MASICAP II BATCH 16 TRAINING

Market Aspect
Session 5

COMPONENTS OF THE MARKET ASPECT

Marketing is the lifeblood of an enterprise because there is no use organizing for

production if the product cannot be sold. The market aspect, in the same way is
the lifeblood virtually of every project study. It must be able to determine two
things: that there is or will be a market for the product and that the enterprises
will be able to compete successfully for such market.

1. PRODUCT/SERVICE DESCRIPTION

This refers either to a physical product (ex. chairs, shoes, and garments) or a
service (ex. haircut, repair) sold or offered. The products/services are described
as to their physical description, use/function and unique attributes. Physical
description includes dimension, shape, appearance, color, quality and other
physical characteristics. Use or function enumerates the needs/wants fulfilled by
the products/services.

The entrepreneur must realize that he is not merely marketing a physical object
or service by itself, but the whole concept behind the product – what it can do or
promise to achieve and what it symbolizes to the customer. In generating product
ideas, the entrepreneur can be guided by the following basic considerations:

 There is a supply gap with existing production capacities not able to

satisfy demand.

 The product is presently imported and there is potential in producing

and selling it competitively.

 The product has distinctive feature. These may be lower price, better
quality, better service, artistic design, etc.

The entrepreneur can formulate different product strategies at any given stage of
the product life: introduction, growth, maturity and decline. Brand name is
important in selling to distinguish the enterprise’s products from its competitors
and will be particularly useful if the brand has earned good will and reputation .
Along with brand name is the Packaging of the product which is also essential.
To be an effective marketing tool, the packaging must not only create a good
impression of the product but must also preserve and protect it. Bad packaging
can kill a good product.

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Market Aspect
Session 5

2. TARGET MARKET

Knowing the enterprise’s target market and producing market-satisfying goods

and services are cardinal marketing principles. Market refers to the group of
people with needs to fulfill, money to spend and the willingness to spend it.
Market segmentation on the other hand, refers to the process of dividing
prospective buyers into groups that have common needs and will respond
similarly to a marketing action.

Consumers considerably vary in their needs. Such differences are inevitable and
the key is to match the product to the needs of a particular group of consumers.
The enterprise should attempt to position the product to fit the needs of one or
some of the market segments.

The target market pertains to the intended geographical area and market
segment to be served by the product. There are two (2) major classifications of
the market, namely: direct or ultimate consumers, and institutional or industrial
buyers.

Direct Consumers are those who buy and use products or services for their own
personal or household consumption. In segmenting the market for direct
consumers, the following should be clearly defined:

 Geographical Area

It may be defined as local, provincial, regional, national or

international.

 Demographics

Demographical factors to be defined are population, age, sex and

family size (for household products).

 Socio-economics

It maybe defined as income class, expenditure patterns, education,

social class/ethnic origin, preferences, import-export situations.

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Market Aspect
Session 5

On the other hand, Institutional Buyers are classified as institutions or

manufacturing organizations who buy products to be used in their own business
or as inputs to manufacture other products. To segment the market for
institutional buyers, the following should be determined:

 Type of Company

 Company Size

 Industry and Buying patterns

3. DEMAND

This refers to the quantity of consumption or usage of the targeted market for a
certain period of time and this can only be computed after a thorough skimming
of the market. Basically, there are two simple ways of determining demand. One
is through the use of the past/historical demand or sales data. The other method
is by using several market indicators and other related information. This is called
the “derived demand method” by market researchers. An example of this would
be the use of population vis-à-vis per capita consumption. Past consumption or
historical sales data are necessary in projecting demand so as to arrive at future
demand, one of the bases for computing market share.

Statistical data can be obtained from the following sources:

 National Statistics Office (NSO)

 National Economics and Development Authority (NEDA)
 Central Bank of the Philippines – Research Division
 Department of Agriculture – Bureau of Agricultural Statistics (DA-BAS)
 Mindanao Economic Development Council (MEDCo)
 Other National Government Agencies (e.g. DTI, DOLE, DOST)
 Local Chamber of Commerce
 Local Government Offices (e.g. City Planning and Development Office)
 Private Firms
 Personal Surveys

In order to project the future demand of the product/services based on the

historical data gathered, a projection tool is very essential.

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Market Aspect
Session 5

Arithmetical Straight Line Method

Arithmetical straight-line method is used when the annual change (volume) in the
past demand is uniform even though the change in the demand as a percentage
of the demand for the prior year is decreasing. Below is the method of
computation:

Shown below is the computation of projected demand.

