Chapter 2: Market/Demand

Analysis

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 2.1 Overview of Feasibility study
 Feasibility study is an analysis of the ability to
complete a project successfully, taking into
account legal, economic, technological,
scheduling and other factors..
 It allows project managers to investigate the
possible negative and positive outcomes of a
project before investing too much time and money.
 For example, if a private school wanted to expand its
campus to alleviate overcrowding, it could conduct a
feasibility study to determine whether to follow through.
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 This study might look at:
 where additions would be built
 how much the expansion would cost
 how the expansion would disrupt the school year
 how students' parents feel about the
proposed expansion
 how students feel about the proposed expansion
 what local laws might affect the expansion
 Business plan Vs Feasibility study
 A feasibility study is carried out with the aim of finding
out the workability and profitability of a business
venture.
 a business plan is developed only after a business
opportunity exists and the venture is about to
commence.
 This simply means that a business plan is prepared
after a feasibility study has been conducted.
 A feasibility report is filled with calculations, analysis
and estimated projections of a business opportunity.
 a business plan is made up of mostly tactics and
strategies to start and grow the business.
 a business plan deals with business growth plan and
sustainability.
 A feasibility study report reveals the
profit potential of a business idea or
opportunity to the entrepreneur, while a
business plan helps the entrepreneur
raise the needed startup capital from
investors.
Reasons to Do a Feasibility Study
 Give focus to the project and outline
alternatives by narrowing them
 Surface new opportunities through the
investigative process
 Identify reasons not to proceed
 Enhance the probability of success
 Provide quality information for decision
making
 Help to increase investment in the company
 Help in securing funding from the sources

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Reasons given not to do a Feasibility
Study
 We know that it is feasible as an existing
business is already doing it
 Why do we do another feasibility study
when one was done just a few years ago?
 Feasibility studies are just a way for
consultants to make money
 The market analysis has already been
done by the business that is going to sell
us the equipment
 Feasibility studies are a waste of time
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2.2 Market & Demand Analysis
 A market is any place where the sellers
can meet with the buyers where there is a
potential for a transaction to take place.
 Marketing is a business activity of
presenting products or services to
potential customers in such a way as to
make them eager to buy.
 Market analysis is a process of
assessing the level of demand for the
product or service to be produced by
the project.
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2.2.1 Role of Market/Demand Analysis
Market analysis usually ranks top in the
sequence of the core chapters of a feasibility
study.
 Analysts who have to calculate the socio –
economic costs and benefits of a project, can only
start their job, if market analyst delivers sales
forecast and market strategy.
 Market analysis is obviously more ambitious and
risky in comparison to the other parts of a feasibility
study, as it has to fight with the future.
 The marketing demand and sales forecast is
necessarily subjective and vague, since, in the final
end it has to deal with the behavior of human beings9
2.2.2 Steps In Market and Demand
Analysis

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 Collection of Demand
Secondary Forecasting
Information

Situational
Characterizat
Analysis and
ion of the
Specifications of
Market
Objectives

Conduct of Market
Market Planning
Survey
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1. SITUATIONAL ANALYSIS AND SPECIFICATIONS OF OBJECTIVES
 An informal survey of what information is
available in the area
 The analyst may informally talk to the customers,

competitors, middlemen, and others in the industry

 To learn about:
◦the preferences and purchasing power of customers
◦ actions and strategies of competitors
◦ practices of the middlemen.
 To carryout formal study after this stage, it is

necessary to specify objectives of market study at this

stage.
◦ May be structured in the form of questions.
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 The objectives of the market and demand analysis may
be to answer the following questions:
Who are the buyers of the product?
What is the total current demand for the product?
How is the demand distributed temporally &
geographically?
What is the break-up of demand for products of
different sizes?
What price will the customers be willing to pay for the
improved product?
How can potential customers be convinced about the
superiority of the new product?
What channels of distribution are most suited for the
product? 13
 2. COLLECTION OF SECONDARY INFORMATION

 There are two types of secondary information:

 General Sources of Secondary Information

 Industry Specific Sources of Secondary

Information

 Evaluation of Secondary Information

 Timeliness and accuracy

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Secondary Sources of Data

1. Ethiopian Economic Survey

2. Census of Ethiopia
3. Reports of Export Working Groups on Various
Industries
4. Census of Manufacturing Industries
5. Monthly Statistical Bulletin
6. Annual Survey of industries
7. Guidelines to Industries
8. Publications of Advertising Agencies

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 3. CONDUCT OF MARKET SURVEY
 Census Survey
 Sample Survey

 Steps in a Sample Survey

 Define the Target Population
 Select the Sample Size and Sampling Scheme
 Develop the Questionnaire
 Recruit and Train the Field Investigators
 Obtain Information as Per the Questionnaire
from the Sample of Respondents
 Scrutinize, analyze and interpret the Information
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4. CHARACTERISATION OF THE MARKET

