MODULE II

Market Analysis
Introduction :
A long-term growth strategy is essential for the continued success
of a company. This can include focusing on increasing market
share, entering new markets, finding new customers, or developing
new offerings. But identifying the right path to growth that
maximizes returns while minimizing risk is a challenge.
To navigate evolving customer expectations, market demand, and
economic factors, companies need recent, relevant data, not
guesswork, to inform smart growth decisions. A comprehensive
market analysis provides businesses with an understanding of
current or potential markets that helps them decide where to sell,
what to sell, and who to sell to.
What is Market Analysis?
A market analysis presents a comprehensive picture of your target markets, including
market size, trends, limiters, competitors, and growth opportunities. Knowing the
current and future trajectory allows companies to adopt or divert their strategies and
offerings to the most profitable and viable markets.
A market analysis offers insight on:
Need for market analysis
1. Understand Target Audience: Identify demographics, needs, preferences,
and behaviours. It involves learning who your target audience is, what they
want and need, and how your product or service fits into their needs.
2. Assess Market Size and Growth: Determine market potential and trends.
Market size measures the total sales generated by selling a product. It is
measured by dividing sales over market share. Market growth measures how
much a market has changed. It is measured by dividing the change in market
size during year one and year two by the size of the market in year one.
3. Analyse Competition: Identify key players, strengths, and weaknesses. A
competitive analysis is a tool that helps businesses understand their competitors
and the market landscape. It can help businesses identify their strengths and
weaknesses, find opportunities for growth, and plan product development.
4. Evaluate Market Trends: Identify opportunities and threats. Market trend
analysis allows you to identify potential changes to your market as well as
ways that your company can stay ahead of competitors. By identifying
current and potential changes in customers' needs and wants, your company
can look for innovative or new ways of providing its products and services.
5. Inform Business Strategy: Develop effective marketing, sales, and
product strategies. A business strategy is a plan that outlines how a company
will achieve its goals and gain a competitive edge. An information strategy
is a detailed plan for how a company will share and use information. Business
strategy and information strategy should be linked.
6. Reduce Risk: Mitigate potential risks and avoid costly mistakes.
7. Improve Decision-Making: Make data-driven decisions.
8. Enhance Competitive Advantage: Stay ahead of competitors.
 Many a project has been abandoned because preliminary appraisal revealed a market
of inadequate size. This chapter is divided into the following five sections dealing
with various aspects of market and demand analysis.
1. Information required for market and demand analysis
2. Secondary sources of information
3. Market survey
4. Demand forecasting
5. Uncertainties in demand forecasting
 INFORMATION REQUIRED FOR MARKET AND DEMAND ANALYSIS
 The principal types of information required for market and demand analysis relate
to-
(i) Effective demand in the past and present
The effective demand in the past and present, the starting point typically is apparent
consumption which is defined as- Production + Imports – exports – changes in stock
level In a competitive market, effective demand and apparent consumption are equal.
However, in most of the developing countries, where competitive markets do not exist
for a variety of products due to exchange restrictions and controls on production and
distribution, the figure of apparent consumption may have to be adjusted for market
imperfections. Admittedly, this is often a difficult task.
(ii) Breakdown of demand To get a deeper insight into the nature of demand, the
aggregate (total) market demand may be broken down into demand for different
segments of the market. Market segments may be defined by
(i) nature of product,
(ii) consumer group, and
(iii) geographical division. Nature of product— One generic name often subsumes many
different products: steel covers sections, rolled products, and various semi finished
products; commercial vehicles cover trucks and buses of various capacities etc. Consumer
groups— Consumers of a product may be divided into industrial consumers and domestic
consumers. Industrial consumers may be sub-divided industry-wise. Domestic consumers
may be further divided into different income groups. Geographical division— A
geographical breakdown of consumers, particularly for products which have a small value-
to-weight relationship and products which require regular, efficient after-sales service is
helpful.
