Chapter 2

Marketing Feasibility Study

The Marketing Feasibility Study includes :

1. Demand and Supply Analysis

2. Market Research & Data Collection
3. Demand forecasting
4. Developing of the Sales Plan

Demand and Supply Analysis

Determinants of Demand
1. Change in consumer incomes
2. Change in consumer tastes and preferences
3. Change in the number of buyers
4. Change in the
substitute goods
5.

prices

of

complementary

and

Change in consumer expectations about the prices

and income

6. Market structure (Perfect competition, monopoly, and

oligopoly markets)
7. National investment plan
8. National income and its distribution
9. Government Policies (income taxes, price ceiling and

Determinants of Supply
Change in resource prices or input prices
Change in technology
Change in taxes and subsidies
Change in the prices of other goods
Change in producer expectations
Change in the number of suppliers
Investment environment
Monetary policy ( required reserve ratio,
discount rate and open market operations )

Determining the Targeted

Markets for the Business
Production

Target Markets
What are the target markets for this product or
service?
What demographic characteristics do these potential
customers have in common?
How many customers are there in your target
market?
How many units of your product or services is each
customer likely to buy monthly?

Describe your target market in terms of:

Geographic Characteristics. Do your
primarily in a certain area or region?

customers live

Demographic Characteristics. (Age, gender, family status,

education, income, class, job, education; and, if relevant,
religion and race.)
Psychographic Characteristics. (Life style, personality types;
attitudes; interests, and buying motives.)

THE FIVE STEPS TO ANALYZING MARKET OPPORTUNITY

1. Identify the business environmental forces.

Economic conditions and trends

Legal and regulatory situations and trends
Technological positioning and trends
Relevant social changes

2. Describe the industry and its outlook.

Type of industry
Size -now and in 3-5 years
Types of marketing practices
Major trends

THE FIVE STEPS TO ANALYZING MARKET

OPPORTUNITY (continued)
3. Analyze the key competitors
Product description
Market positioning (relative strength and weaknesses,
as seen by customers)
Market practices: channels, pricing, promotion, service
Estimated market share (if relevant)
Reactions to competition
Implications for opportunity

THE FIVE STEPS TO ANALYZING MARKET

OPPORTUNITY (continued)

4. Create a target market profile.

Levels: generic needs, product type, specific brands

End-user focus; also channel members
Targeted customer profiles
Who are my potential customers ?
What are they like as consumers/business people
How do they decide to buy / not buy ?
Importance of different product attributes ?
What outside influences affect buying decisions?

5. Set sales expectations

As many formal or intuitive approaches as possible
Comparison of results
Go/ no go

Demand Forecasting

What is forecasting?

Forecasting is a tool used for

predicting future demand based on
past demand information.

Why is forecasting important?

Demand for products and services is usually uncertain.
Forecasting can be used for

Strategic planning (long range planning)

Finance and accounting (budgets and cost controls)
Marketing (future sales, new products)
Production and operations

Models used in forecasting of demand

1. Models rely on the person experience include:
Factors analysis
Historical comparison
2. The economical models include:
Average per capita consumption
Price elasticity demand
Income elasticity demand
Advertising elasticity of demand
3. The statistical models include:
Time series analysis
Regression analysis

Types of forecasting methods

Qualitative methods

Quantitative methods

Rely on subjective
opinions from one or
more experts.

Rely on data and

analytical techniques.

Qualitative Forecasting Methods

Qualitative
Forecasting

Market
Research

Market
Research /
Survey
Smoothing

Models
Delphi
Method

Quantitative Forecasting Methods

Quantitative
Forecasting
Regression
Models

Time Series
Models

Naive. 1

Moving. 2
Average
a) simple
b) weighted

Exponential. 3
Smoothing
a) level
b) trend
c) seasonality

Time Series Models: Components

Random

Seasonal

Trend

Composite

Product Demand over Time

Trend component
Demand for product or service

Seasonal peaks

Random
variation
Year
1

Year
2

Actual demand
line
Year
3

Year
4

Now lets look at some time series approaches to forecasting

Borrowed from Heizer/Render - Principles of Operations Management, 5e, and Operations Management, 7e

Average Per capita consumption

Average consumption per capita = real consumption /
population

If the real consumption = US$ 120 million,

Population = 6 million

Calculate the average per capita consumption ?

