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Situational Analysis . Understanding the Market Definition and Measurement. Market Definition. Three dimensions of definition: Works from broad to narrow. Identifies all possible opportunities, enabling business to be proactive and to anticipate consumer needs. First Dimension:.

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situational analysis

Situational Analysis

Understanding the Market Definition and Measurement

market definition
Market Definition
  • Three dimensions of definition:
    • Works from broad to narrow.
    • Identifies all possible opportunities, enabling business to be proactive and to anticipate consumer needs.
first dimension
First Dimension:
  • Identifies competing product classes serving generic need.


Generic need = thirst

Competing product classes =

milk, soda, coffee, tea, juices, water, etc.

second dimension
Second Dimension:
  • Identifies competing product forms within product class.


Product class = coffee

Competing forms = whole bean, ground, instant, coffee bags, etc.

third dimension
Third Dimension:
  • Identifies competing brands within product form.


Product form = whole bean

Competing brands = Folger’s, Starbuck’s, Millstone, Gevalia, etc.

marketing definition
Marketing Definition



















a strategic marketing definition should
A strategic marketing definition should...
  • Identify opportunities.
  • Identify the served market.
basic types of market measurements
Basic Types of Market Measurements
  • Market Potential
    • The maximum sales opportunity that can be achieved by all sellers in the market.
    • Sets upper limit on consumption units.
measuring market potential
Measuring Market Potential
  • MP=N x P x Q
    • MP=market potential
    • N=number of possible buyers
    • P=average selling price
    • Q=average number purchased by each buyer
example what s the market potential for cd s
Example: What’s the market potential for CD’s?


Everyone in U.S. > 14 years buys, on average, 4 CD’s per year at ave. price of $14/CD

measuring market potential11
Measuring Market Potential
  • Measuring market potential often relies on:
    • Assumptions.
    • Published data (industry publications, gov’t sources).
    • Variables that correlate closely to market potential.
  • Market Demand
    • The amount of products currently being purchased from all sellers in the market (i.e., industry sales).
  • Company Demand
    • The amount of products currently being purchased from a company.
gaps between potential and demand
Gaps Between Potential and Demand

Market Potential

Primary (Basic)

Demand Gap

Market Demand

Selective (Company)

Demand Gap

Company Demand

measuring market demand
Measuring Market Demand
  • Market demand sets upper limit on sales--i.e., 100% of market share=market demand.
  • MD= (EC x PA) + (NC x PA)
    • MD=market demand
    • EC=existing customers
    • NC=new customers
    • PA=purchase amount
example what is the market demand for the cellular phone market in 2001
Example: What is the market demand for the cellular phone market in 2001?

Market attracts approx. 5 million new customers/year ≈ 70 mill.

MD = (65 mill. X 400 minutes/yr.) +

(5 mill. X 200 minutes/yr.)

= 27 billion minutes/year

measuring company demand sales forecasting
Measuring Company Demand: Sales Forecasting
  • Forecasts are predictions--they have to be continuously monitored and adjusted.
  • Different approaches:
    • Top-down forecasting
    • Build-up forecasting
subjective forecasting methods
Subjective Forecasting Methods
  • Utilize opinions of employees, managers, or customers.
  • Least accurate, although popular to use.
  • Three different types.
sales force composite
Sales Force Composite
  • Salespeople project sales volume for customers in their own territory; estimates are aggregated and reviewed at higher management levels.
  • Benefit:
  • Disadvantage:
jury of executive opinion
Jury of Executive Opinion
  • Solicit the judgment of a group of experts or experienced managers to estimate sales.
  • Benefit:
  • Disadvantage:
customer industry surveys
Customer/Industry Surveys
  • Survey customers to ask them how much they intend to buy in a future period.
  • Benefit:
  • Disadvantage:
extrapolation methods
Extrapolation Methods
  • Utilizes existing sales data.
  • Higher accuracy than subjective methods.
na ve forecasting
Naïve Forecasting
  • Uses past sales data to forecast future sales, assuming that there will be no changes.
    • Assumes that the best estimate of future sales is the current level of sales.
    • Often used as a standard for comparison with other forecasts.
moving average
Moving Average
  • Compute the average sales volume achieved in recent periods and use the average to predict sales in the next period.
    • Can be a conservative forecast.
    • Can assign different weights to different time periods--smoothing constants.
example moving average
Example: Moving Average

1st Qtr



2nd Qtr



3rd Qtr



4th Qtr



1st Qtr



Average =


Average =


Average =


percent rate of change
Percent Rate of Change
  • Trend projection.
  • If sales have been generally increasing, forecasts with this method will be greater than forecasts using other methods.
example percent rate of change
Example: Percent Rate of Change

1st Qtr



1st Qtr



To predict sales for 1st quarter 2000:

Sales = $125K + ($125K x .25)

= $125K + $31.25K

= $156.25K

% change=25%

leading indicators
Leading Indicators
  • When sales are influenced by basic changes in the economy, can use leading indicators to predict sales.
quantitative methods
Quantitative Methods
  • Methods that utilize numerical procedures to extend past sales into the future.
  • Regression.
  • Time series analysis.
market share
Market Share
  • Market share index =

product awareness x (70%)

product attractiveness x (65%)

intention to buy x (60%)

product availability x (60%)

product purchase (50%)

= 8%

market development index mdi
Market Development Index (MDI)
  • What’s the potential for the market to develop?

MDI= current market demand

maximum market potential

X 100

interpreting mdi
Interpreting MDI:
  • MDI < 33
    • Considerable market growth potential.
    • Can grow market with high prices and basic benefits.
interpreting mdi continued
Interpreting MDI (continued)
  • MDI 33-67
    • Growth is possible, but need to offer more product variations and lower prices; expanded distribution.
interpreting mdi continued33
Interpreting MDI (continued)
  • MDI>67
    • Still room for market growth, but more difficult.
    • Need very customer-focused solutions.