Mma6e chapter-03 final

Marketing Management:An Asian Perspective, 6th Edition

Instructor Supplements Created by Geoffrey da Silva

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Gathering Information and Forecasting Demand

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Learning Issues for Chapter Three

1. What are the components of a modern marketing information system?

2. What are useful internal records?

3. What is involved in a marketing intelligence system?

4. What are the key methods for tracking and identifying opportunities in the macroenvironment?

5. What are some important macroenvironment developments?

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Understanding the Marketing Environment

• Making marketing decisions in a fast-changing world is both an art and a science.

• To provide context, insight, and inspiration for marketing decision making, companies must possess comprehensive, up-to-date information about macro trends, as well as about micro effects particular to their business.

• Holistic marketers recognize that the marketing environment is constantly presenting new opportunities and threats, and they understand the importance of continuously monitoring, forecasting, and adapting to that environment.


Components of a Modern Marketing Information System

• The major responsibility for identifying significant marketplace changes falls to the company’s marketers.

• Marketers have two advantages for the task: disciplined methods for collecting information, and time spent interacting with customers and observing competitors and other outside groups.

• Some firms have marketing information systems that provide rich detail about buyer wants, preferences, and behavior.


Components of a Modern Marketing Information System

• Every firm must organize and distribute a continuous flow of information to its marketing managers.

• A marketing information system, or MIS, consists of people, equipment, and procedures to gather, sort, analyze, evaluate, and distribute needed, timely, and accurate information to marketing decision makers.

• It relies on internal company records, marketing intelligence activities, and marketing research.

• The company’s MIS should be a cross between what the managers think they need and what they really need, and what is economically feasible.


Table 3.1: Information Needs Probes


Internal Records

To spot important opportunities and potential problems, marketing managers rely on internal reports of orders, sales, prices, costs, inventory levels, receivables, and payables.


The Order-to-Payment Cycle

• The heart of the internal records system is the order-to-payment cycle.

• Sales representatives, dealers, and customers send orders to the firm.

• Because customers favor firms that can promise timely delivery, companies need to perform these steps quickly and accurately.

• Many firms use the Internet and extranets to improve the speed, accuracy, and efficiency of the order-to-payment cycle.


Sales Information Systems

• Marketing managers need timely and accurate reports on current sales.

• Companies that make good use of “cookies,” records of Web site usage stored on personal browsers, are smart users of targeted marketing.

• Companies must carefully interpret the sales data so as not to draw the wrong conclusions.


Databases, Data Warehouses, and Data Mining

• Companies organize their information into customer, product, and salesperson databases—and then combine their data.

• Companies warehouse these data for easy accessibility to decision makers.


The Marketing Intelligence System

• A marketing intelligence system is a set of procedures and sources that managers use to obtain everyday information about developments in the marketing environment.

• The internal records system supplies results data, but the marketing intelligence system supplies happenings data.


The Marketing Intelligence System

• Marketing managers collect marketing intelligence in a variety of different ways, such as by reading books, newspapers, and trade publications; talking to customers, suppliers, and distributors; monitoring social media on the Internet; and meeting with other company managers.


Eight possible actions to improve the quantity and quality of a company’s marketing intelligence:

1. A company can train and motivate the sales force to spot and report new developments.

2. A company can motivate distributors, retailers, and other intermediaries to pass along important intelligence.

3. A company can hire experts to collect intelligence.

4. A company can network internally and externally.


Eight possible actions to improve the quantity and quality of a company’s marketing intelligence:

5. A company can set up a customer advisory panel.

6. A company can take advantage of government-related data resources.

7. A company can purchase information from outside suppliers.

8. A company can use online customer feedback systems to collect competitive intelligence.


Using the Sales Force to be Intelligence Gathers

Hindustan Unilever trains its sales force to reach out to India’s rural villagers. Its sales force collects information on village size, composition, electrical capacity, and use of hygiene products to help the company develop more effective marketing programs for this customer group.


Collecting Marketing Intelligence on the Internet

Due to the explosion of outlets available on the Internet, online customer review boards, discussion forums, chat rooms, and blogs can distribute one customer’s experiences or evaluation to other potential buyers and, of course, to marketers seeking information about the consumers and the competition.