Average per capita consumption = 120 / 6 = 20

Testing the sufficient Demand and Demand Gap

To make sure the demand is enough: this can be done in two ways:
A/ In case of already existing goods.
B/In case of new goods for the first time.
In case of already existing goods

Testing the sufficient Demand and Demand Gap

The following condition to justify a new project in open economy with imports:
The demand gap is measured through the following formula:
Q = quantity of goods imports (demand gap)
The minimum optimal size of project

>1

Local businesses can produce goods for export if the following condition is met:
P1 = Domestic price including transportation cost for overseas
International price

<1

Testing the sufficient Demand and Demand Gap

Methods for forecasting demand for new goods.
1. Field survey method
2. Delphi method
3. Causal models : Based on the factors affect demand (population, price, elasticity
demand, advertising spending, demand for alternative and complementary goods, social and
cultural changes, .etc).
1. Population
D =K.X
D = The size of expected demand for commodities over the year
X = Average household consumption
K = The number of expected households to buy the good

2. Elasticity of demand and testing demand gap:

We have 4 types of elasticity of demand

1. Price elasticity demand
2. Income elasticity of demand
3. Cross elasticity of demand
4. Advertising spending elasticity of demand

THE ELASTICITY OF DEMAND

Price elasticity of demand is a measure of how
much the quantity demanded of a good
responds to a change in the price of that good.
Price elasticity of demand is the percentage
change in quantity demanded given a percent
change in the price.

The Price Elasticity of Demand and Its Determinants

Availability of Close Substitutes

Necessities versus Luxuries
Definition of the Market
Time Horizon

Demand tends to be more elastic :

the larger the number of close substitutes.

if the good is a luxury.
the more narrowly defined the market.
the longer the time period.

Computing the Price Elasticity of Demand

The price elasticity of demand is computed as
the percentage change in the quantity
demanded divided by the percentage change in
price.
P ric e e la s tic ity o f d e m a n d =

P e rc e n ta g e c h a n g e in q u a n tity d e m a n d e d
P e rc e n ta g e c h a n g e in p ric e

change in Qd% = Ed x Change in price %

Computing the Price Elasticity of Demand

Example: If the price of an ice cream cone increases from $2.00

to $2.20 and the amount you buy falls from 10 to 8 cones, then
your elasticity of demand would be calculated as:
Solution:
P1 = 2, P2 = 2.2, Q1 = 10 , Q2 = 8
PED = ( 8-10 ) / ( 2.2 2 ) x ( 4.2 / 18)
PED = (-2 / 0.2) x 0.233= -10 x 0.233 = - 23.3

Price Elasticity of Demand and demand

forecasting ?
Year

Year 2013

Year 2014

Year 2015

Price of meat by NIS

80

60

80

Quantity of meat by Kg

40

55

??

Calculate the expected quantity demanded of meat in 2015 ?

Answer: Q2 = 55, Q1 = 40, P2 = 60, P1 = 80

PED = ( 55 40 ) / ( 60 80 ) x (140) / ( 95 ) = (15/-20) x (140/95)

PED = ( -0.75 ) x (1.4) = - 1.1

Price Elasticity of Demand and demand

forecasting ?

