UNIT 4: MARKET AND
DEMAND ANALYSIS
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INTRODUCTION
Very often project analysis begins with the estimation of the potential size of
the market for the product proposed to be manufactured or service planned to
be offered and get an idea about the market share that is likely to be captured.
These are very important issue in project analysis.
Market and demand analysis aims at determining the aggregate demand for the
product/service and the market share of the proposed project.
Formal thorough market and demand analysis increases the project’s
probability for success if it is done in an orderly and systematic manner.
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M
MARKETING ELEMENTS
Marketing is characterized by the following elements:
Business philosophy
Marketing puts the problems, needs, and desires of the existing or potential
consumer groups at the center of business activities of the firm.
Marketing research
Marketing research provides information to develop marketing strategies.
Marketing instruments (marketing mix)
Use of necessary combination marketing mix instruments to successfully
implement marketing strategies
Marketing plan and budget
Based on the findings of market research, it is necessary to determine the required
means
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OBJECTIVES OF MARKET ANALYSIS
Market and demand analysis is a key activity for determining
the scope of an investment,
the possible production program,
the technology required, and
the choice of location.
The objectives of demand and marketing analysis are:
i. To determine the effective demand for the proposed project
ii. To determine the characteristics of the corresponding market in
terms of unsatisfied demand, competition, imports, exports etc.
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SITUATIONAL ANALYSIS AND SPECIFICATION OF OBJECTIVES
The project analyst should be able to establish the
relationship between the product and its market.
To do so, she/he may informally talk to the following
parties:
- customers,
- competitors
- middlemen (wholesalers and retailers)
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SITUATIONAL ANALYSIS AND SPECIFICATION OF OBJECTIVES
The purpose of contact with the above parties is to
learn about the preferences
Know purchasing power of customers,
Identify the actions, and strategies of competitors, and
Understand the practices of middlemen.
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COLLECTION OF INFORMATION
In order to achieve the market and demand analysis
objectives, information should be obtained from various
sources.
These sources are generally classified into
primary sources and
secondary sources.
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Sources of Secondary information
Secondary information is information that is gathered in some
other context and is already available.
The important sources of secondary information are:
a) Census-
CSA gathers and publishes data about
population,
demographic characteristics,
household size and composition and other similar data
b) Economic survey
c) Annual reports on imports and exports
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Sources of Secondary information
The reliability, accuracy and relevance of secondary information should be
examined carefully in terms of:
- who gathered the information and the purpose (objective) for which it
was gathered
- the time of information gathering and publication
- the relevance of information gather for the period
- target population
- the means of choosing the sample
- the representativeness of the sample
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Primary information/Market survey
Information obtained through secondary sources should be supplemented
with primary information
The market survey may be a census, or a sample survey.
In a census survey, the entire population is covered.
The term population refers to the totality of all units under consideration in
a specific study.
Example
- All higher private educational institutions
- All firms producing textile
Census survey may involve high cost and insensible.
When census survey is impractical (all elements of the population are not
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Primary information/Market survey
The following types of information may be collected through market survey:
- Total demand and rate of growth of demand
- Motives for buying
- Demand in different segments of the market
- Income and price elasticity of demand
- Purchasing plans and intentions
- Satisfaction with existing products
- Unsatisfied needs
- Attitudes towards various products
- Distribution and price practices and preferences
- Socio-economic characteristics of buyers
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Primary information/Market survey
The steps in sample market survey include:
1. Define the target population
2. selecting the sampling method and sample size
3. Develop the questionnaire
4. Recruit and train the field investigators
5. Obtain information as per the questionnaire from the sample of
respondents
6. Scrutinize the information gathered
7. Analyze and interpret the information
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CHARACTERIZATION OF THE MARKET
Market characterization involves describing the market for
product/service in terms of the following factors:
- effective demand in the past and present
- breakdown of demand/segmentation
- price
- methods of distribution
- promotion
- consumers
- supply and competition
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CHARACTERIZATION OF THE MARKET
Effective Demand in the Past and Present
In order to gauge (measure) the effective demand in the past and present,
apparent consumption can serve as the starting point.
Apparent consumption can be computed as follows:
Consumption = P + I – E – CSL
Where
P = production
I = Imports
E = Exports
CSL = Changes in stock level, usually increase in stock.
Generally, effective demand and apparent consumption are equal in a
competitive market.
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CHARACTERIZATION OF THE MARKET
Breakdown of Demand/Market Segmentation
The total (aggregate) demand for the product may be broken
down into demand for segments of the market.
What is market segment?
What factors are considered in segmenting the market?
Why market is segmented?
Market segmentation is defined as the dividing of the target market into
subgroups of consumer population with identifiable, distinct and homogeneous
characteristics (Philip Kotler, 1999).
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CHARACTERIZATION OF THE MARKET
Breakdown of Demand/Market Segmentation
The main reasons of market segmentation are:
- efficient use of marketing resources
- better understanding of customer needs
- better understanding of the competitive situation
- accurate measurement of goals and performance
- formulate marketing programs and strategies
- Design marketing mix (i.e., product, price, place, and promotion).
