Chapter 5.

MARKET
MEASUREMENT
BA 315 - L.P.Chew

OUR TERMINOLOGY…
POTENTIAL= POSSIBILITIES
FORCAST = EXPECTATIONS
MARKET = INDUSTRY
SALES = COMPANY
Market Potential and Sales
Forecasting
• Potential: The maximum sales
reasonably attainable under a
given set of conditions within a
specified period of time.
–An upper limit or ceiling on
sales.
Market Potential and Sales
Forecasting
• Forecast: The amount of
sales expected to be
achieved under a set of
conditions within a specified
period of time.
–What you expect to sell.
Estimating Market Potential
• Determine the potential
buyers or users of the
product.
• Determine how many
individual customers are in
the potential groups of
buyers defined in step 1.
• Estimate the potential
purchasing or usage rate.
now review a regional
player…..DOBBS AUTO

Estimate the
potential
purchasing or
usage rate &
forecast
Forecasting
• Sales forecasts are essential for
production planning.
• Scenario planning, asking “what-if”
questions.
• Judgement methods, which rely on
pure opinions.
• Counting methods, which use
customer data.
• Time-series methods.
• Association/causal methods, model
relating market factors to sales.
Time-Series Methods
• Moving Averages - uses
averages of historical sales
figures to make a forecast.
• Exponential Smoothing - relies
on the historical sales data and
is more complicated than the
moving average.
• Extrapolation - linearly
extrapolates data.
Association/Causal Methods

• Correlation.
• Regression Analysis.
 Market potential & sales forecasts
Market potential estimates and sales forecasts
complement each other in the marketing
planning process. Market potential data is used
to help the firm decide which opportunities to
pursue & the level of expenditure to apply to
each opportunity. The sales forecast is applied
to: making decisions on short term,tactical
issues; planning production inventory &
working capital; and the like.
The formulation of market strategy is
planned on the basis of the
marketing potential associated with
each of the firm's target segments
Once marketing strategy
plans are set, a sales forecast
can be developed and then
used to guide tactical
production, advertising, and
logistics decisions
Chapter 5. Organizational
Demand Analysis

• pivotal role of market potential

analysis and sales forecasting in
planning and controlling marketing
activities, and to provide a firm
understanding of the various
approaches for measuring potential
and forecasting sales.
Chapter 5. Organizational
Demand Analysis
• chapter focuses on the different
approaches for calculating market and
sales potentials
• qualitative and quantitative forecasting
approaches are discussed in terms of the
applicability to various forecasting
situations. Executive judgment, sales force
composite, and the Delphi method are the
qualitative forecasting methods
Chapter 5. Organizational
Demand Analysis
• Quantitative methods, including time
series analysis and causal techniques
• Executive judgment, sales force
composite, and the Delphi method are the
qualitative forecasting methods
• These qualitative methods are most
effectively applied to forecasts for new
products or in situations where little
historical data exists
Methods of Sales Forecasting (1)
1. Simple Trend Analysis—sales forecast
based on firm’s recent performance.
2. Market Share Analysis—similar to trend
analysis but assumes market share will
stay the same.
3. Jury of Executives—company experts
predict sales.
4. Sales Force Surveys—salespeople share
experiences and customer feedback.
5. Consumer Surveys—measure attitudes,
purchase intentions, expectations,
consumption rates, and SWOT.
Methods for Sales Forecasting (2)
6. Chain-Ratio Method—firm starts with general
market information and then computes a series
of more specific information. Combined data
yield a sales forecast.
7. Market Build Up Method—firm gathers data from
small, separate market segments and aggregates
them.
8. Test Market—sales estimate from short-run,
geographically limited sales of new products.
9. Advanced Statistical Analyses—methods for
sales forecasting that include computer
simulations
TIME SERIES
• Time series models are based on the
accuracy of historical sales patterns
when sales trends are not likely to
change in the future. Time series
models are most useful when market
forces are relatively stable within
forecasting horizon.
Moving averages/ exponential
smoothing
• Moving averages is a method
based upon a specified historical
period to forecast the value for a
future period.
• When differential weights are
desired, such as for recent years,
exponential smoothing can be
used.
Multiple regressions models
• Multiple regressions models, employed
when a number of factors have an impact
on sales, allow managers to forecast
industry sales, as well as incorporate the
expected effects of any controllable
marketing variables which are likely to
be significant when forecasting company
sales.
Sales penetration is the degree to
which a company achieves its sales
potential. A high level of sales
penetration
• usually means
there is little room for growth.
1. Sales penetration = Actual sales/Sales
potential.
2. A firm with high sales penetration must
realize that diminishing returns may occur if it
attempts to convert remaining nonconsumers,
since costs may outweigh revenues. Other
segments may be better opportunities.
LINDELL MANUFACTURES INK
FOR FOUR TYPES OF PRINTERS
IN FIVE STATES.
HISTORICAL SALES DATA SHOWS
THAT INK COSTS THESE
PRINTERS .1% OF EACH SALES
DOLLAR.
• HOW MUCH INK DID THEY CONSUME IN THE
MOST RECENT YEAR THAT YOU ARE ABLE TO
FIND IN OUR LIBRARY. I SUGGEST THAT YOU USE
THE 1997 CENSUS OF MANUFACTURESOR THE
MOST CURRENT ANNUAL SURVEY OF BUSINESS
(MANUFACTURES).
LINDELL MANUFACTURES INK
FOR FOUR TYPES OF PRINTERS
IN FIVE STATES.
• PLEASE CONSULT YOU PACKET FOR A
LIST OF SECONDARY DATA SOURCES TO
ACCESS INCLUDING THE
AFOREMENTIONED. KEY: USE $ VALUE
OF SHIPMENTS.

• YOU MAY WORK WITH THE SIC CODES,

RATHER THAN THE NAICS CODES, BECAUSE
THEDATA MAY BE EASIER TO FIND IN SIC,
WHILE WE ARE IN TRANSITION FROM SIC TO
NAICS
LINDELL MANUFACTURES INK
FOR FOUR TYPES OF PRINTERS
IN FIVE STATES.
. • STATES.....PENNSYLVANIA, OHIO,
MICHIGAN, INDIANA AND ILLINOIS

• SIC / NAICS CODES OF PRINTERS.........

• 2711- NEWSPAPERS

• 2721- MAGAZINES

• 2732- BOOK

• 2741- OTHER PRINTING

LINDELL MANUFACTURES INK.
• A- WHAT WAS THE TOTAL INK/PRINTER
MARKET FOR THIS FIVE STATE REGION?

• B- WHAT IS THE TOTAL MARKET BY STATE?

• C- WHAT IS THE RELATIVE MARKET FOR

EACH STATE?

• D- HOW WOULD YOU PROJECT THE $

MARKET FOR THE COMING YEAR 2003?
PLEASE PREPARE THE
EXERCISES AT THE END OF
THE CHAPTER AND THOSE
CASES IN YOUR PACKET. NOW
GO FOR IT!!!
• OPPORTUNITYISNOWHERE!!!