Now it has become easy to calculate the quantity demanded of

meat in 2015 through the price elasticity of demand :
Q2 = ??,

Q1 = 55, P2 = 80,

P1 = 60 PED = - 1.1

- 1.1 = {( Q2 55) / ( 80 55 ) } x { ( 140 ) / ( Q2 + 55) }

-1.1 = { ( Q2 55) / 25 } x { 140 / ( Q2 + 55) }
-1.1 = { 140 Q2 7700 } / { 25Q2 + 1375}
-1.1 { 25Q2 + 1375 } = { 140 Q2 7700 }
-27.5Q2 2062.5 = 140Q2 7700
- 167.5 Q2 = -7700 + 2062.5
Q2 = 33.6 Kg

Price Elasticity of Demand and demand

forecasting ?
A firm producing product X charged $ 5 for X per unit to
have a sale of 200 units. When the price has increased to
$ 6 the demand of X has decreased to 180 units. Calculate
the price elasticity of demand.
Solution
Ep = (Q / P) x [(P1+P2) / (Q1+Q2)]
Q1 = 200; Q2 = 180; P1 = 5;
P2 = 6;
Q = Q2 Q1 = -20;
P = P2 P1 = 1;
Ep = (-20/1) x [(5+6)/(200+180)]
= -20 x (11/380) = -220/380 = -0.58

Price Elasticity of Demand and demand

forecasting ?
Markus, a store selling shoes. Found out that a survey has
been conducted by a research organization for the market
in which the firm is operating and it was found that the
weekly demand for shoes (Q) can be expressed in terms
of price (P) as: Q=880 1.3P
1.How many shoes can the store sell per week if P = $ 200 ?
2.What must be the price of the shoes if the store wishes to sell 750
shoes ?
3.Find the elasticity of demand when P1 = 200 and P2 = 210

Part 1- Solution
Demand expressed in the form of equation is Q = 880 1.3P
P is given as $ 200
So, Q = 880 (1.3x200)
Q = 880 - 260 = 620 i.e. the firm can sell 620 pairs of shoes when
the price is $ 200
Part 2- Solution
Demand expressed in the form of equation is Q = 880 1.3P
Q is given as 750, so the equation can be written as
750 = 880 1.3P
1.3P = 880 750
P = 130 /1.3 = 100. Hence to sell 750 pairs of shoes the firm can
charge $ 100 per pair

Part 3 - Solution
Demand expressed in the form of equation is
Q = 880 1.3P
P1 = 200 to have Q1 = 880 (1.3 x 200) = 620
P2 = 210 to have Q2 = 880 (1.3x210) = 607
Q = Q2 Q1 = -13;
Ep

P = P2 P1 = 10;

= (-13/10) x [(200+210)/(620+607)]
= -1.3 x (410/1227) = -1.3 x 0.334 = -0.434

Al-awda Electric Co. is developing a new design for its electric hairdryer. Test market data indicates demand for the new hair-dryer as
follows: Q = 30,000 1000P
1.How many hair-dryers could Al-awda sell at a price of $ 20?
2.Calculate the point elasticity of hair-dryer when the price is $ 20.

Solution
Demand expressed in the form of equation is Q = 880 1.3P
P is given as $ 25 to have Q = 30,000 (1000 x 20) = 10000
Hence, the firm can sell 5000 hair-dryers at a price of $ 25
Ep = (Q / P) x (P/Q)
Ep = -1000 x (20/10000) = -2

Income Elasticity of Demand

Income elasticity of demand measures how much the

quantity demanded of a good responds to a change in
consumers income.
It is computed as the percentage change in the quantity
demanded divided by the percentage change in income.
EI = Change in Qd% / Change in income %
Change in Qd% = EI x Change in income %

Computing Income Elasticity:

Example: If the per capita income increases from $1200 to
$1400 and the per capita of fresh meat increased from 6 to
10 Kg, then your income elasticity of demand would be
calculated as:

Solution:
Y1 = 1200,

Y2 = 1400,

Q1 = 6 , Q2 = 10

IED = ( 10-6 ) / ( 1400 1200 ) x ( 2600 / 16)

IED = (4 / 200) x 162.5 = 0.02 x 162.5 = 3.25

Income Elasticity
Types of Goods
Normal Goods
Inferior Goods

Higher income raises the quantity demanded

for normal goods but lowers the quantity
demanded for inferior goods.

