Marketing Discussion Questions

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RESPONSE:

1. Why is it important to establish the maximum potential for market demand?

For business planning purposes, it is key to assess the potential demand for market demand, such as for wireless services or disposable diapers. Because the maximum potential demand is independent of time, the methodology chosen to measure maximum potential demand should be geared to take a very long term view. For example, Telia assumed when cellular was first launched that there would eventually be 40,000 subscribers in Sweden. The reason why the forecast was so inaccurate was because the maximum potential demand was hugely underestimated. (http://www.coleago.co.uk/uploads///Downloads/FMC%20Positioning%20SZ%20Jul%2098.pdf).

Therefore, as part of ongoing planning, companies prepare a great number of market size estimates. In fact, demand potential can be measured for six different product levels (products item, product form, product line, company sales, industry sales, national sales), five different space levels ( customers, territory, region, U.S.A world) and three different time levels (short ?range, medium range and long range). Each type of demand measurement serves a specific purpose. Thus a company might make a short ?range forecast of the total demand potential for a particular products item to provide a basis for ordering raw materials , planning production, and scheduling short run financing . Or it might make a long range forecast of regional demand potential for its major product line to provide a basis for considering market expansion (http://www.management-hub.com/marketing-demand.html).

How do you establish maximum potential for market demand?

In regards to wireless services, for example, over the years Coleago has gained considerable experience in assessing demand and price elasticity of demand. The methodology has been refined over the years but broadly stayed comparable. In most cases two large market surveys were carried out in each market. The first survey usually covers 1,000 adult individuals, including existing users and non-users. Normally the survey would a representative sample of the population, but in cases where some low income segments of the market may not realistically be addressable e.g. developing countries, the survey might be limited to the population above a certain income group. In this case, it would be assumed there is no demand below that income level. The second survey is with 300-500 business decision makers. Based on the cumulative experience of these large scale surveys in diverse geographical markets and cultures, Coleago has consistently identified two needs based market segment. One is the traditional mobile need segment and the other the fixed mobile convergent (FMC) need segment?(http://www.coleago.co.uk/uploads///Downloads/FMC%20Positioning%20SZ%20Jul%2098.pdf).

b. Now let's move on to babies and diapers! What would be the maximum market potential for disposable diapers? What forces would restrict today's market demand for disposable diapers from reaching the maximum market potential? What factors would help accelerate market growth? Can a business affect any of these factors to accelerate market growth? How?

A combination of variables impact the disposable diaper maximum market potential, E.g number of diapers used, cultural views, changes per day, etc.. The market has seen extremely limited working capital, ever growing number of SKU's and small margins, which are forcing diaper companies not only to have good forecasts but excellent ones. As diapers markets are maturing, it has been predicted the need to differentiate will create even more pressure on the small diaper companies. They will have to keep adding more SKUs in the future in order to serve niche markets (see attached article for full discussion).

EXCERPT

A good estimate for the total potential market for baby diapers in the world is to add the total number of babies between the ages of 0 to 2.5 years old and multiply by 4.2 diapers per day and a total of 365 days per year. The number 4.2 may seem small at first but you have to take into account that it is the average over the whole life?of the baby and not the typical consumption when he is less than a year old. Babies use more diapers per day when they are small and much less when they grow older. When you do the multiplication, this is the amount of diapers that all of these babies will ...