Market and demand Analysis

 

Market and demand Analysis is conducted to know about the aggregate demand for the product or service and the market share that the proposed project will enjoy. 

Market and demand Analysis involves the following activities : –

 

(A) Situational analysis and specification of objectives →

A situational analysis must be done to know about –

(a) The preferences and purchasing power of customer

(b) Action and strategies of the competitors

(c) Practices of middle man

Specification of objectives helps the organization to move towards a particular direction. The objectives to be focused on are: 

(a) Potential buyer

(b) Total demand

(c) Break up of demand

(d) Type of distribution channel

(e) Prices and warranties

 

(B) Collection of secondary information →

Secondary data is gathered in some other context and is already available in market.  It is not conducted by researcher himself. A researcher may use the following sources :-

• Census survey
• National sample survey reports
• 5 years plans 
• India year book
• Economic survey reports
• Political survey reports
• Annual survey of industries
• Annual bulletin of export and import
• Stock exchange directory
• Monthly bulletins of RBI
• Publications of advertising agencies
• Industry potential surveys

Once collected, this information is evaluated to judge its reliability, accuracy and relevance to the project.

 

(C) Conduct of Market Survey →

 

Secondary data does not provide comprehensive information.  It has to be supplemented with collection of primary data.  Primary information is gathered through market surveys specially for a particular project. Market surveys may be census survey or sample survey. In a census survey the whole population is considered while in a sample survey a sample of population is observed to gather relevant information. They are conducted to gather information regarding –

• Total demand
• Growth of demand
• Income
• Buying motive
• Purchase plans
• Unsatisfied needs and attitude of people towards products and services
• Characteristics of buyer

 

Steps in Sample Survey →

 

(i) Defining the target population – The researcher must carefully choose the target population that is to be surveyed. 

(ii) Selecting the sample scheme and size – It may be a census survey or a sample survey.

Probability sampling (Every sample has an equal chance to be selected) OR Non-probability sampling ( No equal chance, some are preferred some are not) method may be used.

(iii) Developing the Questionnaire – A questionnaire may be Structured or Unstructured with Open end questions (give a statement or view) or close end questions (yes/no,multiple choice). After developing the questionnaire a pilot survey is done to look for any mistakes/difficulties.

(iv) Recruiting and training the field investigators – Investigators with good knowledge of the product and good technical knowledge must be recruited and proper training must be provided to them.

(v) Obtaining the information according to questionnaire – The Investigators take personal interviews, telephonic interviews and mail the questionnaires to the sample population to collect responses.

(vi) Scrutinizing the information gathered – The Information gathered may be inconsistent and the responses may be biased. Therefore the information gathered is analysed and scrutinized to eliminate irrelevant and unwanted data.

(vii) Analysing and interpreting the information –  A statistical analysis using Parametric and Non parametric methods is done to analyse and interpret the information.

 

(D) Characterization of Market 

The market for the product or service is described in terms of the following factors based on the information collected through market surveys and secondary sources. These factors are :- 

1. Effective demand in the past/present and future
2. Breakdown of demand
3. Methods of distribution and sales promotion
4. Types of consumer
5. Listing of supply and competition
6. Government policies
7. Price

 

(E) Demand forecasting →

It refers to estimation of future demand for a product or service. Forecasting methods may be broadly divided into three categories i.e. Qualitative methods, Time series projection methods and causal methods :-  

 

Qualitative Methods →

 

(i) Jury of executive opinion method → It involves soliciting the opinions of a group of Managers on expected future sales and combining them into a sales estimate.

Advantages 

1. It considers a variety of factors
2. Cheap method for developing demand forecasting

Disadvantages

1. The managers may be bias
2. The reliability of the technique is always in question

(ii) Delphi Method → It is used for eliciting the opinions of a group of experts with the help of mail survey.

Steps →

(a) A Group of experts are sent questionnaire and asked to express their views.

(b) The responses received are summarized and another questionnaire based on this response is sent back, not revealing the identity of the experts.

(c) The process is continued till a reasonable agreement emerges.

 

Time series Projection Method → It involves analysis of historical time series.

 

(i) Trend Projection Method →  It works on a linear relationship 

Y_t = a + bt 

Where Y_t = demand for a year

              t = time variable

              a = intercept of relationship

              b = slope of relationship

(ii) Exponential smoothing method →  In this method forecasts are modified in the light of observed errors using relationship –

 F_{t + 1} = F_t + d et

Where            Ft + 1 = forecast for the year t+1

                        d = smoothing parameter

                        et = is the error in the forecast for the year t

(iii) Moving Average  Method → In this method forecast for next period is equal to the average of sales in several preceeding years.

 

Casual Method → It uses the phenomenon of change in one parameter due to the change in another parameter to develop a cause effect relationship which can be converted into quantitative method.

 

(i) Chain Ratio Method – Under this method the potential sales of a product may be estimated by applying a series of factors to a measure of aggregate demand. It uses a simple analytical approach for estimating demand. Its reliability depends upon the ratio and rates used in the process, one ratio leads to another.

 

(ii) Consumption level Method – It is used for products which are directly consumed.  Consumption level is estimated on the basis of elasticity co-efficient for a product.

 

(iii) End user Method – It is suitable to estimate demand of intermediate products and it involves following steps –

• Identifying the possible uses of product
• Identifying the consumption co-efficient of the product for various uses.
• Projecting the output level for consuming industries
• Deriving the demand for the product.

 

(iv) Bass diffusion Method – It was developed by Frank Bass . Under this method sales is estimated OTB of –

p = co-efficient of innovation

(Probability of people to buy the product because it is innovative)

q = co-efficient of imitation

(Probability of people to buy the product as others have bought it)

The two main question that an analyst has to answer are : Is the product innovative? and Are people buying the product?

 

(v) Leading indicator method – There are Leading variables which change ahead of other variables called lagging variables. For e.g. Change in level of urbanization used to predict change in demand for cars.

 

(vi) Econometric method – It involves estimating quantitative relationships derived from economic theory.

 

(F) Market Planning →

In order to penetrate the market and achieve pre-determined objectives an appropriate marketing plan must be developed covering all aspects related to product, price, place and promotion. It involves the following steps:-