A Very simple explanation of market demand is that it is the number of units demanded by the total number of customers in the market. Available Market is the set of consumers who have interest, income, and access to a particular offer. One of the most important advantages of calculating market demand is the fact that your customer expects you to keep the product in stock for him. Any company which takes part in manufacturing has a limited manufacturing potential. Calculate the demand for goods based on your sales, publicly available data or your own survey of consumers. Also find the right balance and learning how to measure product demand is an essential skill for any small business owner, regardless of the industry. When the demand decreases, the price will go down as well. Knowing market demand can help inform future online businesses what industry is most profitable to enter into.
Estimating Current Demand
We are now ready to examine practical methods for estimating current market demand. Marketing executives want to estimate total market potential, area market potential, and total industry sales and market shares.
(a) Total Market Potential
The total market potential is the maximum sales available to all firms in an industry during a given period, under a given level of industry marketing effort and environmental conditions. A common way to, estimate total market potential is to multiply the potential number of buyers by the average quantity each purchase, times the price.
(b) Area Market Potential
Because companies must allocate their marketing budget optimally among their best territories, they need to estimate the market potential of different cities, states, and nations. Two major methods are the market-buildup method, used primarily by business marketers, and the multiple-factor index method, used primarily, by consumer marketers.
- Market-Buildup Method – The market-buildup method calls for identifying all the potential buyers in each market and estimating their potential purchases. It produces accurate results if we have a list of all potential buyers and a good estimate of what each will buy.
- Multiple-Factor Index Method – Like business marketers, consumer companies also need to estimate area market potentials, but since their customers are too numerous to list they commonly use a straightforward index. A drug manufacturer might assume the market potential for drugs is directly related to population size. If the state of Virginia has 2.55 percent of the U.S. population, Virginia might be a market for 2.55 percent of total drugs sold.
(c) Industry Sales and Market Shares
Besides estimating total potential and area potential, a company needs to know the actual industry sales taking place in its market. This means identifying competitors and estimating their sales. The industry trade association will often collect and publish total industry sales, although it usually does not list individual company sales separately. With this information, however, each company can evaluate its own performance against the industries. If a company’s sales are increasing by 5 percent a year and industry sales are increasing by 10 percent, the company is losing its relative standing in the industry.