Five main ways marketers can research competitors’ product strengths and weaknesses online: • Independent customer goods and service review forums.

• Distributor or sales agent feedback sites.

• Combo-sites offering customer reviews and expert opinions.

• Customer complaint sites.

• Public blogs.


Communicating and Acting on Marketing Intelligence

• In some companies the staff scans the Internet and major publications, abstracts relevant news, and disseminates a news bulletin to marketing managers.

• The competitive intelligence function works best when it is closely coordinated with the decision-making process.


Analyzing the Marketing Environment

Successful companies recognize and respond profitably to unmet needs and trends.


Trends and Megatrends

Enterprising individuals and companies manage to create new solutions to unmet needs.

a.A fad is “unpredictable, short-lived, and without social, economic, and political significance.”

b.A trend is a direction or sequence of events with momentum and durability.

c.Trends are more predictable and durable than a fad.


Trends and Megatrends

d. A trend reveals the shape of the future and provide strategic direction.

e. Megatrends are a “large social, economic, political, and technological changes [that] are slow to form, and once in place, they influence us for some time—between seven and ten years, or longer.

f. Trends and megatrends merit close attention.

g. To help marketers’ spot cultural shifts that might bring new opportunities or threats, several firms offer social-cultural forecasts.


Trend or megatrend?

Is Asians’ craze for all things Korean a fad, a trend, or a megatrend? Fads are short-lived while trends have momentum and are long lasting.


Megatrends in China


Trends Shaping the Business Landscape

• Profound shifts in centers of economic activity

• Increases in public-sector activity

• Change in consumer landscape

• Technological connectivity

• Scarcity of well-trained talent

• Increase in demand for natural resources

• Emergence of new global industry structures

• Ubiquitous access to information

• Management shifts from art to science

• Increase in scrutiny of big business practices


Identifying the Major Forces of Change

• The end of the first decade of the new century brought a series of new challenges: the steep decline of the stock market, which affected savings, investment, and retirement funds; increasing unemployment; corporate scandals; stronger indications of global warming and other signs of deterioration in the national environment; and of course, the rise of terrorism.

• These dramatic events were accompanied by the continuation of many existing trends that have already profoundly influenced the global landscape.


Environmental Forces—Firms must monitor six major forces in the broad environment:

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Demographic

EconomicPolitical-Legal

Socio-CulturalTechnological

Natural

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Demographic Environment

The main demographic force that marketers monitor is population because people make up markets.

Marketers are keenly interested in the:

• Size and growth rate of populations in cities, regions, and nations.

• Age distribution and ethnic mix.

• Educational levels.

• Household patterns.

• Regional characteristics and movements


Worldwide Population Growth

• World population growth is explosive: Earth’s population totaled 6.8 billion in 2010 and will exceed 9 billion by 2040.

• Population growth is highest in countries and communities that can least afford it.

• A growing population does not mean growing markets unless there is sufficient purchasing power.


Table 3.2: The World as a Village


Table 3.3: Asian Population Statistics

Note: A growing population does not mean growing markets unless these markets have sufficient purchasing power.


Companies that carefully analyze their markets can find major opportunities: China’s “Little Emperors

Child-care facilities such as BabyCare are riding on Chinese parents’ indulgence on their “Little Emperors.” Besides conducting classes to develop young children’s spatial perception and motor skills, BabyCare also generates revenue from the sales of supplements and educational toys.


Marketing Insight: Finding Gold at the bottom of the pyramid

• There are 5 billion unserved and underserved people at the so-called “bottom of the pyramid.”

• One study showed that 4 billion people live on $2 or less a day. Firms operating in those markets have had to learn how to do more with less.


Key Trends in the Demographic Environment


Population Age Mix

• National populations vary in their age mix.

• At one extreme is Indonesia, a country with a young population and rapid population growth.

• At the other extreme is Japan, a country with one of the world’s oldest populations.

• Milk, diapers, school supplies, and toys would be important products in Indonesia while Japan’s population would consume more adult products.