- Pay proper attention to particular area
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CHARACTERIZATION OF THE MARKET
Breakdown of Demand/Market Segmentation
- Geographic segmentation –
- western, eastern, northern, southern, central etc.
- Demographic segmentation –
- divide the market on the basis of
- age,
- sex,
- family size,
- marital status,
- language,
- Religion etc
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CHARACTERIZATION OF THE MARKET
Breakdown of Demand/Market Segmentation
- Socio-economic segmentation –
- divide the market on the basis of income levels, consumption levels,
caste level (exclusive social class), culture and the like
- Psychographics segmentation –
- divide the market based on how consumers think, feel, and behave
- Buyer behavior segmentation –
- divide the market based on customers knowledge, attitudes, rules, or
responses to a product.
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CHARACTERIZATION OF THE MARKET
Price
Factors which affect the pricing decisions are both internal and external.
External factors that affect pricing decisions include:
- Demand for the product/service
- Competition
- Consumer’s quality perceptions
- Middlemen (distributors, dealers etc)
- Suppliers
- Government
- Economic conditions
- Ethical considerations
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CHARACTERIZATION OF THE MARKET
Price
Internal factors that affect pricing decisions include:
- Organizational factors
- Marketing mix
- Product differentiation (different product attributes
such as color, size, attractive package, attractive uses,
style etc).
- Cost of products
- Objective of the firm
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CHARACTERIZATION OF THE MARKET
Price
A firm that is planning to introduce new product may follow any one
of the following pricing strategy:
Market skimming pricing
It is the approach of setting a relatively high initial price for a new product.
Market penetration pricing
It is the strategy of setting a relatively low initial price for new product.
manufacturer’s price quoted as FOB (Free-on-Board) price or CIF
(Cost, insurance, and freight) price
Landed price for imported goods
Average wholesale price
Average Retail price
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CHARACTERIZATION OF THE MARKET
Distribution
The methods of distributing a product/service vary with
the nature of the product.
The typical geographic separation of the manufacturer or
producer from the ultimate consumer requires some means
for bridging the gap between the producer and the
customers
Distribution system has two components; namely,
channels of distribution, and
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CHARACTERIZATION OF THE MARKET
Distribution
Channels include wholesales, retailers, dealers, agents
and other parties involved in transferring the product or
service to the consumers.
physical distribution is concerned with the flow of
goods to the ultimate consumers. Physical distribution
includes transportation, warehousing, and inventory
management.
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CHARACTERIZATION OF THE MARKET
Promotion
promotion is defined as “any identifiable activities (efforts) on
the parts of the seller to persuade buyers to accept the seller’s
information and store it in retrievable form”.
The promotional function of any organization involves the
transmission of message to present, past, and potential customers.
Who is the target in promotion?
How is promotion carried?
What are the objectives of promotion?
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CHARACTERIZATION OF THE MARKET
Promotion
Personal
Selling
Publicity Advertising
Target
Customer
Public relations Sales
Promotion
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CHARACTERIZATION OF THE MARKET
Promotion
The means of promotion are:
a) Personal selling – It involves face-to-face contact between seller’s representative
and the buyer
b) Advertising.
It is paid form of non-personal mass media communication by an identified sponsor.
The media may include print media, direct mail, TV, radio, billboard, Internet etc.
c) Sales Promotion. It includes activities that seek to indirectly induce or indirectly
serve as incentives to motivate a desired response on the part of target customers,
company sales people and middlemen, and their sales force.
d) Publicity. It involves the news carried in the mass media about a firm and its
products, policies, personnel or actions, such as news releases, press conference
etc.
e) Public relations. It is a planned effort by an organization to influence the
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CHARACTERIZATION OF THE MARKET
Promotion
The primary objectives of promotion are:
- to develop an awareness of, and an interest in, the organization and its products
and services
- to communicate the benefits of buying product or services
- To influence eventual purchase of the product or service
- To build the positive image of the organization
- To differentiate the product/service from its competitors
- To remind the people of the existence of the product/service and the organization
Therefore, during market and demand analysis, the project studying team
should specify the promotion methods employed presently and their rationale.
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CHARACTERIZATION OF THE MARKET
Supply and Competition
It is necessary to know the existing sources of supply.
The existing sources may be domestic or foreign.
The following information should be gathered for domestic sources of supply.
- Location
- Present production capacity
- Planned expansion
- Capacity utilization level
- Bottlenecks in production
- Cost structure
The study should also cover competition from substitutes and near-substitute
products.
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CHARACTERIZATION OF THE MARKET
Government Policy
Government may have significant role in influencing the product’s demand
and market
Some of the areas of influence are:
- production targets in national plans
- trade control on imports and exports
- import duties
- export and import incentives
- excise duties
- taxes
- industrial licensing
- credit controls
- financial regulations
-
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subsidies or penalties of any kind 29
DEMAND FORECASTING METHODS
The market analyst has several methods of forecasting the demand.
Generally, these methods are classified in to qualitative and
quantitative methods.
Qualitative methods include:
1. Jury of executive opinion method
2. Delphi method
Quantitative methods include:
1. Trend projection method
2. Exponential smoothing method
3. Moving average method
4.
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