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IniiUStry Ma rKtting Expenditure rIn:lIJL-Lry MrtrkL'tiiiq Expenditure

IniiUStry Ma rKtting Expenditure

The distanee between ihe market min im um and the market Potential shows ihe overall ttinrkcthig witsiiii'tfyof ¿lentflarf.Weca.ii think bf tun) extreme types o( marketv tlicexpaiisi-hie and the nonexpansiblc, An expQHfible tßarhel, such as the market für mag u ei ha II play-i»gr is vtry imich affeeied in its totalsize by ilie level of irtdusfiy mtketingcföendituKS. Iii loritti of Figure 4.5(a), the distanee liet\wa Q] and is relativelv lärge, A nOneyrjMtwfible AMpiv?*—for cMatnple, the mftrkel for Oipera—is not much affectcd by the fevtl uf marketing espenditures; the distanee heiween Q] and Q2 is relaiivcly srnall. Organization-1: sclling in a nonexpänsible market nuist aeeept the niarkei's size (the level of prirnüry dctnunil Tor the profluet ckisY' and direct their cfforisto winmngfi larger market shaie h>r iheiT prödtici the level of>etedtive dernand for the Companys produet), lt |iays lo «miliare tlte curffiH Ittel of market demand to the potent in I dernand level. The restill is calletl the market Penetration Index. A hm market peiietration index Indi-eate* suhsiantiat grui\i)i potential ior all the tirms. A high market penetratirm index sorgest s thai liiere will be incrcased eosts in attractirig the few remaining prospects. Cienerally, price compeiiiirui ¡nereuses and margins fall when the markei peneinitinii indes is already tii^h.

A Company ähould also tonlpnre its eiurenl market share to ils pot$ntial market sfiare. rhe resnlt is cälled the cenipldfiy s share jieneirailim index low share peneiraimn index indicates shat Ihe Company can gneady expand its shara The imderlying factors hnldthg it back eould he niatry: low brand awareness, low hratiti availahility, benefit dffficicncics. tun Liij-li a price, A firm should calculaie tl^e share peiieirainin intieascs ihm wniild fieenr ividi Investments removq caeh defidcncy, to sce whlch invesönents \vouFd produce the greatest iiTlpruvcrtlcot Cfl SharO [ienetrati(io.i;

Ii Es Import an t to rememher tltat the market demand finieiltni is not a ]iietiLii- of market tteniand pver tlme. Rath er, the curve shows atteniattvc currem forecasts of market demand nssociated witb alternative puxsible levels of industry marketing ci'Vorl in the cutrent per ¡od,

(Jnly one luve] of iiidustry marketiiig expenttitme \vill actttally occur. The market Jemand coßtspondin^ to thix level is cailed the market foreeasi.

rhe murkst forecast showssspected market demand, not niaxlinmn market demand. Für the lauer, we hiivc to visualiie the level of market dfinatid resttltfag from a "very liigh" level of|ndu$try niarketmg expcuditinvi where further increttscs in mar kctln£ eliort ivoukl have little effeet In MiniLilating Ini tiier demand. Market polential i> the liiiüi approached bj rnarket demand as industry niarkelliig ttependitures approach iitfinity for a gjven rtiarfceting em ironment.

I iie phrase "ftit a given market envitüimient* is enieial. Consider the market potemial foi anioiiiiiliiles in a period ¡if reci-ssirm versits a period of prosperity. The market poteftüal is iiigher du ring prosperity I he dependence of markei Potential on ihr: tnvjronmcnt is illtis-iratecl in Pigure t.S{b}. Market anahsis distiuguisii beiTveen ihe prisiiion of the markei demand funetion and movement abnglt Companies cannot do an/thing ahont the posi-

One ol cine highest percentages ol o^nershlp/use of a iircrinet in the U.S. is tt&l for television: 98% of Americans aim a IV, and rnosi families own mora ihan one. (a) The big TV in re (anAy/living room, to) doing iHmeiwfltivilh She bedroom TV; (c) Itjltowinrt a cooking tfxw in If« fcltnen.

linn [jf (lie market demand Function, which Ls determined by the marketing.enviroifmeni. However, companies influence their particular location on the function when liiey decide how much m spend oil marketing.

Companies Interested in market potential have a special Interest in the product penetration percentage. \vhich is the percentage of ownership or use of a product or service in a population. Here are some U.S. percentages: television £98%], health insurance (04%), car (8t%), home ownership (67%), PC (54%], stock ownership (-18%), gun ownership 01%), and fas Companies assume that the lower the product penetration percentage, the higher the market potential, although this assumes thai everyone will eventually be in the market for every product.

■ We arc now ready to define company demand: Company demand is the company's estimated share of market demand a| alternative levels of company marketing effort ill a given time pcrind. The company's share of market demand depends an how its products, services, prices, com mimical ions, and so on Src perceived relative to the competitors', If other things are etpial, the company's, market share would depend on the size and effectiveness of its market expenditures relative lo competitors. Marketing model builders have developed sales response functions to measure how a company's sales are affected bv its marketing expenditure levd. marketing mix, ami marketing effectiveness.43

COMPANY SALES FORECAST Once marketers have estimated company demand, their next task is to choose a level of marketing elfort. The chosen level will produce an expected level of sales. 1 he company sales forecast is the expected level of company sales based on a chosen marketing plan and an assumed marketing envimoment.

The company sales forecast is represented graphically with company sales oil the vertical axis and company marketing effort on the horizontal axis, as in Figure 4J5.Too often the sequential relationship between the company forecast and the company marketing plan is confused. One frequently hears that the company should develop iis marketing plan on ihe basis of iis sales forecast. This forecast-to-plan sequence Is valid if "forecast" means au estimate of national economic activity or if company demand is nwtoipansible. "t he sequence is not valid, however, where market demand is expansible or where "forecast" means an estimate of company sales. The company sales forecast does noi establish a basis for deciding what to spend on marketing. On the contrary, the sales forecast is the result of an assumed marketing expenditure plait

Two other concepts are Worth mentioning in relation to the company sales forecast. A sales quo I a is the sEilesgoal set for a product line, company division, or sales representative. Ii is primarily a managerial device lor defining and stimulating sales effori.,Management sets sales quotas oil the basis of the company sales forecast and the psychology of sti initialing its achievement. Generally, sales quotas are set slightly higher than estimated sales to stretch the sales force's effort.

A sales budget is a conservative estimate of the expected volume of sales and is used primarily for making current purchasing, production, and cash flow decisions. The sales

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