Population Age Mix

A population can be subdivided into six age groups:

– Preschool children– School-age children– Teens– Young adults age 20 to 40– Middle-aged adults age 40 to 65– Older adults ages 65 and up

• Cohorts are groups of individuals born during the same time period who travel through life together.


Ethnic and Other Markets

• Countries also vary in ethnic and racial make-up.

• At one extreme is Japan, where almost everyone is Japanese; at the other is the U.S., where people come from virtually all nations.

• Ethnic groups have certain specific wants and buying habits. They prefer certain types of food and clothing.


Ethnic and Other Markets

• They speak different dialects and languages, which may necessitate the employment of salespeople and telemarketers of different ethnicities and linguistic skills, and the use of suitably translated marketing communications materials and appropriate media vehicles.

• Marketers also need to be careful that they do not engage in marketing tactics that may offend certain ethnicities or religions.


Marketing and Sensitivity to Different Cultures

McDonald’s, in deference to Islamic sensitivities, replaced the robotic cat Doraemon toy charm with a Cupid version, giving an incomplete Chinese zodiac collection.


Avoid Over-Generalizing About Ethnic Groups

• Marketers must be careful not to overgeneralize about ethnic groups.

• Within each ethnic group are consumers who are quite different from each other.

• Asia’s ethnic diversity, reflected in Tables 3.4 and 3.5, shows that the 12 Asian countries have more than 20 major languages and 12 major religions.

• Just as significant is the number of major languages and religions in some of the countries, which suggests substantial diversity within their national borders.


Table 3.4: Major Asian Languages


Table 3.5: Major Asian Religions


Educational Groups

• The population in any society falls into five educational groups: illiterates, high school dropouts, high school degree holders, college degree holders, and professional degree holders.

• The desire for Asians to upgrade their knowledge and skills spell a high demand for quality books, magazines, and educational programs in the region.


Educational Groups

• Many universities have established offshore campuses in various Asian countries or have partnered local schools to introduce joint degree and executive programs.

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Monash University from Australia has partnered with the Sunway Group in Malaysia to set up the Monash-Sunway campus.


Household Patterns

• The “traditional household” consists of a husband, wife, and children (and sometimes grandparents).

• In Asia, extended families are common.

• In some countries, there may be “non-traditional” households which include single live-alones, adult live-togethers of one or both sexes, single-parent families, childless married couples, and empty-nesters.

• More people are divorcing or separating, choosing not to marry, marrying later, or marrying without the intention to have children.

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Distinctive Needs of Different Household Groups

• Each group has a distinctive set of needs and buying habits.

• The single, separated, widowed, and divorced need smaller apartments; inexpensive and smaller appliances, furniture, and furnishings; and smaller-size food packages.

• Marketers must increasingly consider the special needs of non-traditional households, because they are growing rapidly.


Geographical Shifts in Population

• This is a period of great migratory movements between and within countries.

• For example, the establishment of Special Economic Zones along coastal China led to many inlanders moving to such cities as Shenzhen. Neighboring Hong Kongers have also flocked to the city for its better job prospects and lower cost of living.


Geographical Shifts in Population

• This has led to a narrowing of property prices between the two cities, and the launch of more housing projects in Shenzhen.

• Another example is the entry of China into the World Trade Organization which saw the influx of migrants and the return of those who had left China earlier.

• Forward-looking companies and entrepreneurs are taking advantage of the growth in immigrant populations and marketing specifically to these new and successful members of the population.


Rural Marketing in India

• Over the years, the economic growth in rural India has outpaced growth in urban areas by almost 40 percent.

• Rural India accounts for two-thirds of overall GDP and 60 percent of national demand.

• Indian companies are targeting at the rise of the low-end Indian consumer. They know that they cannot build a brand presence in India without a strategy for reaching the villages.


Rural Marketing in India

• Engaging the village-level consumers means that Indian companies have to tailor-make innovative products and pricing strategies for the rising masses of the rural segment.

• Bharti offers the world’s lowest calling rates; Reliance sells the world’s cheapest handsets; and Tata the world’s cheapest car.


Economic Environment

• The available purchasing power in an economy depends on current income, prices, savings, debt, and credit availability.

