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 measurement of the distribution of the first.
Single Factor Index: This is the most simple of the corollary data method for analyzing market potentials. E.g. the sale of one product is taken to arrive at the market potential for another product when the product is having a closely related demand.
Calculating market potential for automobile tyres. It is assumed that a new set of tires would last for 25,000 Kms. On an average an owner would be driving for 10,000 kms a year. Therefore, every vehicle that is 2.5 years old by the year for which we want to calculate the market potential is going to be a prospect for the replacement of tires. The number of vehicles that are going to be 2.5 years old can be got from the registration authorities. Multiple Factor Analysis: When the demand for the product is going to depend on more than one factor, then we take all the factors into consideration for the purpose of arriving at the market potential. E.g. the demand for soft drinks is going to depend on factors like the number of households, number of members in the household, their age, income, duration and intensity of summer etc.
Sales Potential, Sales Volume and Sales Forecasting:
Definition: Sales potentials are the quantitative estimates of the maximum possible sales opportunities present in a particular market segment open to a specific company for a particular product or a service during a specific future period under consideration.
The sales potentials are usually and generally derived from market potentials after analyzing the previous market share relationships and 2
by making necessary adjustments in the company’s and competitors selling strategies and policies.
Sales volume is the quantitative expression of the actual sales of a product attained by a firm in a particular market segment during a specific period under consideration.
It so happens that in most of the cases the sales potential is greater than the sales volume.
Such a situation arises due to various reasons like (1)...
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