1.

Market/Demand Analysis

Market/demand analysis : meaning & purposes:

– Market: any set of individuals, households, or organizations with
potential/actual demand to be satisfied.

1
– Demand: the ability as well as willingness to acquire and use
something (goods/services) of value.

Market and demand analysis involves and focuses on:

– the level of demand for the product or service
– marketability of the product or the service of the project
– the market determining factors
– demand forecasting and analysis
 Market analysis ...
Major Dimensions of Market/Demand Analysis
• General Indicators of the Economy
• Product
• Demand
• Supply

2
• Marketing Environment
• Marketing mix/Strategy

Process of Market and Demand Analysis

• Situational analysis and specification of objectives
• Collection of secondary information
• Conduct of market survey (primary information)
• Characterization of the market
• Demand forecasting
• Market planning
 Market analysis...

Collection of
Demand
secondary
Information
Forecasting

3
Situational
Analysis and Characterization
Specification of of the market
Objectives

Conduct of
Marketing
Market
Survey
Planning

Key steps in a Market and Demand Analysis and their relationships

 Market analysis …Cont’d….
Step1: Situational Analysis and Specification of Objectives
– It is where the project analyst may informally talk to customers,
competitors, middlemen, and others in the industry
 Purpose

4
– to get a "feel" for the relationship between the product and its market.  
– to answer the following questions:
• Who are the buyers of the product?
• What is the total current demand for the product?
 Market analysis …Cont’d….

• How is the demand distributed (pattern of sales over the year) and
geographically?
• What price will the customers be willing to pay for the product?

5
• How can potential customers be convinced about the superiority of
the new product?
• What channels of distribution are most suited for the product?
• What trade margins will induce distributors to carry it?
• What are the prospects for immediate sales?
 MARKET ANALYSIS …CONT’D….
Step 2: Collection of Secondary Information

– General/Major Source of Secondary Information

– National Census reports
– National sample survey report
– Economic survey
– Annual survey of industry
– Industry potential survey

6
 MARKET ANALYSIS …CONT’D….
– Evaluation of Secondary Information
• Who gathered the information and What was the objective?
• When was the information gathered? When was it published?
• How representative was the period for which the information was
gathered?
• What was the target population?
• How was the sample chosen? How representative was the sample?
• How satisfactory was the process of information gathering?
• What was the degree of misrepresentation by respondents?
• How accurately was the information edited, tabulated and analyzed?
• Was statistical analysis properly applied?

7
 MARKET ANALYSIS …CONT’D….
Step 3: Conduct of Market Survey

– Focus points
Total demand and rate of growth of demand
Demand in different segments of the market
Income and price elasticity's of demand
Motives for buying
Purchasing plans and intentions
Satisfaction with existing products
Unsatisfied needs
Attitudes towards various products
Socio-economic characteristics of buyers

8
 MARKET ANALYSIS …CONT’D….
–  Steps in market Survey
Define the target population
Develop the questionnaires (data collection instruments)
Recruit and train field investigators
Obtain information as per the questionnaire from the sample of
respondents
Scrutinize the information Gathered
Analyze and interpret the information
Report the findings

9
 MARKET ANALYSIS …CONT’D….
Step 4: Characterization of the Market
– Based on the information gathered from secondary sources and through the
market survey, the market of the product/service may be described in terms
of the following:
• Effective demand in the past and present

• Breakdown of demand

• Price

• Methods of distribution and sales promotion

• Consumers

• Supply and competition

• Government policy

10
 MARKET ANALYSIS …CONT’D….
Step 4: Characterization of the Market
 Effective demand in the past and present:
• To gauge the effective demand in the past and present, the starting point
typically is apparent consumption, which is defined as:

• Apparent Consumption = Production + Imports - Exports - Changes in the

Stock Level

• Example: Consider the following data for a specific product that computes
the effective demand for each year:

11
 MARKET ANALYSIS …CONT’D….
Step 4: Characterization of the Market

Year Production Import Export Ending Effective

 

Inventory Demand
1995 30,000 12,000 9,000 7,000 26,000
1996 38,000 15,000 16,000 14,000 30,000
1997 45,000 10,000 17,000 15,000 37,000
1998 48,000 10,000 14,000 12,000 47,000
1999 50,000 8,000 10,000 8,000 52,000

12
 MARKET ANALYSIS …CONT’D….
Step 4: Characterization of the Market
Breakdown of demand:
• To get deeper insight into the nature of demand, the aggregate (total) market
demand may need to breakdown into demand for different segments of the
market.

