Market and Demand Analysis

Introduction:
The success of any project depends on the demand for the
output produced by it. Catering an unfulfilled need should
the ultimate objective of commercial projects, if they should
succeed. Identifying the need, or the potential demand for
the product is the main issue involved.
Identification of the target market:
Study of the market needs a detailed analysis of:
1. Whether the consumers can be classified on the basis of
• Income groups
• Age groups
• Industries
• Geographical distributions
• Sex
• Or any combination of these or any other factors,
called the market structure. The component of the
market which should be targeted should be identified.
 2. The nature of demand, i.e. monsoons, personal
disposable income, prices, fashion, or any other factor.

3. Size of the market: In case of an existing product, the

present market share of the company, that of its main rivals
and if the market share should be increased, the hurdles
likely to be faced.

4. If the presently known market is not attractive,

whether any other markets offer potential for selling the
product.

Choice of the market strategy:

For laying down a clear cut marketing strategy, the
following aspects have to be considered:
 The channels of distribution, keeping in view those used
by the competitors and their efficacy and whether
any innovative channels can be identified.
 Advertise – when, where and how? Check on the spending.
In case of new product, whether introduction of the same
product under a well established brand name will adversely
affect the sales and if yes, how to counter such an event.

 The price at which the product can be sold, considering

the prices of competitors’ products and the ability to
withstand a price war.

 The nature and frequency of the after sales service

required to support the product.
Projection of demand:
Based on primary data:
The following steps are required:
 Statement of Objectives – the output required from the
study.
 Specifications of data required
 Design of the sample
  Mode of collection of data
 Conducting the survey and obtain data
 Analysis and conclusion

Advantages of Primary Data:

i. The accuracy of the study will be high.
ii. Analysis will be easier, as data specifically required
is collected.

Problems in collecting primary data:

1) Sampling involves sacrificing a part of the accuracy to
reduce the costs.
3) Reliability is lower if the response required is a question
of opinion rather than the fact.
5) Testing of the questionnaire on insiders before survey
to avoid vague answer from the respondents.
4) Confidential or embarrassing information may not be
responded.
 5) The appearance and manners of the interviewer and a
presence of a third person may affect the responses.
6) Respondents may find it difficult to answer some
questions as they do not know the answer.

Based on secondary data:

Two basic types of sources: Internal and External
Internal:
The past records of an organization offer substantial
information. The information relating to the trends in sales
can be used to get first a broad idea of the market condition.
External:
 Market Research Organizations:
Like MARG, ABC , CMIE, Trade Journals etc.
 Trade Associations:
Like FICCI, CII, Local chamber of industries etc.
 Government Research Organizations:
Central Statistical Organization, RBI etc.
Advantages of Secondary Data:
i. It is available easily and saves time.
ii. It may be cheaper than collecting it first hand, if the
data required is standard data.
iii. Data collected by professional research organizations
may be more accurate and reliable.
Disadvantages of Secondary Data:
i. For providing highly user-specific information, research
organizations charge heavily.
ii. The user can often have no direct check on the quality of
the data collection process of the research agency.
iii. The plans of the user to enter into a specific area of the
market may not remain confidential.
If the research organization or agency or other sources
analyzes the data, and provides the conclusions the user needs
on the market, there is nothing else to do to form an opinion of
the market. But, if only data is available, the data will have to
be analyzed and the user will have to make his forecasting.
Projection of Demand using Quantitative and Qualitative Models:
 Quantitative Models

A. Time Series Projection Models

Moving Average Models

i. Simple Moving Average

ii. Exponential Smoothing
iii. Adjusted Exponential Smoothing

B. The Cause and Effect Models

Regression Models

i. Simple Regression
ii. Econometric Method
iii. Consumption Level Method
• Income Elasticity of Demand Method
• Price Elasticity of Demand Method
Qualitative Models:
Introduction:
It is not always possible to apply the quantitative methods
because:
i. There may not be enough time to make a quantitative
estimation.
ii. The data required for a quantitative estimation may not
be easily available or be too expensive.
Qualitative methods, which involve estimating the demand
subjectively, are used. These methods are quick and simple,
but the element of subjectivity, which is their main defect,
should be kept in view while using them.
The most popular qualitative methods are:
• Field Sale Force Method
• Users’ Expectations
• Delphi Method
• Jury of Executive Opinion Method
Field Sales Force Method:
The salesmen are asked to estimate the potential for sales
during the forecast period in their territory. All forecasts
from each territory are then pooled up and the sales
forecast of the entire firm is arrived at.

The advantage is:

• its quickness and better knowledge of the market changes
to the salesmen, and
• hence it is reliable forecast without spending money on
collection of data and application of forecasting models.

The drawbacks are:

• When salesmen incentives are based on realization of
targets, they tend to underestimate demand.
• If allocation of scarce resources are based on demand
projections, there may be a tendency to overestimate
demand.
Users’ Expectations Method:
Instead of the opinions of the salesmen, the buying plans of
the customers may be found out directly from them.
o Customers may be contacted by sending questionnaires
or through telephonic interviews.
o Though the bias of the salesmen does not color the output
in this method, the forecast is still influenced by the
subjectivity, errors and changes in buying plans of the
customers.
o This method calls for a large staff to carry out the survey
for a large organization.
o Positive aspect:
This method gives first hand knowledge of the customers’
expectations, possible improvements and competitiveness
of the product in terms of quality and price.
This method is used by relatively small organization and
where it has limited number of customers within the
small territory.
Delphi Method:
Estimates are called from a group of people considered to
be experts in the field. But, the group ( panel of experts) is
not allowed to meet and discuss or debate each other
opinion. Individual experts are asked to give their estimates
independently. This is aimed at avoiding those who are
dominant influencing the opinion of the others. A panel
coordinator carries out the job of reconciling the views of
all of them. Those whose opinions are well off the average
are asked to explain the rationale of their position.
A second round of questionnaire is sent to them.
When a reasonable consensus is arrived at, the coordinator
sums up the outcome of the exercise and calculates the
demand.
Drawback:
Considerable skill and tact are required on the part of the
coordinator in handling the experts and bringing out a
consensus.
 However, this is a good method to use when the forecast
depends on subjective elements such as forecasting various
scenarios and the conditions of an economy in each of the
scenarios.

Jury of Executive Opinion Method:

This method is a variation of the Delphi method. A group
of managers is asked to sit together and arrive at a forecast.
This method is popular because:
• It is quick.
• The viewpoints of all the people can be taken into
account.
• It is more interesting to managers compared to
trend projection methods.
Limitations:
• The opinion of the managers may be biased.
• It is sometimes difficult to arrive at consensus
quickly.
Conclusion:
Notwithstanding any method being used, it is essential to
carry out the entire study and analysis of the market
meticulously. Errors made at any stage –
• identifying the target market,
• designing the marketing strategy, or
• estimating the quantity of demand –
can have a devastating effect on the viability of the project.
It is, therefore, essential to have a thorough knowledge of
what the market is and how it can be exploited before
starting a project.