Market Study Chapter 3 PDF

Market Study Chapter 3  Market Study The market study is the first major part of a feasibility study. It appears after the project summary. Literally, market means the place where the buyer and the seller meet. In preparation of a feasibility study, the...

Market Study Chapter 3  Market Study The market study is the first major part of a feasibility study. It appears after the project summary. Literally, market means the place where the buyer and the seller meet. 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 500,000 Davao in 2014 (data taken from egg producers outside Davao Area) 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: 3. Type of consumers, 4. Income classification, 5. Use of the product or services, 6. Location, and 7. 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 12. Existing and prospective users of the product Development 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: 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 03 Evaluate supply growth 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 Chapter Thanks!