• Marketers must pay careful attention to trends affecting purchasing power, because they can have a strong impact on business, especially for companies whose products are geared to high-income and price-sensitive consumers


Income Distribution

There are four types of industrial structures:

i. Subsistence economies

ii. Raw-material-exporting economies

iii. Industrializing economies

iv. Industrial economies


Asian Call-Center and impact on Income Distribution

India took off as an offshore call center for several MNCs. This has changed its income distribution. Along with higher income, these call-center employees, trained to speak in American accent, have also embraced new ideas about family, material possessions, and romance. Philippines is now the new call center hub despite the higher costs because American customers find them easier to understand than they do Indian agents.


The global economy

In a global economy, marketers need to pay attention to the shifting income distribution in countries, particularly countries where affluence levels are rising.

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Everland, a world-class theme park, is a popular place for friends, couples and families in South Korea.


Income distribution patterns

Marketers often distinguish countries with five different income-distribution patterns:

– Very low incomes

– Mostly low incomes

– Very low, very high incomes

– Low, medium, high incomes

– Mostly medium incomes


Intra-country Variations of Incomes

• Aside from cross-national income differences, companies must also consider intra-country variations in income.

• Procter & Gamble has won over consumers in China’s hinterlands with a budget detergent called Tide Clean White, while holding onto city consumers with the more expensive Tide Triple Action.


Intra-country Variations of Incomes

• General Motors targets the wealthiest Chinese with the Cadillac, middle management with the Buick Excelle, office workers with the Chevrolet Spark, and rural consumers with the Wuling minivan.

• Similarly, Lenovo not only manufactures PCs costing $2,000 or more that double as home entertainment centers, but also simple machines costing a few hundred dollars for poorer families who want their children to be computer literate.


Targeting Different Income Groups

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Chevy Spark, a subcompact hatchback, is a popular choice among young car-buyers in Asia for its bright colors, affordable price, fuel efficiency and safety.

Cadillac, a luxury sedan, is a favorite choice for wealthy Chinese.


Income, Savings, Debt, and Credit Availability

Consumer expenditures are affected by:

• Income

• Savings

• Debt

• Credit availability


Responding to Recession in Japan

Recession in Japan has seen changes in lifestyle. Companies such as generic brand store Muji flourished as did 100-yen stores. Japanese also preferred to eat in than dine out.


Socio-Cultural Environment

• Society shapes the beliefs, values, and norms that largely define these tastes and preferences.

• People absorb, almost unconsciously, a worldview that defines their relationships to themselves, to others, to organizations, to society, to nature, and to the universe.


Socio-Cultural Environment

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Views of themselvesViews of themselves

Views of othersViews of others

Views of natureViews of nature

Views of organizationsViews of organizations

Views of societyViews of society

Views of the universeViews of the universe


High Persistence of Core Cultural Values

• The people living in a particular society hold many core beliefs and values that tend to persist.

• Most Asians still believe in hard work, filial piety, marriage, and education. Core beliefs and values are passed on from parents to children and are reinforced by major social institutions—schools, religious organizations, businesses, and governments.

• Secondary beliefs and values are more open to change. Believing in the institution of marriage is a core belief; believing that people should wed early is a secondary belief.

• Marketers have more chance of changing secondary values than core values.

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Existence of Sub-Cultures

Each society contains subcultures, groups with shared values emerging from their special life experiences or circumstances.

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Cosplay in Japan


Sub-cultures: Metrosexuals

• Personal care companies are targeting Indian men as rising incomes allow them to buy more deodorants and shaving gels.

• Metrosexuals—urban, heterosexual men who pay close attention to grooming and fashion—were popularized in India by Bollywood actors such as Shah Rukh Khan.


Natural Environment

• The deterioration of the natural environment is a major global concern.

• In many world cities, air and water pollution have reached dangerous levels. There is great concern about “greenhouse gases” in the atmosphere due to the burning of fossil fuels, about the depletion of the ozone layer due to certain chemicals, and about growing shortages of water.


Natural Environment

• However, in many less developed Asian countries, such environmental concern is lacking.

• Air, water, and noise pollution are common.


