Asessing Market Potential

Assessing Market Potential -Building the Knowledge Base

Learning Outcomes • Pitfalls in Foreign Market Assessment • A framework for assessing foreign markets • Guidelines for market research in assessing International markets • Introduction to different secondary sources of information • Forecasting Market Potential

Stages of Researching Foreign Market Potential Stage One Preliminary Screening for Attractive Country Markets (Which foreign Markets warrant detailed Investigation?)

Stage Two Assessment of Industry Market Potential (What is the aggregate demand in each of the selected Markets?)

Stage Three Company Sales Potential Analysis (How Attractive is the potential demand for company Products and services?)

External Data

Internal Data

Secondary Data

Primary Data

Firm General Data (Firm Context) Size Product Lines Financial Situation

SW Profile Benchmarking (Compared to main Competitor) Corporate Level Product line-level Specific Product level

Internal Data

Macroeconomic Data for Country B GNP Stability of Currency Inflation

Problem Is there a market For product A in country B? If yes, how large is it and what is the possible market share

Secondary Data

Competitors Specific Strategies

End Customers Threat of using substitutes Consumption Patterns

Industry Growth patterns of sectors Analysis of Imports Characteristics of Competition

Intermediaries Purchasing Behavior Financial Capabilities Access to distribution Channels

External Data

Primary Data

Why research? • From an insurance company: ‘We are a relatively small company in a growing but fiercely competitive business. We need research information to decide how to increase business from our existing customers and attract business from new customers.’

From a whisky manufacturer • Whisky sales generally are in decline. We need research to evaluate the potential of new whisky-based drink products. We also need research to select the most effective packaging to maximize product sales in an increasingly self-service market.’

From an integrated communications agency • Our clients look to us for advice on internet advertising strategy. How can research help in providing more effective online advertising?’

From a carpet manufacturer • The floor-coverings market is in decline and over-supplied. We know that design is an important factor in the market. We need research to help us maintain and improve market share by identifying appealing designs and appropriate target markets for them.’

From a business-to-business IT supplier • We are now able to develop an enhanced range of systems integration products. We need research to discover whether a viable market exists for these possible products, who our potential customers might be and whether they know our name and would buy from us.’

Going International • Exporting • Importing • Expansion

Reasons for Entering International Markets Profitability Growth

Spreading R&D cost

Achieving Economies of scale

Why should a firm enter international markets

Marketing Opportunities due to life cycle

Uniqueness of product or service

Risk spread

Access to imported inputs

Key international marketing questions faced by a firm: • How will my product or service fit into the international market? • What marketing adjustments are or will be necessary? • What global competitive threats should I expect? • How can I work with these threats and turn them into opportunities? • What are my strategic global alternatives?

International Marketing Research Types of Information • Economic-economy, inflation, business cycle trends • Cultural, sociological, and political climate • Overview of market conditions • Summary of the technological environment • Competitive situation

Research Process • Define the research problem and establish research objectives • Determine the sources of information to fulfill the research objectives • Consider the costs and benefits of the research effort • Gather the relevant data from secondary or primary sources or both • Analyze, interpret and summarize the results • Effectively communicate the results to decision makers

Country Identification • Typically the company decides to enter into a particular trade area.

A Country Report is prepared for each country in the trade area.

Statistical Variables1. Level of development (including per capita income) 2. Cultural similarities between countries in the trade area 3. Population comparison 4. Socio Economic Data of various segments

Non-Statistical Variables 1. Political Risk Research 2. Environmental Risk Research a. Physical Environment c. Sociocultural Environment d. Economic Environment e. Regulatory Environment 3. Researching Competitors a. Strength and Weakness b. Competitive Signaling

Preliminary Screening • This involves rating the countries on the macro level indicators

In-Depth Screening • • • •

Market Size Market Growth Competitive Intensity Trade barriers

Final Selection • Forecasted revenues and costs are compared to find the country market that best leverages the resources available. • Importance /Weights are assigned to various variables in the country report • The weighted sum may be chosen as a criteria to get the final list of two-three countries.

Plotting of country cluster with two variables –Income and Growth • High-income, low-growth countries • Average per capita GDP USD 38,722, average real GDP growth 2.6 (Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Singapore, Spain, Sweden, Switzerland, United Kingdom, United States)

• Middle-income, high-growth countries • Average per capita GDP USD 6,252, average real GDP growth 4.5 (Argentina, Brazil, Chile, China, Croatia, Hungary, Jamaica, Latvia, Mexico, Slovenia, South Africa, Thailand, Venezuela)

Forecasting Country Sales • Sales = Industry Sales X Market Share (Expected)

Industry Sales (Build up Method)

1.Build-up method- market sales are estimated on the basis of separate estimates from individuals knowledgeable about certain segments of the market. 2.These single estimates of various parts of the market are aggregated (build-up) into an evaluation of total market size.

Industry Sales: Forecasting Analogy • The basic premise underlying forecasting by analogy is that the sales in one “lagging” country will show similarities in another “leading” country where product is already marketed. Sb (2009)=[Sa(2000)/GNPa(2000)]xGNPb(2009)  To account the difference between the countries, the sales figures are usually weighted by a measure such as GNP or population size,  S = Unit sales, subscript a=leading country, subscript b= lagging country and there is a lag of 9 years.  [Sa(2000)/GNPa(2000)]= Unit sales per dollar (or the currency equivalent)  By multiplying the above to lagging country GNP a sales forecast is arrived to

Judgmental Forecasts • • • •

Jury technique Expert pooling Panel Consensus Delphi Method

Forecasting Market Sale for the firm • Armstrong's Regression Model: R=f(E, P, B, T, W, C, G) E= Standard of living Index P= Price of the good B= Buying unit index (household per adult) T= Temperature W=Rainfall C=Proportion of children in the population G= Growth of per capita income per year

Forecasting Market Sale for the firm The second step is to get the size of the potential market using a multicaptive chain • M=(T)x(L)X(A)X(N) M= Number of potential buyers T=Total population L= Literacy rate (proportion) A= Proportion of population in the desired age group (e.g., 15-64) N= Proportion of nonagricultural employment

Forecasting final Sales • S= (R) X (M) • S= forecasted sales in unit per year in a given country.

Qualitative Information • Domestic Competitors • Foreign Competitors

Personal Visit • Managers visit the countries for direct experience and cross check on the country report.

Sources of Secondary Data • • • • • • •

www.stat-usa.gov www.ita.doc.gov www.ustradeonline.gov www.census.gov/foreign-trade.gov www.cia.gov/cia/publications/factbook www.customs.ustreas.gov www.opic.gov