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ANALYZING YOUR MARKET'S POTENTIAL

Marketers should perform a detailed analysis of a market segment before
committing money to marketing a product. The three primary types of market analysis
are Market Potential, Sales Forecasting, and Market Share.
MARKET POTENTIAL
Market Potential can be defined as the total amount of possible sales in a market.
For example, the total sales potential for pork in the USA is approximately $X billion
per year. A firm should calculate the market potential for a product before deciding
whether or not to invest money in marketing the product. In the following example, we
will use the horse products market in Clark County, Washington.
Number of horses in Clark County: 10,000 head
Research data indicates that the average horse owner spends $70 per month, per
horse, on horse related products including feed, medications, tack, etc.
Market Potential for horse related products:
10,000 X $70 =$700,000 per month X 12 months =$8,400,000 per year
Market Potential for one product:
Product: Senior Horse Feed
1/3 of the horses in the county are of senior age, (15 years or older).
.33 X 10,000 =3,300 senior horses
5 lbs. senior horse feed per day X 3,300 horses =16,500 lbs. per day.
16,500 lbs./2000 lbs. per ton =8.25 tons per day
8.25 tons per day X 365 days per year =3011.25 tons per year
3011.25 tons X $325/ton =$978,656.25 per year
The Market Potential for one product, Senior Horse Feed, is $978,656.25 per year, a
very impressive number!
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SALES FORECASTING
A sales forecast is an estimate of the sales a single company expect to generate
within a particular market. A simple, although crude, method of calculating a sales
forecast is to divide the total market potential for a market by the number of firms in the
market. This is a crude method because there are so many possible variables that
may exist between competing companies. A well-managed company may be expected
to get more sales than a company that is badly-managed and deep in debt.
Continuing with our senior horse feed example, we can develop a sales forecast
by dividing $978,656.25 by 12, the number of feed stores in the county.
$978,656.25/12 =$81,554.69
This figure indicates that each feed store could expect sales of about $82,000 for
senior horse feed per year. Of course, many factors will affect this estimate including
advertising, prices, customer loyalty to each store, etc.
MARKET SHARE
Market share is the percentage of total sales that a company can expect to get
from the total market. To calculate market share divide your sales forecast by the total
market potential.
Estimated Market Share for one firm in Clark County:
$82,000/$978,656 =.0837 or about 8.4%.
Remember that this is only an estimate and actual market share may be more or
less than this number. Actual market share should be calculated after one year of
sales data is collected and analyzed.
Market potential, sales forecasts, and market share are all useful tools in analyzing
a market and estimating the success or failure of a product. You should analyze your
product in a similar fashion to determine its potential in the market place.
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ANALYZING YOUR MARKET
CHECK YOUR UNDERSTANDING
1. Define Market Potential.
2. Define Sales Forecast.
3. Define Market Share.
Conduct a market analysis using the following data:
Market: Hamburgers in Clark County.
Population: 300,000
Consumption rate: One hamburger/person/week
Average price of a hamburger: $2.00
Number of hamburger restaurants: 100
4. Calculate Market Potential for the Hamburger Market in Clark County.
5. Estimate a Sales Forecast for one restaurant.
6. Calculate Market Share for one restaurant.
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CONDUCT A MARKET ANALYSIS
Using the product you have selected, conduct a complete Market Analysis. Show all
of your calculations in the space provided. This data will be used later on when you
develop your marketing plan.
Market Potential
Sales Forecast
Market Share