Measuring and Forecasting Markets

"Market measurement and forecasting skills are an essential requirement for formulating marketing objectives and plans."

As Kotler discusses in Chapter 2, the two criteria for market attractiveness to organisations are; i) market size and ii) market growth.

Measuring the market size accurately and precisely are important skills for the marketer. Kotler provides a model on page 257, that provides 90 different types of demand estimates for a market size that an organisation could use; Kotler's model has three dimensions, i) product level, ii) space/territory level and iii) time. 

"Market demand for a product is the total volume that would be bought by a defined customer group in a defined geographical area in a defined time period in a defined marketing environment under a defined marketing program."

This clearly shows how complex market measurement can be and that as marketers, we must embrace all of these areas to fully understand what we mean when we say that a market size is x.

Measuring market share is relativley easy when you know the actual size of the market. Forecasting future market share is discussed by Kotler and he provides some interesting modelling based on relative marketing expenditure values. I think that these are now outdated as we have moved into an era where digital can provide us with more accurate means to predict future sales and market shares.

The chapter goes onto discuss forecasting future market sizes - again, an important element for the marketer when developing a marketing plan over one, three and five years.

In my experience, knowing the size of the defined market and what share each organisation has, is critical when developing marketing objectives and strategies. Being as precise as possible with market definitions, market size measurements and market shares, is one important part of the process of developing strategies for growth, i.e. if the market is static, market growth will come from stealing market share from a competitor - which one(s) and how ? then follow.

Analyzing Competitors

This chapter starts off with "having an understanding of customers is not enough today" - in saturated markets where growth is relatively flat, business growth will predominantly come from taking market share away from competitors, hence, the importance of knowing your competitors.

This market situation is one faced by many companies/brands competing in Europe and North America. Other parts of the world, such as the Middle East and Africa are experiencing market growth and so as long as a company/brand holds onto its market share, the business will grow with the market.

Kotler goes onto to say that companies should have a good understanding of the following five things;

i) who are our competitors ?
ii) what are their strategies ?
iii) what are their objectives ?
iv) what are their strengths and weaknesses ?
v) what are their reaction patterns ?

Who are the competitors ? This often appears to be a simple question to answer but it is important to gain a good understanding of how a market works and have a view based on the industry and customers.

"Economists define 'close substitutes' as products with a high cross-elasticity of demand" Companies often take a view that their market is made up of companies offering similar products at similar price points - but, as Kotler points out, consumers take a different view - in one of the markets I work in, we have witnessed the small automobile market being affected by motorcycles - traditionally, the small automobile market would have been viewed as all small automobiles. Due to the economy, consumers are seeking out more cost effective ways to satisfy their need for independent travel - motorcycles are satisfying this need very well.

Having identified the competitors, marketers must then work to establish; their strategy, objective(s), strengths & weaknesses and what their reaction patterns maybe.

This level of information will be vital for a company to establish its own strategy of where market share growth will come from, i.e. which competitors to attack and how and which competitors to avoid.

As Kotler says, "this is especially necessary in slow-growth markets because sales can only be gained by winning them away from competitors"

Analyzing Organisational Markets and Buyer Behaviour

Organizational buying is defined in this chapter as; "the decision-making process by which formal organizations establish the need for purchased products and services, and identify, evaluate, and choose among alternative brands and suppliers."

Kotler goes on to say; "no two companies buy in the same way, yet the seller hopes to identify enough uniformities in organizational buying behaviour to improve the task of marketing strategy planning."

As we know, the b2b market is very different to the b2c market, in terms of buyer behaviour. The buying decision is often not made by one person but in many cases, a committee of people - making it very complex for the marketer to understand the target and how best to market to them. 

The time line for decision making is also very much longer and there are often many steps in the process - all of which need to be understood and appropriate marketing strategy put in place.

A third difference can be geography, buyers in the b2b sector can be located in a different country from where the product & services will be used.

This complexity must be fully understood if today's marketer is to be successful in the b2b sector - again, we have a chapter from Kotler, that understood this and the relevance today is even more so - with digital marketing becoming an important part of the marketers tool kit, this makes the process of marketing in this sector even more complex and therefore it's even more important for the marketer to put the customer at the centre of their business.

