5
WEEK FIVE
Measuring Market Opportunities:
Forecasting and Market Knowledge
McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
A Forecaster’s Toolkit
o Importance of knowing the size of the
potential market
o Market potential estimate as a starting
point for preparing a sales forecast
5-2
Sales Forecast
o Two broad approaches for preparing a sales
forecast are:
o Top-down approach
o A central person takes responsibility for
forecasting and prepares an overall forecast
o Bottom-up approach
o Each part of the firm prepares its own sales
forecast, and the parts are aggregated to create
the forecast for the firm as a whole
o Common in decentralized firms
5-3
Methods for Estimating Market Potential and
Forecasting Sales
o Statistical methods
o Observation
o Surveys or focus groups
o Market tests
5-4
Statistical Methods
o Advantages
o Useful in established firms for established
products
o Likely to result in a more accurate forecast than
other methods under stable market conditions
o Limitations
o Assumes the future will look very much like the
past
o Requires history
o Not useful for new products with no history
5-5
Observation
o Advantages
o Based on what people actually do
o Limitations
o Typically not possible for new-to-the-world
products
o Requires prior examples to observe
5-6
Surveys or Focus Groups
o Advantages
o Many different groups of respondents can be
surveyed
o Does not require history or prior examples
o Limitations
o What people say is not always what they do
o People may not be knowledgeable, but when
asked their opinion, they may provide it
o What people imagine about a product concept in
a survey may not be what is actually delivered
once the product is launched
5-7
Market tests
o Advantages
o Closest forecasting method to the true
market
o Limitations
o Expensive to conduct
o Competitors can deliberately distort
market conditions to invalidate the test
5-8
The Adoption Process
o Involves the attitudinal changes
experienced by individuals from the
time they first hear about a new
product, until they adopt it
5-9
The Adoption Process (continued)
o Adoption rate of the process depends
heavily on:
o Risk
o Relative advantage
o Relative simplicity
o Compatibility with current ideas and
behavior
o Ease of small-scale trial
o Ease of communication of benefits
5-10
Diffusion of Innovation Curve
5-11
Marketing Research
o Intended to address carefully defined
marketing problems or opportunities.
o Questions to be asked by a critical user of
marketing research:
o What are the research objectives? Will the
proposed study meet them?
o Are the data sources appropriate? Secondary
or primary? Qualitative or quantitative?
o Is the research itself well designed?
o Are the planned analyses appropriate?
5-12