Income Elasticity
Goods consumers regard as necessities tend to
be income inelastic
Examples include food, fuel, clothing, utilities, and
medical services.

Goods consumers regard as luxuries tend to be

income elastic.
Examples include sports cars, and expensive foods.

Income Elasticity of Demand and demand forecasting ?

Year
Per capita income (US$)
Per capita demand ( Quantity
demanded of fish per Kg )

Year 2013

Year 2014

Year 2015

3200

4000

4200

20

24

??

Calculate the expected quantity demanded of fish in 2015 ?

Answer: Q2 = 24,

Q1 = 20, Y2 = 4000, Y1 = 3200

IED = ( 24 20) / ( 4000 3200 ) x (7200) / (44) =

IED = 0.005 x 163.6 = 0.81

Income Elasticity of Demand and demand forecasting ?

Year
Per capita income (US$)
Per capita demand ( Quantity
demanded of fish per Kg )

Answer:
Q2 = ??, Q1 = 24,

Y2 = 4200,

Year 2010

Year 2011

Year 2012

3200

4000

4200

20

24

??

Y1 = 4000,

IED = 0.81

0.81= {( Q2 24) / (4200 4000)} x {(8200) / ( 24 + Q2)}

0.81= { ( Q2 24) / (200) } x { (8200) / ( 24 + Q2) }
0.81= { 8200 Q2 196800) / (4800 + 200 Q2) }
0.81 (4800 + 200 Q2) = { 8200 Q2 196800}
3888 + 162 Q2 = 8200 Q2 196800
162 Q2 8200 Q2 = - 196800 3888

8038 Q2 = 200688

Q2 = 24.96 kg of fish

Cross Elasticity of Demand:

Cross elasticity of demand is the ratio of the percentage change in
demand of good X to the percentage change in the price of its
related good, say good Y.
Exy = Change in Qdx% / Change in Price y%
Change in Qdx% = Exy x Change in Price y %
Exy = (Qx / Py) x [(Py1+Py2) / (Qx1+Qx2)]

Promotional (or, Advertising) Elasticity of demand:

(a) Definition.
i. Percentage by which the demand will change if the sellers
advertising expenses rise by 1%.
(b) Most advertising is undertaken by individual sellers to promote
their own business. By drawing buyers away from competitors,
advertising has a much stronger effect on the sales of an individual
seller than on the market demand.
Advertising elasticity of the demand faced by an individual seller
tends to be larger than the advertising elasticity of the market
demand.

Advertising elasticity of demand measures the response of quantity

demanded to change in expenditure on advertising and other sales
promotions.
Change in Qda% = Ea x Change in advertising % x (wt)
where,
wt = 1 / time
It can be said that the effects of advertising spending is decreasing
over the time. so the former formula is multiplied by the weight (wt)
and this code is decreasing over the time by the value wt =1/time
Ea = (Q / A) x [(A1+A2) / (Q1+Q2)]
Factors influencing advertisement elasticity of demand:
Stage of product life-cycle
Effect of advertising in terms of time
Effect of the advertisements by competitors

Example
Suppose that a researcher has estimated timeline function for
operation of a number of existing projects producing the same type of
good and found it as follows:
Rt = 0.84 0.08T 0.01 T2
Rt = Operating Ratio = Actual Production Size
Maximum Production Capacity

<1

If there is a new proposed project to be established for producing the

same product and its economic life span is 9 years, and its production
after excluding the waste is 1,000 tons.
Required:
Estimate the expected sales quantity for the project during its
economic life span ?

Solution/
To determine the year in which the operating ratio will reach the
maximum capacity, we have to differentiate the formula, then equals it
to zero
Rt = o.84 + 0.08T 0.01T2
= 0.08 0.02T
0.08 0.02T = 0
0.02T = 0.08
T=4
Then we can calculate the expected operation ratios over the years and
quantity of sales using the following table.

