A market potential is an estimate of the maximum possible sales opportunities for a commodity or group of commodities open to all sellers in a particular market segment for a stated period under consideration
Before going to the stage of establishing market potential, commodity grouping must be established in such a way that the individual commodities concerned are uniform with respect to the demand function. Since most products do not greatly differ from others, consumers often resort to product substitution.
So in order to accurately arrive at a market potential for a product the degree of product substitution and the conditions under which it takes place have to be considered.
The decision as to include or exclude closely related substitutes would have a significant effect over the market potential. E.g. Furniture – wood, leather, steel feather light etc.
Several market potentials for a product can be arrived at by making different assumptions.E.g.tooth paste.
Methods of calculating Market potentials:
Direct Data Method: In this method the data on the actual product for which one wishes to estimate market potential is collected.
Collecting data about the sales for a particular product in the entire market from the various retail outlets.
Advantages: These are the actual sales for a year that are being collected to arrive at the market potential. (2) The method is straightforward when compared to other methods.
Disadvantages: (1) there are very few commodities on which total sales data is available. (2) Past sales are used to indicate the market potential. (3)
Previous sales were made with the help of certain advertising and sales methods, so changes in these activities, as well as changes in price may shift demand and redistribute total sales.
Corollary Data Method: This is based on the assumption that if a given series is related to another or to a group, the second series may be used as a