MARKET POTENTIAL

AND
SALES FORECASTING
 OBJECTIVES
 DEFINE POTENTIAL AND FORECAST
 DISCUSS HOW MARKET POTENTIALS
ARE USED
 EXPLAIN THE SOURCES OF MARKET
POTENTIALS
 APPLY METHODS OF ESTIMATING
MARKET AND SALES POTENTIAL
 DISCUSS THE DIFFERENT METHODS
OF SALES FORECASTING
 POTENTIAL
 The maximum sales reasonably
attainable under a given set of
conditions within a specified
period of time.
 What you might or could achieve

 Ultimate potential = saturation

level
 FORECASTS
The amount of sales expected
to be achieved under a set of
conditions within a specified
period of time
What you probably will
achieve
 QUOTA
A related concept, quotas are
typically set by senior
managers and are what an
individual in a company is
expected to achieve
What you should achieve
 MARKET POTENTIAL
Market potential ( upper
limit) is dynamic or could
change over time

Ex. Calculators ( TI SR10)

WHAT THEY ARE USED FOR
 To make entry/exit decisions
 To make resource level decisions

 To make location and other resource

allocation decisions
 To set objectives and evaluate
performance
 As an input to forecasts
 INFORMATION SOURCES
 Government

 Trade associations
 Private companies

 Financial and industry analysis

 Popular press

 Internet
NEW OR GROWING PRODUCT
POTENTIAL
RELATIVEADVANTAGE
COMPATIBILITY

RISK

ROLEOF ANALOGOUS
PRODUCTS
 MATURE PRODUCTS
POTENTIAL
Reorders proportional to
market need and usage
rate
Repurchase to replace
worn out products ( for
durables)
 METHODS OF ESTIMATING
MARKET AND SALES
POTENTIAL
ANALYSIS BASED
ESTIMATES
AREA POTENTIAL

SALES POTENTIAL
 ANALYSIS BASED
ESTIMATES
1. Determine the potential
buyers or users of the product
2. Determine how many are in
each potential group of buyers
in step 1
3. Estimate the purchasing or
usage rate
 AREA POTENTIAL
 Sales and Marketing Management
buying power index
0.2 (% of total population)+ 0.3
x(% of total retail sales) + 0.5 (% of
total disposable income

 Regression analysis of sales vs.

various factors
 SALES POTENTIAL
 Estimated market potential x market
share
 SALES FORECASTING
 Expectation of the future
– Sales,
– market share,
– profits,
– resources,
– costs,
– rate of change in technology
 USES OF FORECASTS
 To answer “ what if” questions
 To help set budgets

 To provide a basis for a monitoring

system
 To aid in production planning

 To value a company (financial

analysis)
 JUDGEMENT BASED
METHODS
 Naïve extrapolation
 Sales force composite

 Jury of expert opinion

 Delphi method
 CUSTOMER-BASED
METHODS
Market testing
Market surveys
 SALES EXTRAPOLATION
METHODS
Moving averages
Exponential smoothing

Regression analysis

( time series)
 MODEL-BASED METHODS

Regression analysis (
general)
Leading indicators

Economic models
 WHAT METHODS ARE USED
 Depends on forecast period
 Customer / market research 57%
 Jury of executive opinion 44%
 Sales force composite 39%
 Look-like analysis 30%
 Trend-line analysis 19%
 Moving average 15%
 Scenario analysis 14%
 RECAP
 DEFINE POTENTIAL AND FORECAST
 DISCUSS HOW MARKET POTENTIALS
ARE USED
 EXPLAIN THE SOURCES OF MARKET
POTENTIALS
 APPLY METHODS OF ESTIMATING
MARKET AND SALES POTENTIAL
 DISCUSS THE DIFFERENT METHODS
OF SSALES FORECASTING
 AGREEMENT
 ILLUSTRATIONS

 ENERGY BARS
 PDA’S