Estimating Total Market Demand

The total market demand for a product or service 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.

Total market demand is not a fixed number, but a function of the stated conditions. One of these conditions, for example, is the level and mix of industry marketing effort. Another is the state of the environment. Part A of Figure 8.5 shows the relationship between total market demand and these conditions. The horizontal axis shows different possible levels of industry marketing expenditure in a given period. The vertical axis shows the resulting demand level. The curve represents the estimated level of market demand for varying levels of industry marketing expenditure. Some base sales (called the market minimum) would take place without any marketing expenditure. Greater marketing expenditures would yield higher levels of demand, first at an increasing rate and then at a decreasing rate. Marketing expenditures above a certain level would not cause much more demand, suggesting an upper limit to market demand called the market potential. The industry market forecast shows the level of market demand corresponding to the planned level of industry marketing expenditure in the given environment. ^

The distance between the market minimum and the market potential shows the overall sensitivity of demand to marketing efforts. We can think of two extreme types of market: the expandable and the non-expandable. An expandable market, such as the market for compact disc players, is one whose size depends upon the level of industry marketing expenditures. For Figure B.5A, in an expandable market, the distance between Q() and Q\ would be fairly large. In a

1 demand in the

Q,; Market potential Market forecast

Q?: Market minimum

1 demand in the

Q,; Market potential Market forecast

Q?: Market minimum

Industry markedng expenditure

Industry markedng expenditure

A. Market demand as a function of industry marketing expenditure (assumes a marketJng environment of prosperity)

Market: demand in the specified period

Market potential

(prosperity)

Prosperity

Market: demand in the specified period

Market potential

(prosperity)

Prosperity

Industry marketing expenditure

B. Market demand as a function of industry marketing expenditure (under prosperity vs. recession}

Industry marketing expenditure

B. Market demand as a function of industry marketing expenditure (under prosperity vs. recession}

Figure 8.5

Marked demand lien-expandable market, such as that for opera, marketing expenditures generate little demand; the distance between Q0 and Qi would be fairly small. Organizations selling in a non-expandable market can take primary demand -total demand for all brands of a given product or service - as given. They concentrate their marketing resources on building selective demand - demand for their brand of the product or service.

Given a different marketing environment, we must estimate a new market demand curve. For example, the market for exercise bikes is stronger during prosperity than during recession. Figure 8.5B shows the relationship of market demand to the environment. A given level of marketing expenditure will always result in more demand during prosperity than it would duriug a recession. The main point is that marketers should carefully define die situation for which they arc estimating market demand.

Companies have developed various practical methods for estimating total market demand. We will illustrate two here. Suppose Dutch-owned Polygram wants to estimate the total annual sales of recorded eompaet discs. A common way to estimate total market demand is as follows:

primary demand The level of total demand for all brands, of a given product or service -for example, the total demand for motor cycles.

selective demand The demand for a given brand of a product or service.

where

Q = total market demand; n - number of buyers in the market; q = quantity purchased by an average buyer per year; and p = price of an average unit.

Thus, if there arc 10 million buyers of CDs each year and the average buyer buys sis discs a year and the average price is DK1 40, then the total market demand for cassette tapes is DPI 2,400 million (= 10,000,000 x 6 x DPI 40).

A variation on the preceding equation is the chain ratio method. Using this method, the analyst multiplies a base number by a chain of adjusting percentages. For example, the United Kingdom has no national service, so the British Army needs to attract 20,000 new male recruits each year. There is a problem here, since the Army is already under strength and the population of 16 to 19-year-olds is declining. The marketing question is whether this is a reasonable target in relation to the market potential. The Army estimates market potential using, the following method:

Total number of male secondary-school leavers . ..?Oü,iM)ü

Percentage who are militarily qualified ';.(:

(no physical, emotional, or mental handicaps) Percentage of those qualified who are potentially . '!

interested in military service

Percentage of those qualified and interested in military service who consider the Army the preferred service

This chain of numbers .shows a market potential of 18,0(10 recruits. Since this is less than the target number of recruits sought, the Army needs to do a better job of marketing itself. They responded by doing motivational research that showed existing advertising did not attract the target age group, although a military career did give them what they wanted. A new campaign therefore aimed to increase the attractiveness of a military career to both men and women,29

market-build-up method A method used mainly by business products firms to estimate the market potential of a city, region or country based on determining all the potential buyers in the market and estimating their potential purchases.

Direct Mail Secrets Exposed

Direct Mail Secrets Exposed

This audio and guide will help you know everything about How To Profit Wildly In The Direct Mail Industry.

Get My Free Ebook


Responses

  • michelina
    What is total demand sales?
    7 years ago
  • ruta amanuel
    How to estimate the total demand for a new product?
    6 years ago

Post a comment