Reconciling Economic Objectives and Environmental Protection – Case of The Banyan Tree

This Singapore-based hotel and resorts chain incorporates sustainability benchmarking and educating local communities about marine life in its resorts. Its pursuit of sustainability with initiatives targeting conservation of resources and climate change awareness, without compromising on its revenue and profit.


Corporate Environmentalism

• It recognizes the need to integrate environmental issues into the firm’s strategic plans.

• Trends in the natural environment for marketers to be aware of include the shortage of raw materials, especially water; increased pollution levels; and the changing role of governments.

• See the “Marketing Insight: The Green Marketing Revolution.”


City Square Mall is an eco-friendly shopping mall

City Square Mall is Singapore’s first eco-friendly shopping mall, featuring waterless urinals in restrooms and an eco-roof for solar power.


Technological Environment

• One of the most dramatic forces shaping people’s lives is technology.

• Innovation’s major long-run consequences are not always foreseeable.

• Mobile phones, video games, and the Internet are reducing attention to traditional media as well as face-to-face social interaction as people listen to music or watch a movie on their mobile phones.

• When old industries fight or ignore new technologies, their businesses decline.


Monitoring the Key Trends in the Technological Environment

The marketer should monitor the following trends in technology:

i. Accelerating pace of change

ii. Unlimited opportunities for innovation

iii. Varying R&D budgets

iv. Increased regulation of technological change


Accelerating Pace of Change

• More ideas than ever are in the works, and the time between the appearance of new ideas and their successful implementation is all but disappearing.

• So is the time between introduction and peak production.

• Competition has accelerated the pace of change.

• Example: Shenzhen Great Loong Brother Industrial cloned the iPad even before it was announced.


Unlimited Opportunities for Innovation

• Some of the most exciting work is being done in biotechnology, computers, microelectronics, telecommunications, robotics, and designer materials.

• Samsung has spearheaded the innovation drive to bring many state-of-art products into our homes.


Varying R&D Budgets

• Although the U.S. leads the world in annual R&D expenditures, Japan is fast increasing its R&D expenditures, mostly on non-defense-related research in physics, biophysics, and computer science.

• Many companies are content to put their money into copying competitors’ products and making minor feature and style improvements.


Increased Regulation of Technological Change

• Governments have expanded their agencies’ powers to investigate and ban potentially unsafe products.

• Safety and health regulations have also increased in the areas of food, automobiles, clothing, electrical appliances, and construction.

• China has an “indigenous innovation” regulation in which the government favors technology developed in China when buying computers and other goods.

• Multinationals whose products conform with Chinese laws and regulations and technology policy are considered “indigenous innovation” and can bid for government contracts.


Political–Legal Environment

• The political and legal environment consists of laws, government agencies, and pressure groups that influence various organizations and individuals.

• Sometimes these laws create new business opportunities.


Increase in Business Legislation

Business legislation is intended to:

i. protect companies from unfair competitionii. protect consumers from unfair business practices, iii. protect the interests of society from unbridled business behavior,

and iv. charge businesses with the social costs created by their products

or production processes.


Examples of legislation affecting businesses in Asia

• For example, in Taiwan, junk food ads are banned on children’s TV programs to curb obesity.

• In China, outdoor advertising that promotes high-end lifestyles is banned. Words such as “royal,” “luxury,” or “high class” are banned.

• This legislation came about because of concerns over the widening wealth gap.


Types of Legislation Affecting business

• Legislation affecting businesses has increased steadily over the years.

• Governments worldwide have been examining and enacting laws covering competitive behavior, product standards, product liability, and commercial transactions.

• Others have passed strong consumer protection legislation.


Counterfeiting

• Regulations on counterfeiting are also increasing. Asian exporters are expected to face tougher European Union customs controls.

• Popular counterfeited brands include Chanel, Christian Dior, Louis Vuitton, Timberland, and Rolex.

• Even clones of fast-food restaurants exist.


Country stance on intellectual property protection

By giving the green light for Qiao Dan to be publicly listed despite its infringement of Nike’s and Converse’s trademarks, it is seen as a reflection of China’s stance on intellectual property.


Legislation and Protectionism

• Sometimes, legislation is passed to protect home industries. • In Asia, such practices are more prevalent where local

businesses may be less competitive than multinationals.• Example: Cisco faces stiff competition from Huawei

Technologies in China. China’s lax intellectual property laws is of concern to Cisco.


