ANALYSIS OF MARKET

POTENTIAL

MARKET POTENTIAL

A market potential is an
estimate of the maximum
possible
sales
opportunities present in a
particular market segment
and open to all sellers of
a good or service during a
stated future period.

Sales potential
A market potential is an estimate
of the maximum possible sales
opportunities present in a
particular market segment and
open to a specified company
of a good or service during a
stated future period.

Before going to the stage of establishing market

potential, commodity grouping must be
established in such a way that the individual
commodities concerned are uniform with respect
to the demand function.

So in order to accurately arrive at a market

potential for a product the degree of product
substitution and the conditions under which it
takes place have to be considered.

The decision as to include or exclude closely

related substitutes would have a significant effect
over the market potential. E.g. Furniture wood,
leather, steel feather light etc.

ANALYZING MARKET
POTENTIAL

steps in analyzing the market potential:

Market Identification:
who buys the product?
who uses it?
who are the prospective buyers?
Market Motivation:
how best to present the product?
relative effectiveness of different selling appeals
relative appropriateness of the various promotional
methods
Analysis of Market Potential:
Select the market factors associated with the
markets demand
Eliminate those market segment that have no
prospective buyers of the product.

MARKET INDEXES
A market index is a numerical expression
indicating the degree to which one or more
market factors associated with a given
products demand is present in a given
market segment.
Here the market segment represents the
given geographical market segment.

SALES FORECASTING

Meaning of Sales Forecast

The sales forecast is a prediction of expected
sales for a specified period. It is an estimate for
sales in rupee or units for a specified future period.
In other words, it is basic tool for anticipating the
nature of future sales or sales prediction.
According to Cundiff and Still, is an estimate of
sales during a specified future period which period is
tied to a proposed marketing plan and which
assumes a particular set of uncontrollable and
competitive forces.

Objectives of Sales Forecasting

The objectives of sales forecasting may

be studied under the following two major
heads
1.

Short - run (range) objectives.

2.

Long - run (range) objectives.

Short - Run objectives

1.

Formulation of suitable production policy so as to meet the demand as per

the sales forecast.

2. To make provision for the regular supply of raw material etc. for the
production on the basis of sales forecast.
3. To make the best utilization of machines on the basis of sales forecast.
4. To make the regular supply of labour force as per the sales forecast.
5. To determine an appropriate price policy for a given period.
6.

To estimate and provide the requisite working capital on the basis of sales
forecast.

7. To establish sales quotas & targets for different market segments.

8.

To estimate stock requirements for unfinished semi-unfinished and finished

products for a specified period of time.

Long Run objectives

1. Estimating cash inflows from sales.
2. Provision for capital expenditure.
3. Planning of plant capacity so as to meet the future demand.
4. Manpower planning so that production and distribution may not
suffer.
5. Planning for acquisition of raw materials to meet the future
demand.
6. Determining the dividend policy.
7. Establishing coordination between various functions
8. Reducing selling costs and thereby reduces the final cost
9. To estimate future profits of the business enterprise.

Factors affecting or Influencing sales forecasting

1. Business Environment
2. Conditions within the industry
3. Internal Conditions of the business Enterprise
4. Socio Economic Conditions
5. Factors Affecting Export Trade

Steps in sales Forecasting

1. Forecasting of General Economic Conditions: General economic
conditions within the boundaries of the nation, do effect the purchasing
power of the individual customer. The standard yardstick for assessing
general economic conditions will be: gross national product, per capita
income, personal income, personal consumption expenditure, level of
employment and the consumer price index.
2. Forecast of Industry Sales: Though the industry forecast are available
from the trade associations and chambers of commerce, a SWOT analysis
of the competition prevailing could throw much light on the competition
within the industry.
3. Preparing Forecast of Company Sales: The sales manager, while
preparing the sales budgets of the company has to forecast the company
and product sales for the coming year. The entire planning of the
organization for production, manpower, financial arrangements, and
revenue calculations will depend upon the accuracy of the sales
manager's forecast.

Steps in Sales Forecasting

1.

Defining the objectives to be achieved.

2. Dividing various products into homogeneous groups.

3. Analysing the importance of various factors.
4. Selecting the method.
5. Collecting and analysing the related information.
6. Drawing conclusions from the analysis made.
7. Implementing the decisions taken.
8. Reviewing and revising the sales forecasting.

DIFFERENT TECHNIQUES
OF SALES FORECASTING

Methods of Sales Forecasting

Survey Method
The survey method is based on the opinion of buyers and
consumers. It is useful with respect to industrial products but not
as far as consumer goods are concerned.
Expert Opinion
According to this method, a company invites the opinions of
executives and consultants who are acknowledged experts in
studying sales trends.
Market Studies Method
This method is commonly used by marketers for consumer
goods. It is also known as the Market Test Method. A market test
provides data about consumers and the marketing mix.
Sales Force Opinion Method
This method estimates the buyers intentions from experienced
personnel in the sales force for their respective territories.

Statistical Methods
Statistical methods are considered to be superior techniques.
Their reliability is higher than that of other techniques.
Commonly Used Statistical Methods
Trend Method
This method provides a rough trend of the forecast on the basis of
past experience. It does not, however, take into account the
changing environment. It is a simple method.
Graphical Method
Sales data are plotted on graph paper and a graph is drawn for a
number of years. This is a simple and inexpensive method.
Time Series Method
This method is used for long periods duly taking into account
cyclical changes, seasonal variations and irregular fluctuations.
Regression Analysis

Cont.

Time Series Method

Sales
(Rs)

X
1980 1981 1982 1983 1984 1985

A time series may be defined as aYears

collection of magnitudes
belonging to different time periods, of some variable or composite
variables, such as production of steel, per capita income, gross
national product, price of tobacco, or index of industrial
production.

Freehold

or

Graphical Method:
This is the simplest

method for obtaining

a

straight

line.

trend line is fitted by

freehand

to

know

Sales
(Rs)

future sales.

X
198
8

1989 1990 1991 1992 1993

Years
Cont.