PAST DEMAND PROJECTED DEMAND

YEAR YEAR
(in '000 units) (in '000 units)
2003 5.49 2013 29.9
2004 4.39 2014 32.3
2005 9.02 2015 34.7
2006 10.51 2016 37.1
2007 5.96 2017 39.5
2008 10.18 2018 41.9
2009 24.45 2019 44.3
2010 25.6 2020 46.7
2011 26.8 2021 49.1
2012 27.5   2022 51.5

Computation of Annual Increase in Demand

  In '000 units
Demand in 2012 27.5
Less: Demand in 2003 5.49
Demand in Nine (9) Years 22.01
Divided by: Number of Years 9
Simple Average Annual
Increase 2.45

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Market Aspect
Session 5

4. SUPPLY

After estimating the total consumption of the product the enterprise intends to
sell, the other angle that should be looked into is supply. This is the volume at
which the market is being provided or serviced. Supply consists of local
production of domestic competitors, imports and sometimes the quantity of
product substitutes. Local production refers to the volume allocated by the
competitors to the market.

In order to come up with a reliable data on supply, the following strengths of the
competitors will serve as the basis in the allocation:

 Rated Capacity and Production Volume

 Location

 Management and Ownership

 Prices Set

 Marketing Programs

Rated capacity means the 100% capacity of the business while the production
volume is the actual capacity of the firms in operation. If past data can be
obtained, then projection tools can be employed to ascertain the future supply,
thereby the management of the proposed project can determine its level of
competitive position in the market. Furthermore, past production volume of the
competitors would enable the new enterprise to determine its market share.

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Market Aspect
Session 5

Shown below is the projected supply computation:

PAST SUPPLY PROJECTED SUPPLY

YEAR YEAR
(in '000 units) (in '000 units)
2003 3.49 2013 22.17
2004 5.39 2014 24.04
2005 5.02 2015 25.9
2006 6.51 2016 27.77
2007 7.9 2017 29.64
2008 8.18 2018 31.51
2009 9.45 2019 33.37
2010 19.54 2020 35.24
2011 20.5 2021 37.11
2012 20.3   2022 38.98

Computation of Annual Increase in Supply

  In '000 units
Supply in 2012 20.3
Less: Supply in 2003 3.49
Supply in Nine (9) Years 16.81
Divided by: Number of Years 9
Simple Average Annual
Increase 1.87

5. DEMAND-SUPPLY GAP

In determining the market share of the company under consideration, a

quantitative comparison between the supply based on 100% rated capacity of
competitors vis-à-vis future demand has to be made. If total supply exceeds
demand, then it implies that the market is saturated. By saturation, it means the
supply of the products is enough to meet the demand. On the other hand, if the
total supply is less than the total demand, there is a shortage in the market. This
volume of deficiency now becomes the quantity needed by the market. In effect,
this justifies the entry or the setting up of the new enterprise or expansion of an
existing one. This also serves as the basis for establishing the production target
of the proposed project.
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Market Aspect
Session 5

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Market Aspect
Session 5

 Demand-Supply Gap Computation

Projected Potential Demand – Projected Supply = DEMAND-SUPPLY GAP

PRPJECTED DEMAND PRPJECTED SUPPLY DEMAND - SUPPLY

YEAR
(in '000 units) (in '000 units) GAP
2013 29.90 22.17 7.73
2014 32.30 24.04 8.26
2015 34.70 25.90 8.80
2016 37.10 27.77 9.33
2017 39.50 29.64 9.86
2018 41.90 31.51 10.39
2019 44.30 33.37 10.93
2020 46.70 35.24 11.46
2021 49.10 37.11 11.99
2022 51.50 38.98 12.52

6. MARKET SHARE

At this point, production volume of the enterprise has to be obtained in order to

know the market share. With the demand-supply gap information at hand, it gives
the proponent a clear view on what certain percentage of non-saturated market
does he/she caters.

 Market Share Computation Based on Gap

Production Volume
= MARKET SHARE
Demand-Supply Gap

 Market Share Based on the Total Demand

Production Volume
= MARKET SHARE
Total Demand
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Market Aspect
Session 5

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Market Aspect
Session 5

7. MARKETING STRATEGY/MARKETING MIX

An effective interplay of the major components or elements of the marketing mix

is very essential. The entrepreneur must understand the strategic implications of
the various elements of the marketing mix and how he can effectively combine
them to be able to satisfy his customers. The elements of the marketing mix are
product, price, place and promotion.