Legislation and Protectionism

• To counter these protectionistic policies, some foreign companies introduce new local brands.

• Asia Pacific Breweries has a “made-in-Thailand” Heineken beer as well as a “made-in-Cambodia” Tiger beer.

• During the Asian economic crisis, many MNCs sought local sourcing not only for cost effectiveness, but also because they wanted to convince local customers that they were “local” companies.

• For example, Fila Korea emphasized that all its fabric and materials were from domestic sources.


Knowledge of Local Laws

• Marketers must have a good working knowledge of the major laws protecting competition, consumers, and society.

• Some companies have legal review procedures to guide their marketing managers, and as more business takes place in cyberspace, marketers must establish new parameters for doing business ethically.


Growth of Special-Interest Groups

• A number and power of special-interest groups have increased over time.

• One important force affecting business is the consumerist movement—an organized movement of citizens and government to strengthen the rights and powers of buyers in relation to sellers.


Growth of Special-Interest Groups

• Several companies have established consumer affairs departments to help formulate policies and respond to consumer complaints. Companies are careful to resolve and learn from any customer complaints.

• New laws and growing numbers of pressure groups have put more restraints on marketers. Marketers have to clear their plans with the company’s legal, public relations, public affairs, and consumer affairs departments


Corruption

• Observations have been made that corruption among Asian political officials and businesspeople is rife.

• Such corruption may hinder economic development as bribes have to be paid to get the smallest of clearances.

• Asian governments have made efforts to clean up such behavior for long-term economic dividends.


Forecasting and Demand Measurement

• Understanding the marketing environment and conducting marketing research (described later in Chapter 4) can help to identify marketing opportunities.

• The company must then measure and forecast the size, growth, and profit potential of each new opportunity.


Forecasting and Demand Measurement

• Sales forecasts prepared by marketing are used by finance to raise cash for investment and operations; by manufacturing to establish capacity and output; by purchasing to acquire the right amount of supplies; and by human resources to hire the needed workers. If the forecast is off the mark, the company will face excess or inadequate inventory.

• Since it’s based on estimates of demand, managers need to define what they mean by market demand.


The Measures of Market Demand

• Companies can prepare as many as 90 different types of demand estimates for six different product levels, five space levels, and three time periods.

• Each demand measure serves a specific purpose.

• See Figure 3.1


Figure 3.1

Ninety Types of Demand Measurement


Breaking Down the Market

• The potential market is the set of consumers with a sufficient level of interest in a market offer.

• The available market is the set of consumers who have interest, income, and access to a particular offer.

• The target market is part of the qualified available market the company decides to pursue.

• The penetrated market is the set of consumers who are buying the company’s product.


Applications of Market Definitions

• These definitions are a useful tool for market planning.

• If the company isn’t satisfied with its current sales, it can try to attract a larger percentage of buyers from its target market.

• It can lower the qualifications for potential buyers. It can expand its available market by opening distribution elsewhere or lowering its price, or it can reposition itself in the minds of its customers.


A Vocabulary for Demand Measurement

Market Demand: • The marketer’s first step in evaluating marketing

opportunities is to estimate total market demand.

• Market demand for a product is the total volume that would be bought by a defined customer group in a defined geographical area in a defined time period in a defined marketing environment under a defined marketing program.


Market Demand Dimensions

• Market demand is not a fixed number, but rather a function of the stated conditions.

• For this reason, we call it the market demand function.

• Some base sales—called the market minimum and labeled Q1 in Figure 3.2(a)—would take place without any demand-stimulating expenditures.

• The distance between the market minimum and the market potential shows the overall marketing sensitivity of demand.


Figure 3.2 (a)


Expansible and Non-expansible Markets

• We can think of two extreme types of market, the expansible and the nonexpansible. See Figure 3.2 (b)

• An expansible market, such as the market for racquetball playing, is very much affected in size by the level of industry marketing expenditures,

• A nonexpansible market—for example, the market for weekly trash or garbage removal—is not much affected by the level of marketing expenditures; the distance between Q1 and Q2 is relatively small.


