Analyzing Market Potential

1. Market Identification

The first step in analyzing a product’s market potential is to identify its mar­ket. Market identification requires finding out

  1. Who buys the product?
  2. Who uses it?
  3. Who are the prospective buyers and/or users?

Some companies find answers to these questions in their internal records, but most companies, especially those that use long marketing channels, must use field research to obtain meaningful answers. In consumer-goods market­ing, buyers, users, and prospects are identified and classified according to such characteristics as age, sex, education, income, and social class. In indus­trial-goods marketing, buyers, users, and prospects are identified and classi­fied by size of firm, geographical location, type of industry, and the like.

Market identification studies reveal the characteristics that differ­entiate the market segments making up the product’s market potential. Frequently they uncover unexploited market segments whose patronage might be obtained through redirecting personal-selling effort or changing promotional strategy. Sometimes, market identification studies provide, as a side result, customer data on factors such as purchase frequency, search­ing time expended, unit of purchase, and seasonal buying habits. When assembled and analyzed, these data help in estimating market potential.

2. Market Motivation

The second step in analyzing market potential is to detect the reasons why customers buy the product and the reasons why potential customers might buy it. Market motivation studies answer twin questions: Why do people buy? Why don’t people buy? The answers help not only in estimating mar­ket potential but assist the sales executive seeking to increase the effective­ness of promotional programs.

Motivation research techniques vary, but the most widely used are the projective techniques, in which respondents project themselves, their attitudes, interests, and opinions into interpretations of special materials presented by the researcher. Analysis of results by trained specialists lays bare what goes on in buyers’ minds, including the real reasons for buying or not buying the product. Most motivation studies are directed toward explaining the buying behavior of ultimate consumers rather than industrial users. Information from motivation studies helps not only in estimating a product’s market potential but assists in deciding

  1. How best to present the product in sales talks.
  2. The relative effectiveness of different selling appeals.
  3. The relative appropriateness of various promotional methods.

3. Analysis of Market Potential

Having identified the potential buyers and their buying behavior, the third step is to analyze the market potential. Generally, market potential cannot be analyzed directly, so analysis makes use of market factors (a market factor is a market feature or characteristic related to the produces demand). For instance, the number of males reaching shaving age each year is one market factor influencing the demand for men’s electric shav­ers. But not every male reaching shaving age is a prospective buyer of an electric shaver—some will be late in starting to shave, others will adopt other shaving methods, some will not have the money to buy a shaver or will prefer to use that money for something else, and still others will use borrowed shavers or, perhaps, will grow beards. Thus, using market factors for analyzing market potential is a two-step process:

  1. Select the market factor(s) associated with the product’s demand.
  2. Eliminate those market segments that do not contain prospective buyers of the product.

Source: Richard R. Still, Edward W. Cundliff, Normal A. P Govoni, Sandeep Puri (2017), Sales and Distribution Management: Decisions, Strategies, and Cases, Pearson; Sixth edition.

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