MARKET AND DEMAND ANALYSIS

QUESTION: EXPLAIN MARKET ANALYSIS PROCESS IN DETAIL

MEANING OF MARKET ANALYSIS: Market analysis is concerned with two important issues: 1. What will be the total demand for the product/service? 2. What shall be the market share of our proposed project?

PROCESS OF MARKET ANALYSIS: Market analysis should be carried out in an orderly and
systematic manner. he important steps in such analysis are as follows: !ituational analysis and specification of objectives

"ollection of secondary information

"onduct of market survey

"haracterisation of the market STEP 1: SITUATIONAL ANALYSIS AND SPECIFICATION OF OBJECTIVES: Definiti n: !ituational analysis means analy#in$ the situation of the market in an informal way. %ntrepreneur may informally talk to customers& competitors& middlemen& and others in the industry about the market situation. !ituational analysis produces data to know about the market. When time and cost is less& we must not $o for in'depth formal study and analysis () we must always $o for situational analysis first. o carry out such a study& it is necessary to decide its objectives clearly and in detail. *bjectives must be structured in the form of +uestions. %,-M./%: !uppose a company has invented a new type of food processor with many new features as compared to old style mi0er'$rinder. !uppose the entrepreneur needs information about where and how to market the food processor. he objectives of market and demand analysis in this case may be1 Who are the buyers of mi0er'$rinder2mi0ie3? What is the total current demand for mi0ie? 4ow is the demand distributed temporally 2pattern of sales over the year3 and $eo$raphically? What is the nature of demand for mi0ie of different si#es? 4ow can potential customers be convinced about the superiority of the food processor? What price and warranty will make sure that customers accept the new food processor? What channels of distribution are most suited for the food processor? What trade mar$ins will influence distributors? .

STEP !: COLLECTION OF SECONDARY INFORMATION: 5n order to answer the +uestions listed above in the objectives of the market study& information may be obtained from secondary and primary sources. !econdary information is information that is already available. .rimary information means information that is collected for the first time. We must always start from secondary information. 5f that is not available then we must $o for primary data. Gene"#$ S %"&e' f Se& n(#") Inf "*#ti n : !ome important secondary sources of information in 5ndia are1 1. Census of India : - decennial2means every 16 years3 publication of the 7overnment of 5ndia. 5t provides information on population& demo$raphic characteristics& household si#e. 2. Economic Survey : -n annual publication of the Ministry of 8inance& it provides the latest data on industrial production& wholesale prices& consumer prices& e0ports& a$ricultural production& national income& etc. 3. Guidelines to Industries : -n annual publication of the "entral !tatistical *r$anisation& it contains information on various aspects of industry: number of units and state'wise distribution& avera$e number of workin$ days& employment& materials consumption& +uantity of products& etc. 4. Annual Reports of the evelopment !in"# $inistry of Commerce and Industry : -n annual publication& it $ives a detailed review of industries under the purview of the win$. 5t also provides information about new items manufactured for the first time in 5ndia and the list of protected industries. %. Annual &ulletin of statistics of E'ports and Imports : -n annual publication of the Ministry of "ommerce& it provides data on imports and e0ports for a very lar$e number of items and as per international classification. (. $onthly Studies of )roduction of Selected Industries : - monthly publication of the "entral !tatistical *r$anisation& it provides all 5ndia data on production& number of units installed capacity& state'wise break'up& stock level& etc.& for several selected industries. *. )u+lications of Advertisin" A"encies : he leadin$ advertisin$ a$encies like "larion& Mc"ann and hompson publish market data re$ardin$ 5ndian market. STEP +: CONDUCT OF MARKET SURVEY: !econdary information is less costly and easy to obtain. (ut it always does not provide a detailed information for market analysis. .rimary information is also re+uired alon$ with secondary data to $et complete idea re$ardin$ the project that is bein$ studied. .rimary data can be collected with the help of a sample survey as follows1 Ste,' in # S#*,$e S%"-e).RESEARC/ PROCESS0: ypically& a sample survey consists of the followin$ steps: 1. 9efine the ar$et .opulation : 5n definin$ the tar$et population the important terms should be carefully and clearly defined. he tar$et population may be divided into various se$ments which may have differin$ characteristics. 8or e0ample& all television owners may be divided into three to four income $roups. 2. !elect the !amplin$ !cheme and !ample !i#e : here are many samplin$ methods: simple random samplin$& cluster samplin$& se+uential samplin$& stratified samplin$& systematic samplin$& and non probability samplin$. %ach method has its advanta$es and limitations. !ample si#e is also very important to $et reliable data.