(iii) Price
Price statistics must be gathered along with statistics pertaining to physical quantities. It
may be helpful to distinguish the following types of prices: (i) manufacturer’s price quoted
as FOB (free on board) price or CIF (cost, insurance, and freight) price, (ii) landed price for
imported goods, (iii) average wholesale price, and (iv) average retail price.
(iv) Methods of distribution and sales promotion
The method of distribution may vary with the nature of product. Capital goods, industrial
raw materials or intermediates, and consumer products tend to have differing distribution
channels. Further, for a given product, distribution methods may vary. Likewise, methods
used for sales promotion (advertising, discounts, gift schemes, etc.) may vary from
product to product. The methods of distribution and sales promotion employed presently
and their rationale must be studied carefully. Such a study may explain certain patterns of
consumption and highlight the difficulties that may be encountered in marketing the
proposed products.
(v) Consumers
Two categories of information about the consumers may be required: demographic and
sociological information, and attitudinal information. Under the first category,
information on the following is required: age, sex, income, avocation, residence, religion,
customs, beliefs, and social background. Under the second category, information on the
following is required preferences, intentions, attitudes, habits, and responses.
(vi) Governmental policy
The role of government in influencing the demand and market for a product may be
significant. Governmental plans, policies, legislations, and fiats which have a bearing on the
market and demand of the product under examination should be studied. These are reflected
in: production targets in national plans, import and export trade controls, import duties,
export incentives, excise duties, sales tax, industrial licensing, preferential purchases, credit
controls, financial regulations, and subsidies/penalties of various kinds.
(vii) Supply and competition
It is necessary to know the existing sources of supply and whether they are foreign or
domestic. For domestic sources of supply information along the following lines may be
gathered: location, present production capacity, planned expansion, capacity utilization
level, bottlenecks in production, and cost structure. Competition from substitutes and near-
substitutes should be examined because almost any good may be replaced by some other
good as a result of changes in relative prices, quality, availability, promotional strategies,
consumer taste, and other factors.
 SECONDARY SOURCES OF INFORMATION
The information required for demand and market analysis is usually obtained partly from
secondary sources and partly through a market survey. In marketing research, a distinction
is usually made between primary information and secondary information. Primary
information refers to information which is collected for the first time to meet the specific
purpose on hand; secondary information, in contrast, is information which is in existence
and which has been gathered in some other context. Secondary information provides the
base and the starting point for market and demand analysis. It indicates what is known and
often provides leads and cues for further investigation.
General secondary sources of information
The important sources of secondary information useful for market and demand analysis in
India are mentioned below Census of India—
 National sample survey reports—
 Plan reports—
 India Year Book—
 MARKET SURVEY Secondary information, though useful, often does not provide
a comprehensive basis for demand and market analysis. It needs to be supplemented
with primary information gathered through a market survey, specific for the project
being appraised. The market survey may be a census survey or a sample survey.
In such a survey a sample of the population is contacted/observed and relevant
information is gathered. On the basis of such information, inferences about the
population may be drawn. The information sought in a market survey may relate to
one or more of the following
(i) Total demand and rate of growth of demand;
(ii) Demand in different segments of the market;
(iii) Income and price elasticity of demand;
(iv) Motives for buying;
(v) Purchasing plans and intentions;
(vi) Satisfaction with existing products;
(vii) Unsatisfied needs;
(viii) Attitudes toward various products
(ix) Distributive trade practices and preferences;
(x) Socio-economic characteristics of buyers.
 Steps in a sample survey Typically, a sample survey consists of the following
steps:
1. Definition of the target population— In defining the target population the
important terms should be carefully and unambiguously defined. The target
population may be divided into various segments which may have differing
characteristics. For example, all television owners may be divided into three to
four income brackets.
2. Selection of sampling scheme and sample size— There are several sampling
schemes- simple random sampling, cluster sampling, sequential sampling,
stratified sampling, systematic sampling, and nonprobability sampling. Each
scheme has its advantages and limitations. The sample size, other things being
equal, has a bearing on the reliability of the estimates— the larger the sample
size, the greater the reliability
3. Preparation of the questionnaire— The questionnaire is the principal
instrument for eliciting information from the sample of the respondents. The
effectiveness of the questionnaire as a device for eliciting the desired information
depends on its length, the types of questions, and the wording of questions.