Expansible and Non-expansible Markets

• Organizations selling in a nonexpansible market must accept the market’s size—the level of primary demand for the product class—and direct their efforts toward winning a larger market share for their product, that is, a higher level of selective demand for their product.


Figure 3.2 (b)


Market Penetration Index

• It pays to compare the current and potential levels of market demand. The result is the market-penetration index.

• Comparing current and potential market shares yields a firm’s share-penetration index.

• If this index is low, the company can greatly expand its share.• Factors limiting the index might be low brand awareness, low

availability, benefit deficiencies, or high price. • A firm should calculate the share-penetration increases from

removing each factor, to see which investments produce the greatest improvement


Market Forecast

• Only one level of industry marketing expenditure will actually occur.

• The market demand corresponding to this level is called the market forecast.


Market Potential

• The market forecast shows expected market demand, not maximum market demand.

• Market potential is the limit approached by market demand as industry marketing expenditures approach infinity for a given marketing environment.

• Companies interested in market potential have a special interest in the product-penetration percentage, the percentage of ownership or use of a product or service in a population.


Company Demand

• Company demand is the company’s estimated share of market demand at alternative levels of company marketing effort in a given time period.

• It depends on how the company’s products, services, prices, and communications are perceived relative to the competitors’.


Company Sales Forecast

• Once marketers have estimated company demand, their next task is to choose a level of marketing effort.

• The company sales forecast is the expected level of company sales based on a chosen marketing plan and an assumed marketing environment.

• A sales quota is the sales goal set for a product line, company division, or sales representative. It is primarily a managerial device for defining and stimulating sales effort, often set slightly higher than estimated sales to stretch the sales force’s effort.


Company Sales Forecast

• A sales budget is a conservative estimate of the expected volume of sales, primarily for making current purchasing, production, and cash flow decisions. It’s based on the need to avoid excessive risk and is generally set slightly lower than the sales forecast.


Company Sales Potential

• Company sales potential is the sales limit approached by company demand as company marketing effort increases relative to that of competitors.

• The absolute limit of company demand is, of course, the market potential.


Estimating Current Demand

1. Total Market Potential• Total market potential is the maximum sales available to all firms

in an industry during a given period, under a given level of industry marketing effort and environmental conditions.

• A common way to estimate total market potential is to multiply the potential number of buyers by the average quantity each purchases, times the price.


Estimating Market Potential: Chain Ratio Method


Estimating Current Demand

2. Area Market Potential• Because companies must allocate their marketing budget optimally among

their best territories, they need to estimate the market potential of different cities, states, and nations.

• Two major methods are the market-buildup method, used primarily by business marketers, and the multiple-factor index method, used primarily by consumer marketers.


Market-Buildup Method

• The market-buildup method calls for identifying all the potential buyers in each market and estimating their potential purchases.

• It produces accurate results if we have a list of all potential buyers and a good estimate of what each will buy.

• Unfortunately, this information is not always easy to gather. • An efficient method of estimating area market potentials

makes use of the North American Industry Classification System (NAICS), developed by the U.S. Bureau of the Census


Multiple-Factor Index Method

• Like business marketers, consumer companies also need to estimate area market potentials, but since their customers are too numerous to list they commonly use a straightforward index.


Multiple-Factor Index Method : An Example

• A drug manufacturer might assume the market potential for drugs is directly related to population size .

• If the state of Sabah has 2.55 percent of the Malaysia population, Sabah might be a market for 2.55 percent of total drugs sold.

• A single factor is rarely a complete indicator of sales opportunity.

• Regional drug sales are also influenced by per capita income and the number of physicians per 10,000 people.

• Thus, it makes sense to develop a multiple-factor index and, assign each factor a specific weight.


Multiple-Factor Index Method : An Example

• Suppose Sabah has 2.00 percent of Malaysians’ disposable personal income, 1.96 percent of Malaysia retail sales, and 2.28 percent of Malaysia population, and the respective weights are 0.5, 0.3, and 0.2. The buying-power index for Sabah is then 2.04 [0.5(2.00) + 0.3(1.96) + 0.2(2.28)].