Program Evaluation and Review Technique PERT

PERT technique is used in demand

forecasting. In this tool we can ask an expert
about his/her expectations about future
demand for the next year. So we have 3
probabilities optimistic (High) , pessimistic
( Low ) and ( average ) which is most likely
to be occurs.

PERT Formula and Example

PERT weighted average =
optimistic time + 4 X most likely time + pessimistic time
6

Example:
If an expert gave us 3 expected values for sales which were as follows : L =
50 , H = 100 , M = 90 . Calculate the average expected quantities of sales ?
Solution
85

Calculation of operations rates during the seasons without trend

by Dummy Variables
Example :
If the estimated formula of operation rates was as follow :
Rt = 0.75 + 0.1 D2t + 0.25 D3t + 0.15 D4t
Calculate the operation rates during the coming seasons ?
Solution

Calculation of operations rates during the seasons with trends

Example : If the historical data shows that the Monthly
Fluctuations Coefficient were as follow:
And the trend formula for sales
using monthly data was as follow :
St = 100 + 5 T
Forecast the monthly sales for the
coming 12 months using the
monthly fluctuation coefficient ?

Solution

Mathematical and Statistical Approach of Demand

Forecasting

Forecasting Components
A variety of forecasting methods are available for use
depending on the time frame of the forecast and the
existence of patterns.
Time Frames:
Short-range (one to two months)
Medium-range (two months to one or two years)
Long-range (more than one or two years)
Patterns:
Trend
Random variations
Cycles
Seasonal pattern

Quantitative Forecasting Methods

Quantitative
Time Series
Models
Models
Naive. 1

Moving. 2
Average
a) simple
b) weighted

Exponential. 3
Smoothing
a) level
b) trend
c) seasonality

Time Series Methods - Moving Average

Example: Instant Paper Clip Supply Company forecast of
orders for the next month.
Three-month moving average:
3
1
MA3 3 D 90110130 110orders
3
i1 i

Five-month moving average:

5
1
MA3 5 D 901101307550 91orders
5
i1 i

Time Series Methods

Moving Average

Three- and Five-Month Moving Averages

1. Naive Approach
Demand in next period is the same as demand
in most recent period
May sales = 48

June forecast = 48

Usually not good

2a. Simple Moving Average

Assumes an average is a good estimator of future
behavior
Used if little or no trend
Used for smoothing
AAt t ++AAt -t1-1++AAt -t 2-2 ++...
++AAt -t n-n11
...
FFt t 11 ==
nn
Ft+1
n
At

= Forecast for the upcoming period, t+1

= Number of periods to be averaged
= Actual occurrence in period t

2a. Simple Moving Average

A + A + A + ... + A
FFt 1 == At t + At -t1-1 + At -t2-2 + ... + At -tn-n11
t 1
nn

Youre manager in Al-amal electronics department. You

want to forecast sales for months 4-6 using a 3-period
moving average.

Month
1
2
3
4
5
6

Sales
(000)
4
6
5
?
?
?

AAt ++AAt -1 ++AAt -2 ++......++AAt -n 1

t -1
t -2
t - n 1
FFt 1 == t
t 1
nn

2a. Simple Moving Average

Youre manager in Amazons electronics department.

You want to forecast ipod sales for months 4-6 using a
3-period
moving
average.

Month
1
2
3
4
5
6

Sales
(000)
4
6
5
?
?
?

Moving Average
)n=3(
NA
NA
NA
5=3/(4+6+5)

2a. Simple Moving Average

What if ipod sales were actually 3 in month 4

Month
1
2
3
4
5
6

Sales
(000)
4
6
5
3 ?
?
?

Moving Average
)n=3(
NA
NA
NA
5

2a. Simple Moving Average

Forecast for Month 5?

Month
1
2
3
4
5
6

Sales
(000)
4
6
5
3
?
?