Analyzing Consumer Markets and Buyer Behaviour

"Understanding the buying behavior of the target market is the essential task of marketing managers under the marketing concept". Ref: Kotler

He goes on to say that marketers find it useful to segment consumer groups & to develop products & services for these groups. If a segment is large enough, it maybe effective to implement focussed marketing programmes to these groups. The question is; how do you know if the segment is large enough ? The answer lies in the area of cost v benefit - if the benefit is greater than the cost, then it maybe worth creating tailored marketing programmes to segmented groups.

Marketers should seek to understand the buyer behaviour and in particular, how consumers respond to "marketer-controlled stimuli" - if marketers understand this relationship, then it can be used to maximise ROI of valuable resources. This level of understanding will also help develop competitive advantage and help with growth in market share.

The consumer buyer behaviour is influenced by a range of factors; cultural, social, personal and psychological. This chapter explores all of these in great detail and I believe can still be useful for today's marketer seeking to gain the best understanding of their target segment as possible.

Kotler goes on to talk about the process the buyer actually goes through and talks about the buying decision, the type of buying decision involved and the steps in the buying process.

An effective marketing programme must show an understanding of the consumer buying behaviour and how groups respond to marketing messages and also allow for the buying process itself and allow for the steps in the buying process.

Since 1988, the world has become even more complex and for us marketers, the task of understanding our consumers has become even harder. But, if we are to be successful, we must understand our buyers, the buying behaviour and how outside factors influence them in choosing a brand and once the brand choice has been made, what factors will affect the buying process.

Another chapter full of very insightful thoughts and very practical ideas for today's marketer.

Another way !

I booked a taxi to collect me and my wife from Bristol

Airport to take us home to Bath – I am amazed that taxi firms still exist that appear to have some form of monopoly and offer such a bad service.

The car was not too old or too dirty but it had about three of those air freshener trees hanging from the inside rear mirror – I hate the smell and it makes my wife feel sick. I nearly asked the drive to stop and throw them away!

The driver had also been smoking so we had the stale smell of smoke as well.

The driver had the radio on and without asking turned the music up so it felt as though I was in some club !

His driving was ok but they do insist on driving very quickly – presumably so that they can get to the next job as quickly as possible.
Now, if there is a taxi company wanting to develop a service led proposition based on what the customer would like, I’d love to be able to help.

Providing new or relatively new, clean and comfortable cars, discussing with the customer their requirements for the journey, e.g. radio on or off, air con on or off, preferred route ?, making sure the passenger(s) are comfortable before setting off ……………

I’m convinced there is a gap in the market – any takers ?

Setting price

If you follow that you are in business to make a profit, the following model helps explain how your business works;

The manufacturer is the maker of the product and supplies this product to the market, i.e. the buyers, at a set price. If the price is set at the correct level and there are enough buyers, then the manufacturer makes a profit - simple !

But, if a manufacturer sets the price at a level where no profit is generated, who actually wins ? The buyers may get a good deal in the short term but their chosen manufacturer will eventually go out of business. But the buyer then moves onto a new manufacturer and the cycle starts again.

Setting the correct price is not easy but manufacturers must build their business on the premise that their product(s) will achieve some brand loyalty that will generate the profit levels required and keep them in business over the longer term.

Too many manufacturers set their price at a level where they believe the buyers will be happy to pay - this is a false starting point and will only lead to one end. Manufacturers must commence their business planning by answering some fundamental questions; why are they in business ? what levels of profit do they want to achieve ? what product(s) will they offer the market ? how will these generate brand loyalty ? 

I have come across too many companies setting price at a level to match what they believe to be the competition and what they believe their customers will pay. Often, these companies are very busy but make no profit ! Some even sale very little and also make no profit.

Clearly, buyers will not pay any price, they do want to feel ripped off or feel as though their tight budget is being squeezed by a greedy manufacturer.

Setting price at the correct level is one of the most important tasks of any company - get it right and the company will make a profit.

Analyzing the Marketing Environment

"We have repeatedly emphasized that excellent companies take an outside-inside view of their business".

Kotler goes on to say that these companies have an excellent system for monitoring and evaluating the environment that the company competes within and then makes decisions based on this knowledge that gives the company the best opportunity to survive and grow - adapting to a changing environment.

How many times have we comes across organizations that do something just because they have always done it that way ! In some cases, it is very difficult to change the product offering etc and in others, e.g. service companies, it is very quick and easy to change.

Kotler covers both the micro-environment and the macro-environment and provides examples of what should be included in both. He also provides some examples where companies have systems for monitoring the marketing environment and the impact it is likely to have on the organization.

This is clearly another area that is as important to successful companies today as it was back in 1988 and most likely was before and will be for the future.