Marketing Management 3(2+1)

Lesson 24 : Demand Measurement And Forecasting

Need For Measurement And Forecasting

The main goal of market measurement and forecasting is to serve as an aid in the decisions that marketing management has to make. Marketers should gain knowledge of market sizes and probable growth patterns to select attractive markets and for the formulation of appropriate marketing strategies. It also lessens the risk and uncertainty to overcome subjective decisions and guesswork done by them. It helps evaluating the feasibility of entering new segments.

Measuring Market Demand
To develop effective targeting strategies, and to manage their marketing efforts effectively, firms need to assess

1. Current market demand
2. Future market demand.

An under estimation may mean missed sales and profit opportunities.

1. Measuring Current Market Demand; Here again, firms need to assess
   1. Total demand
   2. Area demand
   1. Total market demand: It is the total volume that would be bought by a defined consumer group, in a defined geographic area, in a defined time period, in a defined marketing environment under a defined level and mix of industry marketing effort.
      Eg. Next year’s demand for mobiles will depend on how much the makers spend on marketing. It will also depend on many research outcomes on health factors of the consumers, the environmental factors such as economic factors, level of discretionary income, and also the target group.
   
   
   2. Area market demand: Area market demand refers to the demand within a particular city, district, state, zone, or country. This is important as firms sometimes face the problem of selecting the best sales territories and in allocating their marketing budget accordingly. The two main methods used for estimating area market demand are:
   
   
   3. Market-buildup method: calls for identifying how many potential buyers in each market and estimating the size of their potential purchases. A common method for calculating area market potential is the market-factor index method, which identifies market factors that correlate with market potential and then combines them into a weighted index.


2. Forecasting future market demand
   Forecasting is the art of estimating future demand by anticipating what buyers are likely to do under a given set of future conditions. Very few products or services lend themselves to easy forecasting. In forecasting future market demand there are two components: forecasting total demand and forecasting area demand. Once total demand is forecast, area demand can be forecast, using the same principles as in the case of measuring current demand.
   Companies commonly use a three-stage procedure to arrive at sales forecast.
   
   First they make an environmental forecast, followed by an industry forecast, followed by a company sales forecast.
   The environmental forecast calls for projecting inflation, unemployment, interest rates, consumer spending and saving, business investment, government expenditures, and other environmental events important to the company- a forecast of gross domestic product. This is used along with other indicators to>forecast industry sales. Then the company sales forecast is made by assuming that it will win a certain share of industry sales. The sales forecast indicates how much of a product is likely to be sold during a specified future period in a specified market, at specified prices.