Market Study
Module 3
Market Study
The market study is the first major part of a feasibility study. It appears after the project summary.
Though all major sections of the study are important, the market study receives the utmost and preferential
attention because it is considered as the lifeblood of a feasibility study.
Literally, market means the place where the buyer and the seller meet.
Rather, the term “market study” in a feasibility study refers to the study of demand, supply, and price. The nature of these
three variables and their behavior are usually studied lengthily in the field of economics.
In preparation of a feasibility study, the market study is generally directed towards providing a definite and
straightforward answer to the question –
• Is there a potential demand for the products or services?
In simple terms, the question would be
• Are there buyers or consumers of the products or services?
Objectives of the Market Study
It has been emphasized that the primary objective of the market study is to determine whether there is demand or
none. Corollary to this underlying objective, the market study is conducted to:
1. Determine the size and growth of total annual demand;
2. Evaluate the annual supply situation;
3. Identify the possible entry of competitors;
4. Determine the possible market share of the products or services;
5. Establish a pricing policy; and
6. Define the appropriate marketing program.
The whole market study focuses, therefore, on the following
major concerns;
Study Supply Study of the
Price
1 2 3 4
5
Study of Demand-Supply Marketing
Demand Analysis Program
Study of Demand
The first section of the market study is the study of demand. In this section, the question as to whether
there is demand or none for the products or services should be given a straightforward answer.
The demand study, however, should be anchored on the industry description. In other words, there is a
very close link between the study of demand and the industry analysis. The data provided in the industry
analysis may be utilized in the study of demand.
But, what is meant by demand?
The term ‘demand’ in a feasibility study has two major connotations. It may refer to either a) past
demand or b) future demand.
Study of Demand
Past Demand. The section ‘Study of Demand’ in the market study usually starts with the
analysis of past demand. Past demand is the sum of the total goods sold or consumed,
whether locally produced or imported during the previous year or years.
The total past demand is computed as follows:
Local production or consumption xxxxx
Imported units xxxxx
Total past demand xxxxx
Study of Demand
There are studies that determine past demand by adding up the local production, total
consumption and number of units imported. In simple mathematical format, the total past
demand is computed as follows:
Total local production xxxxx
Total consumption xxxxx
Total number of imported units xxxxx
Total past demand xxxxx
Study of Demand
To illustrate, let us use the following hypothetical data expressed in pieces:
Number of poultry eggs produced in Davao area in 2014
(data taken from egg producers) 900,000 pcs
Total consumption of poultry eggs in 2014
(data taken from egg retailers) 800,000
Total number of poultry eggs from other provinces sold in
Davao in 2014 (data taken from egg producers outside Davao Area) 500,000
The total demand for poultry eggs may be computed as follows:
Production of eggs in Davao area 900,000
Consumption of eggs in Davao 800,000
Poultry eggs produced outside but sold in Davao 500,000
Total past demand 2,200,000
Study of Demand
However, if all poultry eggs produced in Davao were sold only in Davao, then there is
duplication of data in the computation of the past demand. In this case, the past demand for
poultry eggs would only include those that were produced in Davao and those produced
outside of Davao but sold in Davao. The past demand should be computed as follows:
Total production eggs in Davao area 900,000
Total number of poultry eggs produced outside of Davao area
But sold in Davao area 500,000
Total past demand 1,400,000
Study of Demand
The proponent of the study should exercise due care and diligence in determining what
constitutes the total demand for a certain product.
Future Demand. Future demand simply refers to the projected demand for a product
for local consumption or projected production and projected number of units to be imported.
Let us take the hypothetical figures on poultry eggs production.
How is the future demand for poultry eggs computed?
Major Processes in the Study
of Demand
Is there a demand? This is the primary
question which all the major processes in the
study of demand are directed.
To give a definite answer to the question, the following major processes
should be undertaken:
1. Identify the consumers,
2. Gather information on total past demands,
3. Evaluate past demand patterns,
4. Forecast future demands, and
5. Evaluate future demand projections
Identify the Consumers
The first step in the study of demand is identifying the consumers or end users. This step is directed
towards answering two basic marketing questions:
1. Who are the consumers?
2. Where are the consumers?
A marketing approach known as market segmentation is an effective tool in identifying the right
consumers or users of the product or service. In market segmentation, the consumers are identified by
classifying them in terms of the following descriptive or behavioral characteristics:
1. Type of consumers,
2. Income classification,
3. Use of the product or services,
4. Location, and
5. Age.
The following table is a sample guide in determining the appropriate yardstick to segment the consumers.
