase the office bag 0.61 Hence, potential sales of office bags 9.58 crore

End use method It is a suitable method to estimate demand for intermediate products, it is also referred to as consumption coefficient method The key inputs required for this method are the projected output levels of consuming industries and consumption coefficients

Leading indicator method Leading indicators are variables which change ahead of other variables Observed changes in the leading indicators may be used to predict the changes in lagging variables Eg: the change in the level of urbanisation ( a leading indicator ) may be used to predict the change in demand for air conditioners ( a lagging variable)

Econometric method A econometric model is a mathematical representation of economic relationship derived from economic theory

Uncertainties in denmand forecasting

Demand forecasts are subject to error and uncertainty which arise from three principal sources: Data about past and present market Methods of forecasting Environmental change

Data about past and present markets Lack of standardisation Few observations Influence of abnormal factors

Methods of forecasting Inability to handle unquantifiable factors Unrealistic assumptions Excessive data requirements

Environmental change Technological change Shift in Governmental policy Developments on the international scene Discovery of new sources of raw materials

Market planning

A marketing plan usually has the following components Current marketing situation Opportunity and issue analysis Objectives Marketing strategy Action programme

Current marketing situation Market situation This deals with the size,growth,consumer aspirations and buying behaviour in the market Competitive situation It dwells on the major competitors,their objectives,strategies and strength

Distribution situation It compares the distribution capabilities of the competitors Macro environment It describes the effect of social ,political,economic and technological variables on the market

Opportunity and issue analysis In this section a SWOT analysis is conducted and issues identified Objectives The marketing objectives have to be clear cut,specific and achievable

Marketing strategy It covers the following Target segment Positioning (place in the mind of consumer) Product line Price Distribution Sales force Sales promotion advertising

Action programme Action programmes operationalise the strategy Attainment of target segment Increasing the sales outlets Promotional programmes

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