Moving Average
)n=3(
NA
NA
NA
5
4.667=3/(6+5+3)

2a. Simple Moving Average

Actual Demand for Month 5 = 7

Month
1
2
3
4
5
6

Sales
(000)
4
6
5
3
7?
?

Moving Average
)n=3(
NA
NA
NA
5
4.667

2a. Simple Moving Average

Forecast for Month 6?

Month
1
2
3
4
5
6

Sales
(000)
4
6
5
3
7
?

Moving Average
)n=3(
NA
NA
NA
5
4.667
5=3/(5+3+7)

2b. Weighted Moving Average

Gives more emphasis to recent data

FFtt11 == w
w11A
Att ++ w
w22A
Att-1-1 ++w
w33A
Att--22 ++...
...++w
wnnA
Att--nn11
Weights
decrease for older data
sum to 1.0

Simple
Simplemoving
moving
average
averagemodels
models
weight
weightall
allprevious
previous
periods
periodsequally
equally

2b. Weighted Moving Average: 3/6, 2/6, 1/6

FFt t 11 ==ww11AAt t ++ww22AAt -t1-1++ww33AAt -t2-2++......++wwnnAAt -tn-n11

Month
1
2
3
4
5
6

Sales
(000)
4
6
5
?
?
?

Weighted
Moving
Average
NA
NA
NA
5.167 = 31/6

2b. Weighted Moving Average: 3/6, 2/6, 1/6

FFt t 11 ==ww11AAt t ++ww22AAt -t1-1++ww33AAt -t2-2++......++wwnnAAt -tn-n11

Month
1
2
3
4
5
6

Sales
(000)
4
6
5
3
7

Weighted
Moving
Average
NA
NA
NA
5.167 = 31/6
4.167 = 25/6
5.333 = 32/6

3a. Exponential Smoothing

FFt+1 == FFtExample
++ (A
(At -- 1FFt))
t+1

Ai

Given
Giventhe
theweekly
weeklydemand
demand
data
datawhat
whatare
arethe
theexponential
exponential
smoothing
smoothingforecasts
forecastsfor
for
periods
periods2-10
2-10using
using=0.10?
=0.10?
Assume
AssumeFF11=D
=D11

3a. Exponential Smoothing Example 1

FFt+1
=
F
+
(A
F
)
=
F
+
(A
F
t
t
t
t+1
t
t
t)
i

Ai

Fi

F2 = F1+ (A1F1(820820)
)
+820=
820=

3a. Exponential Smoothing Example 1

FFt+1
=
F
+
(A
F
)
=
F
+
(A
F
t
t
t
t+1
t
t
t)
i

Ai

Fi

F3 = F2+ (A2F2)(775820)+820=
815.5=

3a. Exponential Smoothing Example 1

FFt+1
=
F
+
(A
F
)
=
F
+
(A
F
t
t
t
t+1
t
t
t)
i

Ai

Fi

This process
continues
through week 10

3a. Exponential Smoothing Example 1

FFt+1
=
F
+
(A
F
)
=
F
+
(A
F
t
t
t
t+1
t
t
t)
i

Ai

Fi

What if the
constant
equals 0.6

3a. Exponential Smoothing Example 2

FFt+1
=
F
+
(A
F
)
=
F
+
(A
F
t
t
t
t+1
t
t
t)
i

Ai

Fi

What if the
constant
equals 0.6

3a. Exponential Smoothing Example 3

FFt+1
=
F
+
(A
F
)
=
F
+
(A
F
t
t
t
t+1
t
t
t)
i

Ai

Fi

What if the
constant
equals 0.5

Time Series Methods

Linear Trend Line
When demand displays an obvious trend over time, a least
squares regression line , or linear trend line, can be used to
forecast.
Formula:
yabx

xy nxy
b 2
x nx
a ybx

where:
aintercept(atperiod0)
bslopeoftheline
xthetimeperiod
yforecastfordemand
forperiodx

where:
nnumberofperiods
x 1n x
y 1n y

Time Series Methods

Linear Trend Line

Table 5.6
Least Squares Calculations

Time Series Methods

Linear Trend Line
Example: PM Computer Services (see Table 5.6)
x 78 6.5y 557 46.42
12
12
xy nxy 3,867(12)(6.5)(46.42)

