Market & Demand

Analysis
MARKET & DEMAND ANALYSIS
It involves the estimation of the potential size
of the market for the proposed product or
service.
Basically it tries to answer 2 questions:
What is the likely aggregate demand for the
product/service?
What share of the market will the proposed
project enjoy?
STEPS INVOLVED IN MARKET & DEMAND
ANALYSIS
Situational analysis & specification of
objectives
Collection of secondary information
Conduct of market survey
Characterization of the market
Demand forecasting
Uncertainties in demand forecasting
Market planning


SITUATIONAL ANALYSIS & SPECIFICATION OF
OBJECTIVES

The project analyst may informally talk to
customers, competitors, middlemen, and
others in the industry.
Specification of objectives can be in the form
of questions like:
Who is the buyer of the product?
What is the total current demand of it?
How is the demand distributed over the year and
geographically?

What price will be the customers will be
willing to pay for the product?
How can potential customers be convinced
about the product?
What channels of distribution are most suited
for the product?
COLLECTION OF SECONDARY INFORMATION
In order to answer the questions listed in the
previous slide, information may be obtained
from secondary data and/or primary data.
The important sources of secondary data in
India are as follows:
Census of India
National sample survey reports
Plan reports
Statistical year book
Guidelines to industries


CONTINUE
Annual survey of industries
Stock exchange directory
Monthly bulletin of RBI
Other publication
Various association bodies

CONDUCT OF MARKET SURVEY
Define the target population
Select the sampling technique and sample
size
Develop a questionnaire
Recruit and train the field investigators
Get the questionnaire filled
Scrutinise the information gathered
Analyse and interpret the information
CHARACTERISTICS OF THE MARKET
Based on the information gathered form
secondary and primary data, market for the
product/service may be described in terms of
the following:

Effective demand in the past and the present
Production + imports-exports-changes in stock
level


BREAKDOWN OF DEMAND

To get a deeper insight into the nature of demand,
the aggregate demand may be broken down
into demand for different segments of the
market. Market segments may be defined by
Consumer groups
Consumers of a product may be divided into
industrial consumers and domestic consumers.
Industrial consumers may be sub-divided industry
wise.
Domestic consumers may be divided into different
income groups.

Nature of product
One product may be used for production of
different products. Ex: Steel
Price
Price statistics must be gathered along with
statistics pertaining to quantities. It
distinguish prices like wholesale price, retail
price, etc
METHODS OF DISTRIBUTION & SALES
PROMOTION
The method of distribution and sales
promotion may vary with the nature of the
product.
Such method and sales promotion employed
presently and their rationale must be
specified.
SUPPLY AND COMPETITION
It is necessary to know the existing sources
of supply and whether they are foreign and
domestic.
Competition from substitutes should be
specified because almost any product may
be replaced by some other product.

GOVERNMENT POLICY
Govt. plans and policies, which have a
bearing on the market and demand of the
product should be spelt out.
These are reflected in:
Production targets in national plans
Import and export trade controls
Industrial licensing
Credit controls
Financial regulations
subsidies
DEMAND FORECASTING
An attempt is also made to estimate future
demand. Methods of demand forecasting are
as follows:
Qualitative methods
These methods rely essentially on the judgement
of experts to traslate qualitative information into
quantitative estimates. The methods are
Jury of executive method
Delphi method
TIME SERIES PROJECTION METHODS
These methods generate forecasts on the
basis of an analysis of the historical time
series. The important methods are:
Trend projection method
Exponential smoothing method
Moving average method

Exponential smoothing method
In this methods, forecasts are modified in the light
of observed errors. If the forecast value for a
particular year is less than the actual value for
that year than an observed error is entered for
the future years.
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.
Trend projection method
It involves determining the trend of consumption
by analyzing the past and than project the future
consumption.
CAUSAL STUDY
This method seeks to develop forecasts on the
basis of cause and effect relationship. The
methods are:
Chain ratio method
Consumption level method
Leading indicator method
Econometric method
CHAIN RATIO METHOD
The potential sales of a product is estimated by
applying a series of factors to a measure of
total demand.

Consumption level method
This method estimates consumption level on
the basis of elasticity coefficients like income
elasticity of demand. The formula is


Projected present per 1+ per capita Income
Per capita = capita change in elasticity
Demand demand income of
level demand
LEADING INDICATOR METHOD
Leading indicators are variables which
change ahead of other variables, lagging
variables. Hence, observed changes in
leading indicators may be used to predict the
changes in the lagging variables.
ECONOMETRIC METHOD
This method uses the relationship between
the dependent and the independent variable
to forecast the future demand.
The demand of a particular product is
dependent on the price of the product at a
given point of time.
UNCERTAINTIES IN DF
Methods of forecasting
Inability to handle unquantifiable factors
Unrealistic assumptions
Data about past an present market
Few observations
Lack of standardization of product, price,
quantity, cost etc
Influence of abnormal factors like natural
calamity, war etc
Environmental changes
Technological changes
Change in govt. policy
Discovery of new sources of raw material
Monsoon
Developments on the international scene

MARKET PLANNING
A marketing plan usually has the following
components:
Current market situations
Market situations
Size, growth, consumer aspiration & buying beh.
Competitive situations
Major competitors, their objectives, strategies, strength
Distribution situations
Dist. Capabilities of the competitors
Macro environment
Effect of social, political, economic, technological on the
market

Opportunity and issue analysis
A SWOT analysis is conducted and the core
issues before the product are identified.

Objectives
Objectives have to be clear cut, specific and
achievable

MARKETING STRATEGIES

Target segment
Positioning
How a product is placed in the mind of customers
Product line
One variant or more than one
Price
Distribution
Sales force
Sales promotion
Advertising

ACTION PROGRAMME

Action programme operationalise the strategy
for the product.