Developing the questionnaire requires thorough understanding of the
product/service and its usage, imagination, insights into human behaviour,
appreciation of subtle linguistic nuances, and familiarity with the tools of
descriptive and inferential statistics to be used later for analysis.
4. Recruiting and training of field investigators must be planned well since it
can be time consuming. Great care must be taken for recruiting the right kinds of
investigators and imparting the proper kind of training to them. Investigators
involved in industry and trade market survey need intimate knowledge of the
product and technical background particularly for products based on sophisticated
technologies.
5. Obtaining information as per the questionnaire from the sample of
respondents— Respondents may be interviewed personally, telephonically or
by mail for obtaining information. Personal interviews ensure a high rate of
response. They are, however, expensive and likely to result in biased
responses because of the presence of the interviewer. Mail surveys are
economical and evoke fairly candid responses. The response rate, however, is
often low. Telephonic interviews, common in western countries, have very
limited applicability in India because telephone tariffs are high and telephone
connections few.
6. Scrutiny of information gathered— Information gathered should be
thoroughly scrutinized to eliminate data which is internally inconsistent and
which is of dubious validity. For example, a respondent with a high income
and large family may say that he lives in a one-room tenement. Such
information, probably inaccurate, should be deleted. Sometimes data
inconsistencies may be revealed only after some analysis.
7. Analysis and interpretation of data— Data gathered in the survey needs to be
analysed and interpreted with care and imagination. After tabulating it as per a
plan of analysis, suitable statistical investigation may be conducted, wherever
possible and necessary. For purposes of statistical analysis, a variety of methods
are available. They may be divided into two broad categories: parametric methods
and nonparametric methods.
 The statistical analysis of data should be directed by a person who has a good
background in statistics as well as economics. It may be emphasized that the
results of the market survey can be vitiated by- (i) non-representativeness of the
sample, (ii) imprecision and inadequacies in the questions, (iii) failure of the
respondents to comprehend the questions, (iv) deliberate distortions in the
answers given by the respondents, (v) indept handling of the interviews by the
investigators, (vi) cheating on the part of the investigators, (vii) slipshod
scrutiny of data, and (viii) incorrect and inappropriate analysis and
interpretation of data.
 DEMAND FORECASTING
After gathering information about various aspects of the market and demand from
primary and secondary sources, an attempt may be made to estimate future demand.
Several methods are available for demand forecasting. The important ones are—
(i) Trend projection method It consists of
(i) determining the trend of consumption by analysing past consumption statistics, and
(ii) projecting future consumption by extrapolating the trend.
The trend of consumption may be represented by one of the following relationships:
Linear Relationship: Yt = a + bt …
(1) Exponential Relationship: Yt = aebt …
(2) On logarithmic transformation this becomes: Log Yt = log a + bt Polynomial
Relationship: Yt = a0 + a1t + a2t2 + … + antn …
(3) Cobb Douglas Relationship: Yt = atb …
(4) On logarithmic transformation this becomes: Log Yt = log a + b log t
In the above equations Yt represents demand for year t, t is the time variable,
a, b and aj’s are constants. Out of the above relationships the most
commonly used relationship is- Yt = a + bt This relationship may be
estimated by using one of the following methods:
(i) visual curve fitting method, and
(ii) least squares method. Evaluation— The basic assumption underlying
the trend projection method is that the factors which influenced the
behaviour of consumption in the past would continue to influence the
behaviour of consumption in the future. This hypothesis is sometimes
referred to as the hypothesis of “mutually compensating effects”.
Clearly, this is a deterministic hypothesis of questionable validity.
Notwithstanding this weakness, the trend projection method is used
popularly in practice. Often a starting point in the forecasting exercise, it
is likely to be relied upon heavily when no other viable method seems
available. The ease with which it can be applied may induce a sense of
complacency.