Estimating Total Market Demand

Estimating Total Market Demand

total market demand The total market demand for a product or service is the total volume that would The total volume of a

be bought by a defined consumer group in a defined geographic area in a defined product or service that

time period in a defined marketing environment under a defined level and mix of would be bought by a

industry marketing effort.

defined consumer group Total market demand is not a fixed number, but a function of the stated con­ in a defined geographic

ditions. One of these conditions, for example, is the level and mix of industry area in a defined time

period in a defined marketing effort. Another is the state of the environment. Part A of Figure 8.5

marketing environment shows the relationship between total market demand and these conditions. The

under a defined level horizontal axis shows different possible levels of industry marketing expenditure and mix of industry

in a given period. The vertical axis shows the resulting demand level. The curve marketing effort.

represents the estimated level of market demand for varying levels of industry marketing expenditure. Some base sales (called the market minimum) would take place without any marketing expenditure. Greater marketing expenditures would yield higher levels of demand, first at an increasing rate and then at a decreasing rate. Marketing expenditures above a certain level would not cause much more demand, suggesting an upper limit to market demand called the

market potential. The industry market forecast shows the level of market demand corresponding to the planned level of industry marketing expenditure in the given environment.^

The distance between the market minimum and the market potential shows the overall sensitivity of demand to marketing efforts. We can think of two extreme types of market: the expandable and the non­expandable. An expand­ able market, such as the market for compact disc players, is one whose size depends upon the level of industry marketing expenditures. For Figure B.5A, in an expandable market, the distance between Q () and Q\ would be fairly large. In a

Measuring Current Market Demand • 341

1 demand in the

Q,; Market

Market

? : Market minimum

potential

{recession)

Industry markedng expenditure

A. Market demand as a function of industry B. Market demand as a function of industry marketing expenditure (assumes a

marketing expenditure (under prosperity marketJng environment of prosperity)

vs. recession}

Figure 8.5

Marked demand

lien­expandable market, such as that for opera, marketing expenditures generate

little demand; the distance between Q 0 and Qi would be fairly small.

Organizations selling in a non­expandable market can take primary demand ­ primary demand total demand for all brands of a given product or service ­ as given. They concen­

The level of total trate their marketing resources on building selective demand ­ demand for their

demand for all brands', brand of the product or service.

of a given product or Given a different marketing environment, we must estimate a new market

service ­for example, demand curve. For example, the market for exercise bikes is stronger during pros­

the total demand for perity than during recession. Figure 8.5B shows the relationship of market

motor cycles. demand to the environment. A given level of marketing expenditure will always

selective demand result in more demand during prosperity than it would duriug a recession. The

The demand for a given main point is that marketers should carefully define die situation for which they

brand of a product or arc estimating market demand.

service. Companies have developed various practical methods for estimating total market demand. We will illustrate two here. Suppose Dutch­owned Polygram wants to estimate the total annual sales of recorded eompaet discs. A common way to estimate total market demand is as follows:

Q= n x < y x p where

Q = total market demand; n ­ number of buyers in the market;

q = quantity purchased by an average buyer per year; and p = price of an average unit.

Thus, if there arc 10 million buyers of CDs each year and the average buyer buys sis discs a year and the average price is DK1 40, then the total market demand for cassette tapes is DPI 2,400 million (= 10,000,000 x 6 x DPI 40).

A variation on the preceding equation is the chain ratio method. Using this method, the analyst multiplies a base number by a chain of adjusting percentages. For example, the United Kingdom has no national service, so the British Army needs to attract 20,000 new male recruits each year. There is a problem here, since the Army is already under strength and the population of 16 to 19­year­olds

is declining. The marketing question is whether this is a reasonable target in re­ lation to the market potential. The Army estimates market potential using, the following method:

342 • Chapter 8 Market Information and Marketing Research

Total number of male secondary­school leavers Percentage who are militarily qualified

(no physical, emotional, or mental handicaps) Percentage of those qualified who are potentially

interested in military service Percentage of those qualified and interested in

military service who consider the Army the preferred service

This chain of numbers .shows a market potential of 18,0(10 recruits. Since this is less than the target number of recruits sought, the Army needs to do a better job of marketing itself. They responded by doing motivational research that showed existing advertising did not attract the target age group, although a mili­

tary career did give them what they wanted. A new campaign therefore aimed to increase the attractiveness of a military career to both men and women, 29