7.1. PRICE OF PRODUCT

Pricing the product is one of the primordial decisions the entrepreneur has to
make. Some products/services sell because of the price. A sensible pricing policy
and strategy significantly contributes to profit generation. Before setting the price,
however, the entrepreneur should first determine his marketing objective.
Possible objectives are as follows:

 Market-Penetration Objective

The entrepreneur may set a relatively low price to stimulate the growth of the
market and to increase his market share. The following conditions may favor
setting low price.

 The market appears to be highly price-sensitive

 Unit production and distribution costs are reduced with increase in volume
 Low price is intended to discourage actual and potential competition

 Market-Skimming Objective

The entrepreneur may set his price high to take advantage of the existence of
buyers who attribute a high prestige value to the product, thus are willing to pay a
higher price for it. The premium price may gradually be lowered as the value
attached to the product diminishes and the buyers become price conscious.

 Early-Cash Recovery Objective

The entrepreneur may set a price that will lead to a rapid recovery of cash either
because of the cash needs of the business, short product life cycle or future
uncertainties.

 Satisfying Objective

The price is set to achieve a rate of return suited to the business objective and
character of the entrepreneur. Some entrepreneur may set prices that may

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Market Aspect
Session 5

maximize returns but accompanied by a lot of uncertainties, others may be

satisfied with lower return but with less problems and difficulties.

 Product-line Promotion Objective

The entrepreneur may establish a price that will promote sales of the entire
product line. An example is loss-leader pricing in which a popular product or main
product item is priced lower or even at a loss to attract buyers to buy a whole set
or induce a large number of customer to buy other products of the enterprise.

After determining the marketing objective, the appropriate pricing method is set.
There are three (3) common methods of pricing products. Prices per unit are set
as follows:

A. Cost-Oriented Pricing

The price is set largely on the basis of the product cost. A cost plus mark-
up method is based on desired percentage of mark-up added to cost. This
can be done in two (2) ways:

 Direct Cost Plus Mark-up Method

Direct materials
+ Direct Labor
-------------------
Direct Cost
+ % Desired mark-up
--------------------------
Selling Price

 Total Cost Plus Mark-up Method

Direct materials
+ Direct Labor
+ Factory Overhead
+ Selling and Administrative Expenses
-----------------------------------------------
Total Cost
+ % Desired mark-up

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Session 5

--------------------------
Selling Price
B. Demand Oriented Pricing

Pricing is based primarily on the intensity of demand. A higher price is

charged when or where demand is high, and low prices when or where
demand is low even though unit cost may be the same in both cases.

C. Competition Oriented Pricing

Pricing is determined mainly by the prices of competitors for the some or

similar products. The prices need not be the same.

The terms of sale have to be decided. It may be on cash advance basis, cash
basis, and installment. Usually, terms of sale may be patterned after the industry
practices. If the goods are sold on account, payment and collection period should
be specified. In the case of installment sales, basic installment price, mark-up,
amount of down payment, amount of periodic payment, total repayment period
and interest rate have to be considered.

7.2. PLACE – CHANNELS OF DISTRIBUTION

The entrepreneur has to decide how his product/s moves from the factory to the
consumer. He may not have as many choices as large industries have due to
certain factors like limited resources, small volume, market location, etc. Between
him and the final users are possible various marketing intermediaries – the
retailers and the middlemen who can either be simply merchants, department
stores, wholesalers, or distributors.

The choice of channels is influenced by cost, the speed of distribution, control of

the enterprise, product characteristics and market characteristics. For example,
product characteristics would dictate that:

 Perishable Products require more direct marketing to reduce

spoilage;

 Bulky Products usually require channels that minimize shipping

distance and number of handling;

 Non-Standardized Products are usually sold directly by the firm

because of the difficulty of finding middlemen with the required
technical knowledge to handle such products;

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Session 5

 Installed or Maintained Products are usually sold and

maintained directly by the firm or authorized dealers.

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Session 5

Market characteristics on the other hand are considered using the following:

 Large Number of Customers- using long channels with many

middlemen on each level.

 Attractiveness of Display can induce customers to buy products that

are well displayed.

Channels of distribution can be portrayed through the following diagrams:

A. B.

Producer Producer

Wholesalers Wholesalers

Retailers Customers

Customers

C.

