| What is a Market Forecast |
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A market forecast is a core component of a market analysis. It projects
the future numbers, characteristics, and trends in your target market. A
standard analysis shows the projected number of potential customers
divided into segments. This example of a simple market forecast
defines two target market segments and projects the potential customers
in each of those segments by years, for five years. |
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In the market forecast, the example numbers indicate that there are
25,000 home offices included in the market, and that number is growing
at an estimated five percent per year. There are also 10,000 small
businesses in the area, and that number is growing at five percent per
year. These numbers are estimates. Nobody really knows, but we all
make educated guesses. The developers of the plan researched the market
as well as they could and then estimated populations of target users in
their area and the annual growth rates for each.
You can use your market forecast numbers to draw a chart of projected
market growth, like the one shown here below. It offers a visual view of
the market forecast. |
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Market Value |
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Normally you would also look at market value, not just market size. For
example, although the high-end home segment is 2.5 times larger than the
small business segment as measured by number of customers, the small
business customer spends almost four times as much as the home office
customer. Therefore, the small business market is a more important
market in terms of dollar value. |
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The important numbers in this table are the average purchase per
customer and the market value.
- Average purchase per customer is an educated guess based on
experience. Sales managers got together to make the estimate.
Although they would have liked some external source of information
to use for this, there was none available. Notice that the home
office customer tends to purchase much less overall than the small
business customer.
- The market value is simple mathematics. Multiply the number of
potential customers in the market by the average purchase per
customer. In this case they took the average number of customers in
each segment over the five-year forecast period, and multiplied that
by the average purchase per customer, to calculate the market value.
The other items in this table are subjective qualities that help with
marketing. The planners assign these points to people charged with
preparing marketing materials. |
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Reality Checks |
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A market forecast should always be subject to a reality check. When you
think you have a forecast, you need to find a way to check it for
reality. In this case if the total market is worth some estimate, you
could estimate sales of all the competitors and see if the two numbers
relate to each other. In an international market, you might check
production and import and export figures to see whether your estimates
for annual shipments appear to be in the same general range as published
figures. You might check with vendors who sold products to this market
in some given year to see whether their results check with your
forecast. You might look for macro-economic data to confirm the relative
size of this market compared to other markets with similar
characteristics. |
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Review Target Focus |
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The market analysis should lead to developing strategic market focus.
That means selecting the key target markets. This is the critical
foundation of strategy. We talk about it as segmentation and
positioning. Under normal circumstances, no company will attempt to
address all the segments in a market. As you select target segments,
think about the inherent market differences, keys to success,
competitive advantage, and strengths and weaknesses of your company. You
want to focus on the best market, but the best one is not necessarily
the largest one or the one with the highest growth. It will be the one
that matches your own company profile |
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