1.72
2
2
65012(6.5)
x2 nx
a ybx46.42(1.72)(6.5)35.2
y35.21.72xlineartrendline
forperiod13,x 13,y35.21.72(13)57.56

Example: Sheep sales forecasting

Month Sales (1000s)

1
2.5
2
2.8
3
2.9

Month Sales (1000s)

4
3.2
5
3.3
6
3.4

Example: Sheep sales forecasting

x
y
x2
1
2.5
1
2
2.8
4
3
2.9
9
4
3.2
16
5
3.3
25
6
3.4
36
x=21 y=18.1 x2=91

xy
2.5
5.6
8.7
12.8
16.5
20.4
xy=66.5

Simple Linear Regression

The constants a and b are computed using the
previous equations:

a = 2.387
b = 0.180

Example: Sheep sales forecasting

Y = 2.387 + 0.180X
Y7 = 2.387 + 0.180(7) = 3.65 or 3,650 sheep
Y8 = 2.387 + 0.180(8) = 3.83 or 3,830 sheep
Y9 = 2.387 + 0.180(9) = 4.01 or 4,010 sheep
Note: sales is expected to increase by 180
sheep per month.

Example: Sheep sales forecasting

Y7 = 2.387 + 0.180(7) = 3.65 or 3,650 sheep
Y8 = 2.387 + 0.180(8) = 3.83 or 3,830 sheep
Y9 = 2.387 + 0.180(9) = 4.01 or 4,010 sheep
Note: sales is expected to increase by 180
sheep per month.

Seasonal Variations
Recurring variations over time may indicate the
need for seasonal adjustments in the trend line
A seasonal index indicates how a particular
season compares with an average season
When no trend is present, the seasonal index
can be found by dividing the average value for a
particular season by the average of all the data

Seasonal Variations
Eichler Supplies sells telephone answering
machines
Data has been collected for the past two years
sales of one particular model
They want to create a forecast this includes
seasonality

Seasonal Variations
SALES DEMAND

MONTH

YEAR 1

YEAR 2

January

80

100

February

85

75

March

80

90

April

110

90

May

115

131

June

120

110

July

100

110

August
110
Average monthly demand
=

Table 5.9
September

85

1,128
90
months 12
95

AVERAGE TWOYEAR DEMAND

MONTHLY
DEMAND

AVERAGE
SEASONAL
INDEX

94

0.957

94

0.851

94

0.904

94

1.064

94

1.309

94

1.223

94

1.117

90
80
85
100
123
115
105
= 94

=Seasonal index
100

Average two-year demand

94
1.064
Average monthly demand
94

0.957

Seasonal Variations
Monthly sales of one brand of telephone answering machine at Eichler Supplies are shown in Table 5.9, for the two most recent years. The average demand in each month is computed, and these values are divided by the overall average (94) to find the seasonal index for each month.
We then use the seasonal indices from Table 5.9 to adjust future forecasts. For example, suppose we expected the third years annual demand for answering machines to be 1,200 units, which is 100 per month. We would not forecast each month to have a demand of 100, but we
would adjust these based on the seasonal indices as follows:

Seasonal Variations
The calculations for the seasonal indices are
.Jan

1,200
0.957 96
12

July

1,200
1.117 112
12

.Feb

1,200
0.851 85
12

.Aug

1,200
1.064 106
12

.Mar

1,200
0.904 90
12

.Sept

1,200
0.957 96
12

.Apr

1,200
1.064 106
12

.Oct

1,200
0.851 85
12

May

1,200
1.309 131
12

.Nov

1,200
0.851 85
12

.Dec

1,200
0.851 85
12

June

1,200
1.223 122
12

Market Structures
Perfect competition market
Monopoly market
Monopolistic competition market
Oligopoly market
Comment : The market structures will be discussed in details in the economical
feasibility study.