• Thus, 2.04 percent of the nation’s drug sales (not 2.28 percent) might be expected to take place in Sabah.


Brand Development Index

• Many companies compute area indexes to allocate marketing resources.

• The brand development index (BDI) is the index of brand sales to category sales.

• See Table 3.6.


Figure 3.6 Calculating the Brand Development Index (BDI)

• The first two columns show its percentage of U.S. brand and category sales in these six cities. • Column 3 shows the Brand Development Index (BDI), the index of brand sales to category sales.• Shanghai has a BDI of 114 because the brand is relatively more developed than the category in

Shanghai. Chengdu’s BDI is 65, which means the brand is relatively underdeveloped there.


Industry Sales and Market Shares

• Besides estimating total potential and area potential, a company needs to know the actual industry sales taking place in its market.

• This means identifying competitors and estimating their sales. The industry trade association will often collect and publish total industry sales, although it usually does not list individual company sales separately.

• With this information, however, each company can evaluate its own performance against the industry’s.

• Another way to estimate sales is to buy reports from a marketing research firm that audits total sales and brand sales.


Estimating Future Demand

• The few products or services that lend themselves to easy forecasting generally enjoy an absolute level or a fairly constant trend, and competition that is either nonexistent (public utilities) or stable (pure oligopolies).

• In most markets, in contrast, good forecasting is a key factor in success.

• Companies commonly prepare a macroeconomic forecast first, followed by an industry forecast, followed by

a company sales forecast.


How do firms develop forecasts?

• They may create their own or buy forecasts from outside sources such as marketing research firms, which interview customers, distributors, and other knowledgeable parties.

• All forecasts are built on one of three information bases: – what people say,

– what people do, or

– what people have done.


Survey of Buyers Intentions

• Forecasting is the art of anticipating what buyers are likely to do under a given set of conditions.

• For major consumer durables such as appliances, research organizations conduct periodic surveys of consumer buying intentions, ask questions like:– Do you intend to buy an automobile within the next six months?,

and put the answers on a purchase probability scale.


Composite Sales Force Opinions

• When buyer interviewing is impractical, the company may ask its sales representatives to estimate their future sales.

• Few companies use these estimates without making some adjustments, however.

• Sales representatives might be pessimistic or optimistic, they might not know how their company’s marketing plans will influence future sales in their territory, and they might deliberately underestimate demand so the company will set a low sales quota.

• To encourage better estimating, the company could offer incentives or assistance, such as information about marketing plans or past forecasts compared to actual sales.


Benefits of Sale Force Forecasts

• Sales force forecasts yield a number of benefits.

• Sales reps might have better insight into developing trends than any other group, and forecasting might give them greater confidence in their sales quotas and more incentive to achieve them.

• A “grassroots” forecasting procedure provides detailed estimates broken down by product, territory, customer, and sales rep.


Expert Opinion

• Companies can also obtain forecasts from experts, including dealers, distributors, suppliers, marketing consultants, and trade associations.

• Dealer estimates are subject to the same strengths and weaknesses as sales force estimates.

• Many companies buy economic and industry forecasts from well-known economic-forecasting firms that have more data available and more forecasting expertise.


Expert Panels

• Occasionally, companies will invite a group of experts to prepare a forecast.

• The experts exchange views and produce an estimate as a group (group-discussion method) or individually, in which case another analyst might combine them into a single estimate (pooling of individual estimates).

• Further rounds of estimating and refining follow (the Delphi method).


Past Sales Analysis

Firms can develop sales forecasts on the basis of past sales. a) Time-series analysis breaks past time series into four

components (trend, cycle, seasonal, and erratic) and projects them into the future.

b)Exponential smoothing projects the next period’s sales by combining an average of past sales and the most recent sales, giving more weight to the latter.

c) Statistical demand analysis measures the impact of a set of causal factors (such as income, marketing expenditures, and price) on the sales level.

d) Finally, econometric analysis builds sets of equations that describe a system and statistically derives the different parameters that make up the equations statistically.


Market-Test Method

When buyers don’t plan their purchases carefully, or experts are unavailable or unreliable, a direct-market test can help forecast new-product sales or established product sales in a new distribution channel or territory.


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