• Market segments may be defined by nature of product, consumer group, and

geographical division.

13
 MARKET ANALYSIS …CONT’D….
Step 4: Characterization of the Market
a. Nature of product: One generic name often subsumes many different products:
 steel covers sections, rolled products, and various semi-finished products,
 commercial vehicles cover trucks and buses of various capacities; so on and so forth.

b. Consumer group: Consumers of a product may be divided into industrial consumers and
domestic consumers.
 Industrial consumers may be sub-divided industry-wise.
 Domestic consumers may be further divided into different income groups.

c. Geographical division: A geographical breakdown of consumers, particularly for

products, which have a small value-to-weight relationship, and products, which require
regular, efficient after-sale service, is helpful.

14
 MARKET ANALYSIS …CONT’D….
Step 5: Demand/Sales Forecasting
 Techniques/methods
 I. Qualitative methods/techniques of forecasting
 Expert opinion method
 Delphi method
 Sales force method

15
 Panel forecasting

 II. Quantitative techniques of forecasting

1. Time series analysis techniques
a. Moving average method/techniques
i. Simple moving average technique
ii. Weighted moving average technique
b. Exponential smoothing method
c. Trend projection method
2. Causal Methods
a. Regression analysis
b. Consumption Level Method
 MARKET ANALYSIS …CONT’D….
1. Time series analysis techniques
a. Moving average method/techniques
i. Simple moving average technique
Ft = di
n

16
ii. Weighted moving average technique
Ft= W1(Ft-1)+W2(Ft-2)+………………Wn(Ft-n)
b. Exponential smoothing method
Ft = Ft-1 + α (At-1 - Ft-1)
c. Trend projection method
Y= a + bx
Year Demand
1 200,000
2 250,000
3 300,000
4 350,000
5 250,000
 MARKET ANALYSIS …CONT’D….
Required
i. Forecast demand for year six using the simple moving average of the
recent three years.
Solution
F6 = 300,000+350,000+250,000
3

17
= 300,000 tons of cement shall be demanded
ii. Assume that a weight of 0.5 has been assigned for the most recent data
followed by weights of 0.3 and 0.2 for the next recent figures. Demand
for year 6 is?
Solution
F6 = 0.5(250,000)+0.3(350,000)+0.2(300,000)
= 125,000+105,000+60,000
= 290,000 tons is the forecasted demand
 MARKET ANALYSIS …CONT’D….
iii. Assuming that demand forecasted for year 5 for the product was 400,000
tons. Assuming further that the value of smoothing constant (α) is 0.50,
what is demand forecast for year 6?
Solution
F t = Ft-1 + (At -1- Ft-1)

18
F6 = 400,000+ 0.5(250,000 – 400,000)
F6 = 400,000+0.5(- 150,000)
F6 = 400,000+(- 75,000)
= 325,000 tons is the forecasted demand for year 6
 MARKET ANALYSIS …CONT’D….
• Assuming that demand forecasted for 1996 for Coffee was 18,000 quintals
per year and actual demand for coffee was 15,000 quintals and smoothing
constant of 0.70, what will be demand forecasted for the year 1997?
FD (t) = FDt-1 + (Adt-1 – FDt-1)
FD1997 = 18,000 + 0.7(15,000 - 18,000)

19
FD1997 = 18,000- 2,100 = 15,900

• Assume actual demand for 1996 was 19,800 quintals instead of 15,000
quintals. Then forecasted demand for 1997 should be as follows:
DD (t) = FDt-1 + (Adt-1 – FDt-1)
DD1997 = 18,000 + 0.7(19,800 - 18,000)
DD1997 = 18,000 + 1,260 = 19,260
 MARKET ANALYSIS …CONT’D….

