Calculate Market Potential 69b3p

ANALYZING YOUR MARKET'S POTENTIAL Marketers should perform a detailed analysis of a market segment before committing money to marketing a product. The three primary types of market analysis are Market Potential, Sales Forecasting, and Market Share. MARKET POTENTIAL Market Potential can be defined as the total amount of possible sales in a market. For example, the total sales potential for pork in the USA is approximately $X billion per year. A firm should calculate the market potential for a product before deciding whether or not to invest money in marketing the product. In the following example, we will use the horse products market in Clark County, Washington. Number of horses in Clark County:

10,000 head

Research data indicates that the average horse owner spends $70 per month, per horse, on horse related products including feed, medications, tack, etc. Market Potential for horse related products: 10,000 X $70 = $700,000 per month X 12 months = $8,400,000 per year Market Potential for one product: Product: Senior Horse Feed 1/3 of the horses in the county are of senior age, (15 years or older). .33 X 10,000 = 3,300 senior horses 5 lbs. senior horse feed per day X 3,300 horses = 16,500 lbs. per day. 16,500 lbs./2000 lbs. per ton = 8.25 tons per day 8.25 tons per day X 365 days per year = 3011.25 tons per year 3011.25 tons X $325/ton = $978,656.25 per year The Market Potential for one product, Senior Horse Feed, is $978,656.25 per year, a very impressive number!

Page 85

SALES FORECASTING A sales forecast is an estimate of the sales a single company expect to generate within a particular market. A simple, although crude, method of calculating a sales forecast is to divide the total market potential for a market by the number of firms in the market. This is a crude method because there are so many possible variables that may exist between competing companies. A well-managed company may be expected to get more sales than a company that is badly-managed and deep in debt. Continuing with our senior horse feed example, we can develop a sales forecast by dividing $978,656.25 by 12, the number of feed stores in the county. $978,656.25/12 = $81,554.69 This figure indicates that each feed store could expect sales of about $82,000 for senior horse feed per year. Of course, many factors will affect this estimate including advertising, prices, customer loyalty to each store, etc.

MARKET SHARE Market share is the percentage of total sales that a company can expect to get from the total market. To calculate market share divide your sales forecast by the total market potential. Estimated Market Share for one firm in Clark County: $82,000/$978,656 = .0837 or about 8.4%. that this is only an estimate and actual market share may be more or less than this number. Actual market share should be calculated after one year of sales data is collected and analyzed. Market potential, sales forecasts, and market share are all useful tools in analyzing a market and estimating the success or failure of a product. You should analyze your product in a similar fashion to determine its potential in the market place.

Page 86

ANALYZING YOUR MARKET CHECK YOUR UNDERSTANDING

1. Define Market Potential.

2. Define Sales Forecast.

3. Define Market Share.

Conduct a market analysis using the following data: Market: Hamburgers in Clark County. Population: 300,000 Consumption rate: One hamburger/person/week Average price of a hamburger: $2.00 Number of hamburger restaurants: 100

4. Calculate Market Potential for the Hamburger Market in Clark County.

5. Estimate a Sales Forecast for one restaurant.

6. Calculate Market Share for one restaurant.

Page 87

CONDUCT A MARKET ANALYSIS Using the product you have selected, conduct a complete Market Analysis. Show all of your calculations in the space provided. This data will be used later on when you develop your marketing plan. Market Potential

Sales Forecast

Market Share

Page 88