 Effective Demand in the Past and Present

Production + Imports – Exports – Change in stock level
 Breakdown of Demand
 Nature of Product
 Consumer Groups
 Geographical Division
 Price
 Methods of Distribution and Promotion
 Consumers
 Supply and Competition
 Government Policy

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 5. DEMAND FORECASTING

Two main types: qualitative and quantitative

I. Qualitative (Subjective) Methods
 These methods rely essentially on the
judgment of experts to translate qualitative
information into quantitative estimates
 Used to generate forecasts if historical data
are not available (e.g., introduction of new
product)
 The important qualitative methods are:
 Jury of Executive opinion Method
 Delphi Method
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 A. JURY OF EXECUTIVE OPINION METHOD

 Involves small group of high-level

experts and managers
 Pool opinions of these experts
 Group estimates demand by working
together
 Combines managerial experience with
statistical models

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 B. DELPHI METHOD
 Panel of experts, queried iteratively
Anonymous written responses encourage
honesty and avoid that a group of experts
are dominated by only a few members
Coordinator Each expert Coordinator
Sends Initial writes response performs
Questionnaire (anonymous) analysis

Coordinator Coordinator
sends updated
No Consensus Yes
summarizes
questionnaire reached? forecast

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5. DEMAND FORECASTING

II. Quantitative (Objective) methods

 Employ one or more mathematical models
that rely on historical data and/or
causal/indicator variables to forecast
demand.
 Major methods include:
 time series projection methods
 causal models

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22
2. Exponential Smoothing Method

 Forecasted results are modified in light of

observed errors in the past
 Requires smoothing constant ()
 Ranges from 0 to 1
 Subjectively chosen
 Involves little record keeping of past data

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 Exponential Smoothing

New forecast = Last period’s forecast

+  (Last period’s actual demand
– Last
period’s forecast)
Ft = Ft – 1 + (At – 1 - Ft – 1)

where Ft = new forecast

Ft – 1 = previous forecast
 = smoothing (or weighting)
constant (0 ≤  ≤ 1)
Exponential Smoothing Example
Predicted demand = 142 Ford Mustangs
Actual demand = 153
Smoothing constant  = .20
Exponential Smoothing Example
Predicted demand = 142 Ford Mustangs
Actual demand = 153
Smoothing constant  = .20

New forecast = 142 + .2(153 – 142)

Exponential Smoothing Example
Predicted demand = 142 Ford Mustangs
Actual demand = 153
Smoothing constant  = .20

New forecast = 142 + .2(153 – 142)

= 142 + 2.2
= 144.2 ≈ 144 cars
 3. Moving Average Method
 Forecasted sales for next period is the
average of sales of past periods
 MA is a series of arithmetic means
 Used if little or no trend
 Used often for smoothing
 Provides overall impression of data over time

∑ demand in previous n periods

Moving average = n
ii. Causal methods

 Causal methods seek to develop forecasts

on the basis of cause-effects relationships
specified in an explicit, quantitative
manner.
 High-Low method
 Chain Ratio Method
 Consumption Level Method
 End Use Method
 Leading Indicator Method
 Regression analysis
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UNCERTANITIES IN DEMAND FORECASTING

 Data about past and present markets.

 Lack of standardization

 Few observations

 Influence of abnormal factors

 Methods of forecasting
 Inability to handle unquantifiable factors

 Unrealistic assumptions

 Excessive data requirement

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UNCERTANITIES IN DEMAND FORECASTING

 Environmental changes
 Technological changes

 Shift in government policy

 Developments on the international scene

 Discovery of new source of raw material

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COPING WITH UNCERTAINTIES

 Conduct analysis with data based on

uniform and standard definitions.
 Ignore the abnormal or out-of-ordinary
observations.
 Critically evaluate the assumptions
 Adjust the projections.
 Monitor the environment.
 Consider likely alternative scenarios.
 Conduct sensitivity analysis

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 6. Market Planning
 Marketing plan is product specific, market
specific , or company-wide plan that
describes activities involved in achieving
specific marketing objectives within a set
time frame.

 A marketing plan shows the specifics of how

you will market or attempt to sell your
product or service.

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Market Planning
It has the following key components
 1. Current marketing situation: market
situation, competitive situation, distribution
situation, macro-environment, etc.
 2. Opportunity and issue analysis: SWOT analysis

 3. Objectives: clear-cut, specific, and achievable.

 4. Marketing strategy: Target segment,

positioning, product line, price, distribution,
sales force, promotion, etc.
 5. Action program: what will be done, when it will
begin or be completed, who will accomplish the
tasks, what financial resources are required, etc
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The End