Marketing researchers often need to estimate the market potential of a product. Market potential is the maximum sales of a product category reasonably attainable under
Marketing researchers often need to estimate the market potential of a product. Market potential is the maximum sales of a product category reasonably attainable under a given set of conditions within a specified period of time. Market potential is one of the most difficult quantities to estimate because of the problems in developing a concrete number that people can agree on. Part of this difficulty results from the mechanics of the calculation, but part of it results from confusion over the notion of a ceiling or maximum amount that can be sold. However, market potential estimates have considerable value to marketing managers. The general approach for estimating market potential has three steps: 1. Determine the potential buyers or users of the product. Using either primary or secondary marketing research information or judgment, the marketing manager must first establish who are the potential buyers of the product. These potential buyers should be defined broadly as any person or organization that has a need for the product, the resources to use the product, and the ability to pay for it. In fact, it might actually be easier to start with all end-buyer "units" and then subtract those who cannot buy the product. For example, apartment dwellers are not potential buyers of lawnmowers, diabetics are not potential customers for food products containing sugar, and law firms are not potential customers for supercomputers. This part of the analysis can be done judgmentally and often relies on the expertise and experience of the marketing manager. 2. Determine how many individual customers are in the potential groups of buyers detinned in step 1. At this stage, the manager must use basic data such has how many households there are in a particular country, how many people live in apartment, and what percentage of the population has diabetes. 3. Estimate the potential purchasing or usage rate. This can be done by taking the average purchasing rate determined by surveys or other research or by assuming that the potential usage rate is characterized by heavy buyers. This latter approach assumes that all buyers of the category could potentially consume as much as heavy buyers. The estimate of market potential is simply the product of step 2 times step 3, that is the number of potential customers times their potential buying rate or usage rate. Application: Based on the steps above, estimate the market potential for disposable diapers (only for baby diapers, excluding adult diapers) in the United States (per day or per year). Please write down the detail calculations for each step. Step 1: Who are the potential consumers? Step 2: How many are there? Step 3: How much can they consume?