4 Steps that can help to predict Total Market Demand

Current history is filled with stories of companies and at times even whole industries that have made grave tactical errors as of imprecise industry wide demand forecasts. For instance:

In 1947, electric utilities of United States made plans to twice generating capacity by the mid- 1980s based on predictions of a 7% annual growth in demand. Such forecasts are vital since companies should start building new generating plants 5-10 years before they are to come in line.

However during the 1975-1985 periods, load actually grew at only 2% rate, according a market research.

Define the market:

At the beginning, it’s best to be excessively inclusive in importance of the total market.

Describe it largely enough to contain every potential end user so that you can both make out the proper demand drivers and diminish the risk of surprise product substitutions.

In defining the market, an understanding of product substitution is vital. Consumers might behave in a different way if the price or performance of potential substitute products changes.

Market demand:

The improper suppositions did not stem from a lack of forecasting methods; historical trend smoothing, regression analysis, and others were available to all the players. 

In its place, they shared an incorrect fundamental hypothesis: that relationships driving demand in the past would continue unchanged. 

The companies didn’t forecast changes in end-user behavior or recognize their market’s diffusion point. Nobody realize that history can be an changeable guide as domestic economies become more global, advance technologies emerge, and industries develop.

Accordingly of changes like these, lots of managers have come to disturb traditional techniques.

 Few even throw up their hands and assume, which business planning should precede without good demand predictions. 

I disagree. It is possible to expand valuable insights into future market conditions and demand levels based on a deep understanding of the forces behind total-market demand. 

These insights can sometime make the difference between a winning strategy and one that flounders.

A forecast of total-market demand won’t assure a winning strategy. However without it, decisions on investment, marketing support, and other resource allocations will be based on hidden, unconscious assumptions regarding industry wide needs, and they will often be wrong. 

By gauging total-market demand openly, you have a better chance of controlling your company’s destiny. 

Purely going through the procedure has merit for a management team.

 As a substitute of just coming out with pat answers, targets, and numbers, the team is forced to rethink the competitive environment.

There are four steps in any total-market forecast:

1. Define the market
2. Separate the entire industry demand into its major components.
3. Predict the drivers of demand in every segment and project how they are likely to alter.
4.  Conduct sensitivity study to recognize the most vital assumptions and to gauge risks to the baseline forecast.