Chapter 4

Chapter four
Market and demand analysis

Introduction
• In most cases, the first step in project analysis is to
estimate the potential size of the market for the
product proposed to be manufactured (or service
planned to be offered) and get an idea about the
market share that is likely to be captured.
• Market analysis helps us to estimate the size of the
market for the proposed product or service
• Put differently, market and demand analysis is
concerned with two broad issues:
What is the likely aggregate demand for the
product/service?
What share of the market will the proposed project
Objectives of market and demand analysis
• Identify potential customers
• Indicate total current demand
• Identify pattern of demand (temporally &
geographically)
• Determine price & warranty that will ensure the
intended outputs
• Identify appropriate channel of distribution
• Explore prospects of immediate and future sales
• Formulate marketing strategy
Components of market and demand analysis
• Existing pattern of consumption & growth
• Composition of the market
• Nature of competition
• Income levels of the society
• Availability of substitutes
• System of distribution channels
KEY STEPS IN MARKET AND DEMAND ANALYSIS
STEP 1: SITUATION ANALYSIS
• In order to get a “feel” for the relationship between the
product and its market, the project analyst may informally
talk to customers, competitors, middlemen, and others in
the industry. Wherever possible, he may look at the
experience of the company to learn about the preferences
and purchasing power of customers, actions and strategies
of competitors and practices of the middlemen.
• You seek to answer the following questions.
 Which group of a society is the highest or lowest consumer
of the product?
 Is there seasonal or special variation of sales?
Distribution of sales over region or given area?
 What price do consumers take?
STEP 2: GATHERING OF DATA FROM SECONDARY
SOURCES
Secondary information is information that has been
gathered in some other context and is already available.
General sources of secondary information
Census reports – which include information on
population, demographic characteristics, household
size and composition, and maps reports on patterns of
consumption, distribution of households by the size of
consumer expenditure, distribution of industries, and
characteristics of the economically active population?
Industry specific sources of secondary information:
It is also important to review reports issued by different
STEP 3: MARKET SURVEY: GENERATE PRIMARY
INFORMATION
• The basic objective to fill the gaps and to concentrate the
issues that prevail from the situation analysis (focus on
the gaps identified). Two types (Census and sample
survey).
• Information collected in a market survey should include
 Total demand and its rate of growth
Customers’ purchasing power and satisfaction
 Motives of seeking the product
Unsatisfied need of demand
 Distribution pattern & preferences
 Attitude towards product

STEP 4: CHARACTERIZATION OF THE MARKET
• Based on the information gathered from secondary sources
and through the market survey, the market for the
product/service may be described in terms of the following:
 Consumers - demographic, economic, sociological attitude,
individuals, domestic, foreign, households
 Nature of the product - finishes, semi finished, packed, big,
small
 Geographical - highland vs. lowland
 Methods of distribution and sales promotion - Patterns of
consumption, problems encountered in marketing, price
statistics
 Supply and competition - characterize according to supply and
competition in the market
 Government policy - national plans, production targets, import
STEP 5: DEMAND FORECASTING
• Demand assessment is a means of estimating the actual demand
for services that will exist over time. Forecasting attempts to
represent future occurrences in the most likely set of
circumstances. Therefore, we estimate the demand in the future.
• Techniques for forecasting
 Qualitative methods
 Time series projection methods
 Casual method
Demand forecast are subject to error and uncertainty which arise
from three principal sources
 Data about past and present market
 Method of forecasting
 Environmental changes: change in technology, shift in
government policy, developments discovery of new sources of
STEP 6: MARKET PLANNING
• To enable the product to reach a desired level of market
penetration, a suitable marketing plan should be
developed. Broadly, it should cover pricing, distribution,
promotion, and service. The details that need to be
hammered out are shown below:
• The purpose is to meet customers needs better than
competitors.
• Market planning has the following components
A. Current marketing situation
 Market situation
 Competition situation
 Distribution
B. Opportunity and issue analysis: Strength,
weakness, opportunities, and threat (SWOT)
C. Objectives
D. Action program: quarterly plan
Target segment
Price
 Distribution
Sales promotion
Advertising
E. Marketing strategy
THE END

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