Besides estimating total and area demand, a company will want to know the actual industry sales in its market. Thus, it must identify its competitors and estimate their sales.
Industry’s trade associations often collect and
publish total industry sales, although not individual company sales. In this
way, each company can evaluate its performance against the industry as a whole.
Suppose the company’s sales are increasing at a rate of five percent a year and
industry sales are increasing at 10 percent. This company actually is losing
its relative standing in the industry.
Another way to estimate sales is to buy reports from marketing research firms that audit total sales and brand sales. For example, A.C. Nielsen, IRI, and other marketing research firms use scanner data to audit the retail sales of various product categories in supermarkets and drugstores, and they sell this information to interested companies. A company can obtain data on total product category sales as well as brand sales. It can compare its performance with that of the total industry or any particular competitor to see whether it is gaining or losing in its relative standing
ESTIMATING AREA MARKET DEMAND
Companies
face the problem of selecting the best sales territories and allocating
their
marketing budget optimally among these territories. Therefore, they need to
estimate
the market potential of different cities, provinces, and countries. Two
major
methods are available: the market-buildup method, which is used primar-
ily
by business goods firms, and the market-factor index method,
which
is used primarily by consumer goods firms.
Market-Buildup Method
The
market-buildup method calls for identifying all the potential buyers in each
market
and estimating their potential purchases. Suppose a manufacturer of min-
ing
instruments developed an instrument that can be used in the field to test the
actual
proportion of gold content in gold-bearing ores. By using it, miners would
not
waste their time digging deposits of ore containing too little gold to be com-
mercially
profitable. The manufacturer wants to price the instrument at $1000. It
sees
each mine as buying one or more instruments, depending on the mine’s size.
The
company wants to determine the market potential for this instrument in each
mining
province or territory. It would hire a salesperson to cover each area that
has
a market potential of over $300 000. The company wants to start by finding
the
market potential in the
To estimate the market potential in the N.W.T., the
manufacturer can con-
sult
the Standard Industrial Classification (SIC) developed by Statistics Canada.
The
SIC is the government’s coding system that classifies industries, for purposes
of
data collection and reporting, according to the product produced or operation
performed.
Each major industrial group is assigned a two-digit code—metal min-
ing
bears the code number 06. Within metal mining are further breakdowns into
four-digit
SIC numbers (the gold category has the code number 0611).
Next, the manufacturer can turn to the Financial Post
Survey of Mines
to
determine the number of gold-mining operations in each territory and province,
their
locations within the territory and province, and the number of employees,
annual
sales, and net worth. Using the data on the N.W.T., the company can pre-
pare
a market potential estimate.
An examination of the SIC data reveals that the N.W.T.
has 220 gold mines.
It
is projected that large mines have the potential to purchase four instruments
each,
while small mines will purchase only one instrument. Fifty percent of the
mining
operations are large mines. Therefore, the total market for potential instru-
ment
sales in the N.W.T. equals (220 × .50 × 4) + (220 × .50 × 1)
550 instru-
ments.
Since each instrument sells for $1000, the market equals $550 0