:. 9evelop the ;uestionnaire : he +uestionnaire is the main instrument for $ettin$ information from the respondents. he effectiveness of the +uestionnaire depends on its len$th& the types of +uestions& and the wordin$ of +uestions. 9evelopin$ the +uestionnaire re+uires an understandin$ of the product/service and its usa$e& ima$ination& human behaviour& and familiarity with statistics to be used for analysis. <. =ecruit and rain the 8ield 5nvesti$ators : =ecruitin$ and trainin$ of field investi$ators must be planned well. 7reat care must be taken for recruitin$ the ri$ht kind of investi$ators and impartin$ the proper kind of trainin$ to them. >. *btain 5nformation as per the ;uestionnaire : =espondents may be interviewed personally& telephonically& or by mail for obtainin$ information. .ersonal interviews $ets a hi$h rate of response. hey are e0pensive and likely to result in biased responses because of the presence of the interviewer. Mail surveys are economical. he response rate is often low. elephonic interviews have very limited applicability in 5ndia because telephone tariffs are hi$h. ?. -nalyse and 5nterpret the 5nformation : 5nformation $athered in the survey needs to be analysed and. interpreted. -fter $atherin$ the data& it must be edited for analy#in$ it. 8or purposes of statistical analysis& a variety of methods are available. hey may be divided into two broad cate$ories: parametric methods and nonparametric methods. -nalysed data must be properly interpreted for results. STEP 1: C/ARACTERISATION OF T/E MARKET: (ased on the information $athered from secondary sources and throu$h the primary survey& the market analysis can be described in the followin$ points1 12 DEMAND: 9emand can be analysed in the followin$ ways1 2i3 %ffective 9emand in the .ast and .resent he effective demand in the past and present& can be calculated with the formula as $iven below : .roduction @ 5mports ' %0ports ' "han$es in stock level. 2ii3 (reakdown of 9emand o $et a deeper knowled$e into the nature of demand& the total market demand may be broken down into 2i3 nature of product 2ii3 consumer $roup& and 2iii3 $eo$raphical division. ' Aature of .roduct : for e0ample ' commercial vehicles include trucks and buses of various capacities ' "onsumer 7roups : "onsumers of a product may be divided into industrial consumers and domestic consumers. 5ndustrial consumers may be subdivided industry wise. 9omestic consumers may be further divided into different income $roups. ' 7eo$raphical 9ivision : 9emand can be divided $eo$raphically. 8or e0ample: Aorth 5ndia& !outh 5ndia& %ast 5ndia& West 5ndia. !2 PRICE: 5t may be helpful to study the followin$ types of prices : 2i3 manufacturerBs price +uoted as 8*( 2free on board3 price or "58 2cost& insurance& and frei$ht3 price& 2ii3 price for imported $oods& 2iii3 wholesale price& and 2iv3 retail price. +2 MET/ODS OF DISTRIBUTION AND SALES PROMOTION: he methods of distribution may chan$e with the nature of product. "apital $oods& industrial raw materials& and consumer products have different distribution channels. !imilarly& methods used for sales promotion 2advertisin$& discounts& $ift schemes& etc.3 may chan$e from product to product. 12 CONSUMERS: "onsumers are of many types in the market. hey must be properly analysed. "onsumers may be characterised alon$ two dimensions: demo$raphic and attitudinal1

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Attit%(in#$ .references 5ntentions 4abits -ttitudes =esponses

52 SUPPLY AND COMPETITION: 5t is necessary to know the current sources of supply and whether they are forei$n or domestic. 8or domestic sources of supply& information alon$ the followin$ lines may be $athered: location& present production capacity& planned e0pansion& capacity utilisation level& bottlenecks in production& and cost structure. "ompetition from substitutes should also be specified because any product can be replaced by some other product if there is any chan$e in price& +uality& availability& promotional effort etc. 62 GOVERNMENT POLICY: 7overnment also plays a role in influencin$ the demand for a product. 7overnmental plans& policies& -cts& and orders affects the demand for the product. 7overnment policies mi$ht affect the production tar$ets in national plans& import and e0port trade controls& import duties& e0port incentives& e0cise duties& sales ta0& industrial licensin$& preferential purchases& credit controls& financial re$ulations& and subsidies/penalties of various kinds. -fter analy#in$ the market in the above steps& it is important to know how is demand forecastin$ done. DEMAND FORECASTING -fter $atherin$ information about various aspects of demand from primary and secondary sources& an attempt may be made to estimate future demand. 9emand forecast is an estimate of sales for a specified future period. here are many +ualitative and +uantitative methods of demand forecastin$1 Q%#$it#ti-e Met4 (' : hese methods depend on the jud$ment of e0perts. he important +ualitative methods are as follows1 12 J%") f e7e&%ti-e ,ini n *et4 (: 5n this method a $roup of e0perts opinion is $athered to know the demand for the product. !2 De$,4i *et4 (: this method is also like the above method. (ut in this method opinion of e0perts is surveyed many times till they arrive at a common answer. 4ence this method is more objective. Q%#ntit#ti-e *et4 (': hese methods depend upon the calculation of demand on the basis of different formula. !ome important demand forecastin$ methods are1 1. time series methods: these methods use past data to calculate demand for future. 2. movin$ avera$e method :. e0ponential smoothin$ method <. movin$ avera$e method >. leadin$ indicator method.