Producer

Customers

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Session 5

7.3. PROMOTIONS

It is not enough for the enterprise to have a good product, price it attractively, and
make it accessible to its intended market. The entrepreneur must communicate
these benefits to the target market. Consistent with the enterprise’s resources
and nature of business, the entrepreneur can promote his product through:

A. Advertisements

 Handbills / Posters
 Billboards
 Printed media
 Radio / television

B. Personal Selling

 Oral Presentation through salesmen and agents

D. Free Publicity

 Commercially beneficial news

E. Sales Promotion

 Discounts
 Contests
 Give-aways
 Display
 Public demonstration

Instances when promotional activities have to be increased.

 Products are alike

 Awareness of the product is minimal
 Products are in the mature stage of life cycle
 Products are sold by self-service

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Session 5

8. PROJECTED SALES/REVENUES

The market aspect of a business plan ends with the estimated projected
sales/revenues. Projected sales/revenues can be estimated by multiplying the
projected volume of sales with the price set. This can be increased yearly with
desired percentage of price increases. Projected volume is based on the
potential demand, target volume, desired capacity or capacity utilization. This is
adjusted with the desired level of inventories. For the first year of operation
projected sales volume is equal to the desired capacity less desired level of
finished goods end inventory. For the second and succeeding years, the
projected sales volumes are adjusted accordingly with the end and beginning
inventories.

Shown below is the projected sales pro-forma.

Particulars Year 1 Year 2 Year 3

Beginning Inventory
Add: Production Volume
Total Goods Available for Sale
Less: Ending Inventory
Total Sales in Volume
X Unit Selling Price
Total Sales

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Market Aspect
Session 5

BACKGROUND ON THE MARKETING ASPECT OF THE ENTERPRISE

To have a good assessment of the market aspect of the project, the

extension officer must start with a study and review the history / situation of the
enterprise to answer the following questions with regards:

1. Product, Pricing, Distribution and Competition

 What is the product or the products sold by the enterprise?

 Who buys the products or products of the enterprise?
 How are the products sold – per price, by weight, etc.
 How is / are the price of the product/s determined?
Is it based on cost, prices of competitors, or dictated by buyers?
 Is / Are the product/s sold directly to customers? Or the middlemen,
agents or traders used?
 How many outlets does the enterprise have?
 Who are the competitors of the enterprise?
 How is the enterprise in relation to its competitors
- is bigger or smaller in size? Does it sell more or less than its
competitors?
 What advantages or disadvantages does the enterprise have compared to
its competitors?

2. Credit Practices

 Are sales done on cash or credit?

 What is the proportion of credit to cash sales?
 What are the terms of credit offered by the enterprise? How does it
compare to those of the competitors?
 Do the customers pay on time? How much of credit sales are not collected
on time? How much is not collected at all?

3. Sales Performance

 How much was the sales of the enterprise in the past months? The past
year?
 Which product / s were moving fast? Average? Slow?
 Were sales levels consistent in the past?
 Was there a growing or declining trend?
 Was there a cycle of up and down? When were sales up? When were
they down?

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Market Aspect
Session 5

TARGET / PROJECTED SALES

Given the past performance of the enterprise the extension officer should
try to determine if the entrepreneur could realize the sales he desires or targets
for his project. This can be done by looking into the following:

1. Product/s and Prices

 Are the projected additional sales to be generated from existing product/s?

What product/s is/are expected to generate the additional sales?
 Will the enterprise produce or sell new products to generate the projected
additional sales? If yes, what are these products and their features?
 Is/Are the projected price/s competitive?
 For existing product/s, is/are the projected prices the same? If not, will it
have an effect on existing sales level and customers?

2. Prospective Buyer/s

 Is the entrepreneur targeting particular buyer/s for the projected additional

sales?
 Who are these prospective buyers?
 Are there existing buyers of the enterprise that wish to buy more?
 Are these new buyers indicated interest to purchase from the enterprise?
Are these reputable buyers? How much is known about them?
 How firm is their interest to buy?
 Is the entrepreneur projecting higher sales from a new and bigger market
without any particular customer in mind?

3. Volume and Continuity

 Is the projected sales volume realizable? If not, how much can realistically
be attained? If it is too conservative, how much more can be realized?
 Can the projected sales level be sustained?
 Is the interest or offer to purchase from the enterprise for a single order
only?
 If more orders can be expected, will it be at regular intervals? Will the
quantities fluctuate or not?

4. Promotions, Distribution and Others

 Will the projected additional sales require new promotional efforts?

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 Will it require a change or new channels of distribution? If so, what will

happen to the existing channels of distribution?
 Will it require different sales (cash or credit) terms from the present
practices? If so, what will be the effects on existing customers and sales?

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