Market Research and Data

Collection

MAIN DIVISIONS OF

MARKETING RESEARCH

1. Market and Sales Research

2. Product Research
3. Price Research
4. Distribution (Place) Research
5. Promotion Research.

Marketing Research Process

Purpose of Market Research

The Market Research tries to answer the following questions

What is the current or projected demand for your proposed products or
services?.
What are the target markets for this product or service?
What demographic characteristics do these potential customers have in
common? How many of them are there?
What is the projected supply in your area of the products or services needed
for your project?
What competition exists in this market?
Is the location of your proposed business or project likely to affect its success?

Market Analysis Components

An estimate of the size of the market for the
product/service;
Projected market share;
Information about your target market; and
Analysis of the competition.

Market research falls into two main categories:

Primary research is that which collects new data

through market surveys and other field research;
Secondary research includes gathering preexisting information from published sources;

Primary Market Research

To understand the market you have to ask the following questions

What is the growth rate of the market?

In total ?
By segments ?
In the past ?
Projected ?
Who are the customers and potential customers?

Age and gender

family size
Income,
Education
Nationality ?

To understand the market you have to ask the following questions

What benefits are the customers and potential customers seeking?

What is the size of key market segments?

By customer type
By distribution channel

By product differentiation
Is the market cyclical or seasonal ?
Is it a stable industry ?

The Information Required for Market Study

Various information about the population ( age, geographical distribution,
education, ...etc)
Population growth rate
National income, GDP, GNP
Personal income distribution on individual expenditure ( consumer goods
basket)
Data on the substitute and complementary goods
Export and import
Information about the transportation and telecommunication sector
Government policies
Information about the consumer behaviour and preferences
Determine market share
Identify P.E.S.T.spolitical, economic, social, technological factors

Sources of gathering information about the market

Internal Primary Sources includes:

Interview the inventor
Brainstorming with other internal experts
Brainstorming with the sales staff that have direct interact with customers
Scientific observation

External Primary Sources: Collection data directly from the marketplace throughout the following:
Phone surveys
Mail surveys
Focus groups
In-depth customers interviews
Questionnaire

Sources of gathering information about the market

SECONDARY DATA COLLECTION
Secondary data comes from internal and
external sources.
Government datanations most important
source of marketing data.
PCBS statistics
Private data from business and trade
magazines, and other sources.
Online sources such as databases and research
aggregators that acquire, catalog, reformat,
segment, and resell premium research reports.
Internet discussion groups, chat rooms, and
newsgroups.

Developing of Sales Plan

Developing of the Sales Plan

Developing of the sales plan includes the following three

components :
Pricing plan
Promotion plan
Distribution plan

Pricing plan
Most organizations have pricing strategies in place to ensure that
decision making by their sales staff is consistent. Pricing
strategies may be set to take into account and reflect pricing:

Relative to competition
Relative to costs
Uniformity of prices for different customers
List prices
Discounts
Geographical pricing
Price leadership

Pricing plan
Product line pricing
Competitive bidding policy
You should also be able to set three levels of prices for
different quality
products or services:
1. Budget price
2. Standard price
The company has to ask the following questions related to its
planned prices:
What's the right price for this product?
How are prices set ?

Promotion plan

What plans do you have for promotions related to the

following points:
Objectives
Advertisement
Message
Budget
Tools
Media
The appropriate time

Distribution plan

What plans do you have for distribution related to the

following components:
Objectives
Efficient channels of distribution
Will you have a warehouse close to your customers ?
Intensity of distribution (intensive to exclusive)
Types of wholesalers and retailers (discounters, etc)
Degree of channel directiveness
Adequate stock levels