Trend projection method

Y= a + bx
y= demand for the year (dependent variable)

20
x= time variable (Independent variable)
a = intercept of the relationship
b= Slope of the relationship

b=  xy  nx y
 x  nx
2 2

a= y  b ( x )
 MARKET ANALYSIS …CONT’D….
x y xy
1 200,000 1 200000
2 250,000 4 500000

21
3 300,000 9 900000
4 350,000 16 1400000
5 250,000 25 1250000
15 1,350,000 55 4250000
3 270000 11 850000
 MARKET ANALYSIS …CONT’D….
iv. Forecast sales for the next year using the trend projection technique.
Solution

b= 20,000 a= 210,000
y= 210,000 + 20,000x
 F6= 210,000 + 20,000(6)

22
= 330,000 tons
 MARKET ANALYSIS …CONT’D….
EXAMPLE -2: CONSIDER DEMAND FOR COFFEE PER TONE IS GIVEN BELOW .
FORECAST THE DEMANDS FOR COFFEE FOR THE NEXT YEAR.
Year Sales
1 2,109
2 2,530

23
3 2,287
4 3,194
5 3,785
6 3,372
7 3,698
8 3,908
9 3,725
10 4,129
11 4,532
12 4,487
 MARKET ANALYSIS …CONT’D….
Year(X) Sales(Y) X.Y X2
1 2,109 2109 1
2 2,530 5060 4
3 2,287 6861 9
4 3,194 12776 16
5 3,785 18925 25

24
6 3,372 20232 36
7 3,698 25886 49
8 3,908 31264 64
9 3,725 33525 81
10 4,129 41290 100
11 4,532 49852 121
12 4,487 53844 144
Sum 78 41756 301624 650
Averages 6.5 3479.667 25135.33 54.17
 MARKET ANALYSIS …CONT’D….
iv. Forecast sales for the next year using the trend projection technique.
Solution

b= 211.258 a= 2106.41
 F13= 211.258 + 2106.41(13)

25
= 4852.764 tons
 MARKET ANALYSIS …CONT’D….
Causal Methods
• They seek to develop forecasts on the basis of cause-effect relationships
specified in an explicit, quantitative manner. 
a. Regression analysis
• This is a very popular demand forecasting tool in practice.

26
• It involves extrapolating the past trend of demand with identified factor
affecting the demand such as income to project the future consumption.

• It measures the average amount of change in the dependent variable

associated with a unit change in one or more independent variables.
 MARKET ANALYSIS …CONT’D….
 

• To illustrate the linear demand equation, assume that demand for a

commodity in a town is a function of number of households (HHs).

• The equation to forecast demand called the linear regression equation and
the forecast results will be as shown below.

27
• (Note: The formula to compute a and b in the equations are the same as the
linear time series analysis except that the independent variable in this case
is not time but number of households).

• Forecast the sales for commodity (in tones) if the number of households is
100.
 MARKET ANALYSIS …CONT’D….

No of HHs (X) Sales (Y)

80 200

28
92 210
96 240
98 300
99 340
 MARKET ANALYSIS …CONT’D….
2
No of HHs (X) Sales (Y) X.Y X
80 200 16000 6400
92 210 19320 8464

29
96 240 23040 9216
98 300 29400 9604
99 340 33660 9801
Sums 465 1290 121420 43485
Averages 93 258 24284 8697
 MARKET ANALYSIS …CONT’D….
Forecast sales for the next year if the number of household is 100.
Solution

b= 6.041 a= -303.875
 y100= -303.875 + 6.041(100)

30
= 300.225 tons
 MARKET ANALYSIS …CONT’D….
Chain ratio method  

• The potential sale of a product is estimated by applying a series of factors

to a measure of aggregate demand.

• It uses a simple analytical approach to demand estimation.

31
• Example: A firm that plans to manufacture stainless steel blades in Ethiopia
may estimate its potential sales as follows:
 MARKET ANALYSIS …CONT’D….
Adult male population in the country 20 million
Proportion of adult male pop. using shaving blades 0.6
Adult male population using shaving blades 12 million
Number of times in a year a person shaves 100

32
Total shavings done per year 1,200 million
Proportion of shavings done with stainless steel blades 0.4
Average no. of shavings per stainless steel blade 6
Number of stainless steel blades used per year
(1200 million x 0.4) / 6 80 million
Proportion of stainless steel blade market the firm could capture 0.2
Potential sales 16 million
 MARKET ANALYSIS …
Step 6: Market Planning
i. Analysais of Current marketing situation
ii. Specification of Marketing Objectives

33
iii. Marketing Mix Strategies
– Product management strategy
– Pricing management strategy
– Place (Distribution) management strategy
– Promotion management strategy
iv. Developing Action Plan and Program