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Ratifiai industry [U.S. Paying)

For each sis-digit NAICS number, a company can purchase CD-iiOMs of business dircc-tories that provide complete company profiles of millions of establishments, subctassffled by location, number of employees, annual sales, and net wortb.

To use the NAICS. the lathe manufacturer must first deter mine the six-digit NAICS codes that represent products whose maflufaciurers are likely 10 requirelathe .mflctuncE Tii^j js full picture of all sis-digit MA ICS industries that might use lathes, the company can (t) determine past customers' NAICS codes; (2] go through (he ISfAlCS manual and check Off all the six-digit industries that might have an interest in lathes; ('{) mail question!)aires to a wide range of companies inquiring about their interest in wood lathes.

The company's nest task is to determine an appropriate base for estimating the number of lathes that will be used in each industry. Suppose customer industry sale* are the most appropriate base. Once the company estimates the rate of lathe ownership relative to the ens to i ne r industry's sales, it can compute the market potential.

Multiple-Factor Inde* Method Like business marketers, consumer companies also have to estimate area market potentials, but the customers of consumer companies are too numerous to be listed. The method most commonly 11 set! in consumer markets is a straightforward index method. A drug manufacturer, for exam pie, might assume (Fiat the market potential for drugs is directly related to population si?,e, If the state of Virginia has 2.28 percent of the U.S. population, the company might assume that Virginia wJU be a maikst ior 22S p&tent vft&tui drugs said

A single factor, however, is rarely a complete indicator of sales opportunity. Itegional 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, with each facto]1 assigned a specific weight. The numbers are the weights attached to each variable. For example, suppose Virginia has 2.00 percent of the U.S. disposable personal income, l.flG percent o-i U.S. retail sales, and 2,2i5 percent of U.S. population, and the respective tveigists are 0,5, Q.J, and 0.2.The buying1 power index for Virginia would be 2.M JO.5i2.OOJ 0.3(1.%} + 0-2(2,28)1, ilitis 2.04 percent of the nation's drug sales might be expected to take place in Virginia.

The weights used in the buying-power index are somewhat arbitrary. Other weights can Ltc assigned if appropriate. Furthermore, a manufacturer would want to adjust the market potential for additional factors, such as competitors' presence in that market, local promotional costs, seasonal factors, and local market idiosyncrasies.

Many companies compute other area indexes as a guide lo allocating marketing resources. Suppose (he drug company is reviewing tin- six cities listed in Table 4.10. The first two columns show its percentage of (J.S. brand and category stiles in these six cities. Column 3 shows the brand development index (DDI], which is the index of brand sales 10 category sales. Seattle, for example, has a BDI of 1 M because the brand is relatively more developed than the category in Seattle. Portland has a IJD] of G5, Which means that the brand in Finland is relatively underdeveloped. Normally, the lower the BDI, the higher the market opportunity, in that there is room to grow the brand. However, other marketers v.oukl argue the Opposite, that marketing funds should go into the brand's strongest markets—where it mi^ht be important to reinforce loyalty or more easily capture additional brand share.1'1

132 PART i CAP^UftWG MARKETING WSHjH'5

TABLE 4,10

Cetufeljiig frarrt OwfilDDtflBfll Intfex iSDIf

Territory

Seattle Portland Boston Toteitfl

Ciiicaigo Baltimore

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