A Study Whether There Yardstick to Use in Segmenting
is Demand for the Market
Sporting goods Age
Automobiles Income
Heavy Equipment Type of Industry
Utility Vehicles Traveling Public
Assuming the data provided by the government agency appear as follows:
Age bracket Population
1-9 years old 3,500
10-18 years old 8,000
19-27 years old 5,000
28-36 years old 4,200
37-45 years old 2,800
46-54 years old 1,900
Gather Information on Total Demand
Once the questions, who is the market and where is the market, have been answered squarely, the next
step in the study of demand is to gather the necessary information about the total demand.
This is the most costly phase of the demand study, and it has plenty of drawbacks. However, there
is no substitute to this process and it cannot be discarded.
The proponent of the study has to settle the following questions:
1. Where can the demand data be gathered?
2. How can the desired data be gathered?
3. How large should be the desired data?
Where to Gather the Demand Data. The information on total demand
can be obtained from the following:
1. Manufactures, retailers 7. National Statistics Office (NSO)
2. Trade associations 8. Bureau of Customs (BOC)
3. Bangko Sentral ng Pilipinas (BSP) 9. Other national government offices
4. Department of Finance (DOF) 10. Universities and colleges
5. Department of Trade and Industry (DTI) 11. Local government units and offices
6. National Economic and Development 12. Existing and prospective users of the product
Authority (NEDA)
How to gather the Desired Information.
The proponents or promoters of the study may use the following mode of gathering
information about the demand for the product or services:
1. survey
2. interview
3. questionnaire
4. observation
5. testing
How Large Should the Desired Data Be
When data are gathered by surveying existing and prospective consumers, one of the critical issues that
should be settled is the total number of desired responses from customers.
The formula:
S = NV = (E (1 – p)
NE = V p (1 – p)
Where: S – sample size
N – total number of population
V – standard value (2.58) at 1 percent level of probability with 0.99 reliability
E – sampling error (0.01)
P – largest possible proportion (0.50)
Drawbacks in Gathering Information
Data gathering is the most tedious part in the preparation of a feasibility study. I
There are limitations, however, in gathering the desired information.
1. Data maybe incomplete and outdated
2. Businesses are hesitant to provide the necessary data
3. The quality of data from interview and questionnaires are sometimes questionable
4. Data gathering is a costly endeavor
5. Data gathering is time consuming
Evaluate Past Demand Pattern
The third step in the study of demand is the evaluation of past or historical demand. In evaluating the
data, the proponent is primarily concerned with the following factors.
1. pattern of demand
2. government programs influencing the demand
3. fiscal and monetary policy of the national government and
4. trends in the world market
These factors are of great help to the proponent in determining future demand.
Forecasted Future Demand
The fourth major step in the study of demand is projecting the future demand. In forecasting future
demand, only the demand pattern that has been adjusted should be considered.
There are several forecasting tools available in projecting future demand. Among others, they include
1. simple moving average
2. weighted moving average
3. arithmetic straight line
4. arithmetic geometric curve
5. high-low point method and
6. least square method
Evaluate Future Demand Projection
Evaluating future demand projection is the last procedural step in the study of demand.
The proponent should likewise review;
1.) the projection methods used to determine future demand and
b.) the projection base used in predicting future demand.
Final Note in the Study of Demand
To recapitulate the procedures in conducting demand study, the proponent should:
First, identify the consumer
Second, gather information on total demand
Third, evaluate the historical demand pattern
Fourth, forecast future demand and
Finally, evaluate the projection of future demand
Study of Supply
The study of supply intends to answer the primary marketing question: Are there existing
suppliers of the proposed product or service?
The study should also identify the entities that currently produce or provide the
product or the desired services. The study of supply should not be limited to direct
competitors only. Indirect competitors should also be included because they can influence
the buying behavior of consumers, in one way or another.
Major Processes in the Study of Supply
When studying supply to answer the question, Is there a supplier, the following processes maybe followed:
Conduct a thorough study Forecast future
01 about the competitors 04 supply
Evaluate supply growth
03 patterns
02
Gather information on
historical supply
05 Evaluate the result
of future forecast
Conducting a Thorough Study about the Competitors
Future competitors refers to the current suppliers of the proposed product or service. They should be
categorically identified and complete information about them must be readily available.
In gathering information about the competitors, the following questions should be addressed clearly:
1. who are the competitors?
