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Market Analysis

Overview

Market size and market share analysis are crucial for segmentation, targeting, positioning, and developing marketing strategies. These analyses determine the potential and actual demand for a product or service, guiding resource allocation and strategy implementation.

Key Concepts in Market Size Analysis

1. Potential Market

  • Definition: The set of all consumers who show interest in a product or service.
  • Factors not considered:
    • Income or financial capability.
    • Accessibility to the product or service.

2. Available Market

  • Definition: Subset of the potential market comprising consumers who:
    1. Have interest in the product.
    2. Possess the income to purchase it.
    3. Have access to the market (e.g., distribution network availability).
  • Example:
    • A product available only in the U.S. limits access to consumers in other regions.

3. Target Market

  • Definition: Subset of the available market that the company actively pursues through marketing activities.
  • Factors Influencing Target Market:
    • Resource constraints (e.g., online-only strategy vs. physical store distribution).
    • Marketing strategy (e.g., focus on age group 15–25 for online platforms).
  • Example:
    • A company may target only the 50–60 age group if its product is sold primarily through local stores (kirana shops).

Market Demand, Forecast, and Primary & Secondary Demand

1. Market Demand

  • Definition: Total volume that will be purchased by a specific customer group over a specific time, in a specific environment, and under a specific marketing program.
  • Marketing Program: Combination of the 4Ps (Product, Price, Place, Promotion).
  • Dependence on Marketing Expenditure:
    • Market demand is proportional to resources and efforts allocated to marketing.

2. Market Forecast

  • Definition: Market demand at a specific level of marketing expenditure.
  • Dynamic Nature:
    • Increasing expenditure can increase the market forecast by reaching more customers.
    • Decreasing expenditure reduces the market forecast.
  • Example:
    • ₹10 crore expenditure might allow access to 3 cities; ₹20 crore could expand access to 10 cities.

3. Primary and Secondary Demand

  • Primary Demand:
    • Total volume of demand for a product category (e.g., soap).
  • Secondary Demand:
    • Demand for a specific brand within that category (e.g., Lux or Lifebuoy).

Market Expenditure and Demand Curve

  • Market Minimum:
    • Level of demand without any marketing effort or expenditure.
  • Market Potential:
    • Maximum achievable demand even with unlimited resources.
  • Market Forecast:
    • Demand between market minimum and market potential, dependent on marketing expenditure.

Curve Dynamics

  • Increasing expenditure raises demand, but only up to the market potential.
  • Beyond market potential, additional expenditure has no effect on demand.

Steps in Market Size Analysis

  1. Determine Potential Market:

    • Identify consumers with interest in the product.

  2. Assess Available Market:

    • Filter consumers with interest, income, and accessibility.

  3. Define Target Market:

    • Narrow down the available market based on:
      • Resource constraints.
      • Marketing strategy and delivery channels.

  4. Estimate Market Demand:

    • Calculate total potential volume that can be sold in a given environment with a specific marketing program.

  5. Create Market Forecast:

    • Predict demand at different levels of marketing expenditure.

  6. Distinguish Primary and Secondary Demand:

    • Differentiate between category-wide demand and brand-specific demand.

Key Takeaways

  • Market Size Analysis:

    • Determines the size and growth potential of markets for better targeting.
    • Requires understanding the potential, available, and target markets.

  • Market Demand and Forecast:

    • Market demand is proportional to marketing expenditure and resource allocation.
    • Market potential represents the upper limit of achievable demand.

  • Resource Allocation:

    • Strategic resource allocation ensures efficient targeting and maximizes ROI.
    • The balance between resources spent and market demand must align with company objectives.

  • Primary vs. Secondary Demand:

    • Primary demand targets the product category.
    • Secondary demand focuses on specific brands within the category.

3.3.2 Understanding Market Share: Assessing Demand and Analyzing Market Patterns

Overview

Market size and market share analysis are essential for developing effective segmentation, targeting, and positioning strategies. These analyses involve understanding potential, available, and target markets, along with determining market demand, market forecast, and market share.

Key Concepts

1. Market Demand

  • Formula:
    Market Demand = Number of buyers × Quantity purchased by an average buyer × Average price.
  • Types:
    • Primary Demand: Total demand for a product category (e.g., all soaps).
    • Secondary Demand: Demand for a specific brand within that category (e.g., Lux or Lifebuoy).

2. Market Size Analysis

(a) Potential Market

  • Definition: All consumers who show interest in a product.
  • Includes consumers regardless of income or access to the product.

(b) Available Market

  • Definition: Subset of the potential market comprising consumers who:
    • Have interest.
    • Possess income.
    • Have access to the market (e.g., product availability via distribution).

(c) Target Market

  • Definition: Subset of the available market chosen based on the company's resources and marketing activities.
  • Example:
    • A company focusing only on online sales might target younger, tech-savvy customers (e.g., 15–25 age group).
    • A company relying on kirana stores might target older demographics (e.g., 50–60 age group).

3. Market Expenditure and Demand Relationship

  • Market Minimum:
    • Demand level with no marketing expenditure.
  • Market Potential:
    • Maximum achievable demand even with unlimited expenditure.
  • Market Forecast:
    • Expected demand within the range of market minimum and market potential, determined by expenditure.

Example: Market Sizing for Women's Razor Blades (US)

Step 1: Estimate Total Buyers

  1. US Population: 305 million.
  2. Women Population: 51% of 305 million = 156 million.
  3. Women of Shaving Age (≥14 years): 80% of 156 million = 125 million.
  4. Exclude Non-Shaving Women: 20% reduction = 100 million.
  5. Exclude Users of Other Methods (e.g., waxing): 20% reduction = 80 million.
    • Potential Market: 80 million.

Step 2: Annual Quantity Purchased

  1. Segment Customers by Usage:
    • Heavy users (15%): 12 million, purchasing 12 blades/year.
    • Moderate users (70%): 56 million, purchasing 7 blades/year.
    • Light users (15%): 12 million, purchasing 3 blades/year.
  2. Total Blade Usage:
    • Heavy users: 12 million × 12 blades = 144 million blades.
    • Moderate users: 56 million × 7 blades = 392 million blades.
    • Light users: 12 million × 3 blades = 36 million blades.
    • Total Market Volume: 572 million blades/year.

Step 3: Market Value

  1. Per Blade Cost: $8.99.
  2. Segment Value:
    • Heavy users: 144 million blades × $8.99 = $1,294.56 million.
    • Moderate users: 392 million blades × $8.99 = $3,524.08 million.
    • Light users: 36 million blades × $8.99 = $324.64 million.
  3. Total Market Value: $5,143.28 million (~$5.14 billion).

Strategies for Market Growth

1. Expand Market Size

  • Increase Usage:
    • Convince non-users (e.g., women who don’t shave) of the benefits of shaving.
    • Promote shaving as a hygienic and convenient option.
  • Shift Preferences:
    • Encourage users of alternative methods (e.g., waxing) to switch to razors.

2. Increase Usage Frequency

  • Convert:
    • Light users to moderate users.
    • Moderate users to heavy users.
  • Example:
    • Use promotions, discounts, or convenience-focused messaging to encourage more frequent purchases.

Market Share Analysis

Formula for Market Share:

Market Share = (Brand Sales / Total Market Sales) × 100.

Steps:

  1. Calculate Primary Demand:
    • Total market demand for the product category (e.g., 572 million blades/year for women’s razors).
  2. Calculate Secondary Demand:
    • Brand-specific demand (e.g., sales of Brand X razors).
  3. Compare brand-specific demand to total market demand to determine market share.
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