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Analysis of company's position

Analysis of demand

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Analysis of demand

The question about market capacity is easy for those who ask it but it is the most difficult question for those who are asked it. Foreign business owners believe that you just have to open a reference book and add the sales volumes of all manufacturers of a particular category of goods that are currently on the market. It’s pure arithmetic, why pay money to do that? Russian market researchers also cannot hide their irony at such attitude. In Russia, estimation of market capacity has not yet become a separate type of analysis and is carried out only by enthusiasts who are not afraid of forecasts made on the basis of indirect estimations.

As any indirect indicator, market capacity has various interpretations and, consequently, a wide range of values. You can ask an average consumer about the number of purchases of a particular product within a period of time, multiply this value by the number of consumers and present it as sales volumes or expenditures within a year. This data can be adjusted and corrected as many times as you want, after which market capacity seems to be a very extensible value.

Other methods are: determining the sales volumes based on advertisement budget estimations, observing the frequency and amount of purchases in sales outlets or data from reliable people in reliable sales places. In all these cases, the consumer base – the number of people ready for such a purchase and their stratification according to the consumer profile - will be a very changing value. And, finally, the main reason why market capacity values differ so much is the difference in conceptions of its content. People may imply factual consumption volume, potent ional capacity, average capacity, or capacity reached as a result of certain marketing efforts.

The answer to all these doubts is the character of the customer’s interest. The research agency has to understand clearly what the information about market capacity is necessary for and suggest an adequate scheme of measurement.

There are two other indicators, as much as extensible in their interpretation, that are connected with market capacity: demand elasticity and unmet demand. These values are more definite because the source of their definition is definite: you can find out how big the demand is only by interviewing consumers, and these values have more rights to be called indexes. Demand elasticity may be registered as a range within which the sales volume varies. The size of unmet needs can be seen as a percent of prospective increase of the gross sales value.

Consumer survey is the only means not only of determining demand but also a universal method of an objective market analysis. So that the analysis could be really an objective one, it is necessary to observe strict requirements to the interview procedure developed during the long history of the method’s development in psychology and sociology.

The main requirement for the interview data allowing of distributing its results to a wider (general) group of people is its validity and strictly formed sample. The following guarantee reliability:

• Respondent characteristics (of interviewed people) – social and demographic (gender, age, education, marital status, occupation), ownership status (level of income, experience and character of consumption, possessing property), characteristics of ways of life and values.
• Type (method ) of sampling – in terms of results, the sample holds true of any representative of the target group. If the whole population of the region participates, the sample must represent its every part. This is usually performed as random choice. It can be random, random and mechanical, randomized, but it does not change its essence: the probability of getting in the sample must be equal for all representatives of the population. If the survey conclusions are to be applied to a limited group of people, for example, a customer target group, there is no sense in making the sample representative to the whole population. In a general case, the sample will be called a quota sample, though there are specific modifications for it too.
• Research geography.
• For repeated research – periodicity of data collection.
• Characteristics of data reliability received in this sample – representativeness, stability, validity and others – the set of these criteria may be varied according to needs. This question is too difficult to be discussed in short.
• Sample size. The cost of survey directly depends on it. What size should the sample be so that the data would really reflect the opinion of the target group and, on the other side, the expenses would not exceed the necessary minimum? There is no single answer to this question.

Market research is not intended to determine absolute laws of human behavior and for current reconnaissance goals it is often possible to conduct a survey on a limited sample. There is nothing dangerous in interviewing 100 people if the results are necessary not to state someone’s truth but to get a general understanding of the situation. The optimal sample size (which is necessary and enough) for the Russian population is a sample of 3000 people, in a city like Moscow 1-1.5 thousand people are often interviewed.

When determining a sample size, the necessity of further comparison of answers given by groups of the sample should be taken into account. Thus, if it is necessary to distribute the answers by gender, then every gender will be presented only by a half of the sample and the size of each category may not be enough for justified conclusions. Even smaller numbers of people will present groups by age or occupation and opinions of the jobless or VIP will be presented only by several tens of voices.

Separate survey cases are interviews with experts and decision-makers. The requirement in the first case is to select people of related qualification, in the latter case, the requirement is determining signs of responsibility of decision about buying. In any case, traditional criteria of forming a sample in accordance with sociological laws become secondary due to common sense.