2. where are the competitors?
3. are they direct or indirect competitors?
4. how long have they been in the business?
5. are they publicly-listed companies or closed corporations?
6. who are the majority shareholders of the competitors?
7. where do they channel their products?
8. do they produce primary or substitute products?
9. what marketing strategy do they apply?
Gathering Information on Historical Supply
After all the needed information about the competitors have been accumulated, the next step is to gather
historical supply data. Data on historical supply refers to information on similar products produced by
existing firms.
Consumption data, however, should not be included. The presentation of supply data in tabular form
may appear as follows:
Local production xxxx
Imported goods xxxx
Total annual supply xxxx
Manufacturers and importers, including their trade associations, have complete and updated data
on supply.
Gathering Information on Historical Supply
Non-availability of supply data is a major drawback in the study of supply. The proponent may source
available information from the following agencies:
1. Department of Trade and Industry (DTI)
2. Bureau of Customs (BOC)
3. Bangko Sentral ng Pilipinas (BSP)
4. National Economic and Development Authority (NEDA)
5. Board of Investments (BOI)
6. National Statistics Office (NSO)
Evaluating Supply Growth Pattern
In evaluating the historical supply growth pattern, the proponent may consider the following guide
questions:
1. is the supply pattern increasing or decreasing?
2. does the percentage of increase remain constant?
3. are there government projects that significantly influence the supply growth pattern?
4. are there new uses for the product?
5. are there moves from the private sector that will significantly influence the supply?
Forecasting Future Supply
In forecasting future supply, the products produced by suppliers or competitors are predicted
for the next three to five years. In forecasting, the total historical supply data should be
used, not the individual supply data of competitors.
Evaluating the Result of Future Forecast
Evaluating the predicted supply data is the last step in conducting study of supply.
However, the result of the forecast may not be the final data to be used in determining
whether there is enough supply or none.
Final Note in the Study of Supply
To summarize, the following procedures should be followed in conducting supply study:
First, identify who and where are the competitors;
Second, gather information on total goods produced by competitors;
Third, evaluate the historical supply pattern;
Fourth, forecast the supply; and
Finally, evaluate the he projection of future supply
Demand-Supply Analysis
The third section of market study is demand-supply analysis. In this part of the study, the question – Is
there a demand or none – is finally answered. The findings in both the demand and supply studies are
combined in this sub-section and usually presented in tabular for.
The proponent may perform the following procedural steps in conducting this sub-section of the
market study:
First, a comparison in tabular presentation is made between demand data and supply data
Second, a computation of the difference between the predicted demand and supply is made.
Third, determine the expected share in the market.
Market Share
Determining the market share is usually not a major section of the market study. However,
it plays a very significant role in the preparation of a project feasibility study.
Study of the Price
The fourth section of the market study deals with pricing and addresses the question – How much is the
selling price of the product or services?
In economics, the price of goods or services is mainly determined by the demand-supply situation.
The following steps may be considered in setting the price of the proposed product or services:
1. compute correctly the cost incurred in making the product considering the three elements of cost, i.e.
direct materials, direct labor and factory overhead
2. decide on the proposed mark up on finished goods
3. compare the proposed selling price with prices of similar products or substitutes
4. make the necessary adjustments if there is a huge difference in these prices
5. determine the history of prices of similar or substitute products
6. determine the expected operating expenses
7. set the selling price after all concerns have been properly studied and evaluated
Marketing Program
The last section in market study is the marketing program. It shows the different sets of coordinated
marketing activities designed to achieve the marketing goals.
Remember that a feasibility study is a forerunner of the business plan. In case the project is proven to be
viable, a business plan will be prepared when the project is implemented.
The brief marketing program should include:
1. the target market
2. the terms of sale
3. the channels of distribution
4. the transportation arrangement
5. the estimated selling price
6. promotion and advertising activities
7. the distribution network
8. packaging
9. marketing staff
10. the estimated cost of marketing
Conclusion
Every major aspect of the study should have a conclusion stating the result of the evaluation. The
conclusion is not absolute in terms of figures or amount, but rather a mixture of facts and estimates
based on the professional judgment of the proponent or other parties.
For a marketing study, a conclusion should be made on the following major questions:
1. is there a demand?
2. are there available or enough supply?
3. is there a gap between demand and supply/
4. how much is the expected selling price of the product?
5. what marketing strategies should be adopted?
A good conclusion should be convincing, but it should never vouch for the attainment of the
forecast.
End of Module
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