D.M. ZIUBANOVA, student,
V.I. KOVSHIK, student, NTU «KhPI»,
MODERN METHODS OF MARKET SIZE ESTIMATION
У статті розглядаються основні підходи до визначення розміру ринку в процесі маркетингового дослідження і аналізуються особливості їх застосування. Висвітлюється вплив різноманітних факторів на процес отримання маркетингової інформації. Зазначається важливість врахування масштабів діяльності підприємства та наявних ресурсів для здійснення дослідження при виборі підходу до оцінки розміру ринку з метою підвищення ефективності системи маркетингу компанії. В зв’язку з відсутністю універсального підходу пропонується схема вибору методу оцінки ринку виходячи з наведених факторів.
В статье рассматриваются основные подходы к определению размера рынка в процессе маркетингового исследования и анализируются особенности их применения. Освещается влияние различных факторов на процесс получения маркетинговой информации. Отмечается важность учета масштабов деятельности предприятия и имеющихся ресурсов для осуществления исследования при выборе подхода к оценке размера рынка с целью повышения эффективности системы маркетинга компании. В связи с отсутствием универсального подхода предлагается схема выбора метода оценки рынка исходя из приведенных факторов.
In the article the main approaches to determining market size in marketing research process are examined and peculiarities of their usage are analyzed. Influence of various factors on the process of obtaining marketing information is considered. The importance of taking into account the scale of the enterprise and resources available for research when choosing an approach to the estimation of market size to increase the effectiveness of company’s marketing system is distinguished. In the absence of universal approach the scheme of selection of market assessment method based on of those factors is proposed.
Market size estimation is one of the most important elements of marketing research. Indicator of market size is used in the management process of a company to assess the situation in a particular market, allows to calculate the competitiveness of companies and products, to identify new business opportunities, to plan new ways to expand operations.
The use of such precise indicators as market size provides reasonable decision making in the process of developing an effective marketing strategy and making the current management decisions. Market size as a numerical indicator allows the assessment of competitive environment industry as accurately as possible, a company’s place in it (market share).
Such scientists as P.Kotler, J.Evans, J-J. Lambin, G.Bagiev, V.Anurin were engaged in researches of the given problem. In their works a definition of the market size in a context of research of the competitive environment in detail enough and completely is covered, however, to features of marketing researches depending on specificity of the studied market sufficient attention has not been given. The complexity of the subject and the absence of concrete methodic approaches to market size assessment cause an urgency of a theme of given article.
Therefore, the objectives of this paper are the following: to investigate modern methods of market size estimation, summarize existing information about them and to make conclusions about their practical applicability for marketing purposes at different types of enterprises. To achieve the given objectives the following tasks are set: to make review of features of methods being explored, to examine peculiarities of each method’s affordability and effectiveness, to define spheres of their application taking into account defined strengths and weaknesses of each one.
Market size is a real production sales in this market in a given period . Market size estimation is needed for business diversification, expanding the boundaries of distribution, improving the product, starting a new project and launching new product. This process is an obligatory stage of any company’s activity regardless of industry sector or sales volume. Knowledge of this parameter is needed to prepare plans and budgets, especially medium-and long-term, to form programs of development and modernization of enterprises, the prepare feasibility studies and to construct new facilities, etc. P. Kotler outlined the importance of market assessment and wrote that company’s sales analysis cannot be used independently to compare its performance with the results of the competitors. Management must constantly monitor the market share, which belongs to the firm . And for this purpose market size is obviously needed. J-J. Lambin also emphasized the urgency of market size estimation with regard to strategic planning and particularly market share evaluation. He also accentuated that measuring the market share as a part of marketing information system functioning may be accompanied some difficulties, related to the limited availability of required data, that depends on industry and company specificity .
Features of concrete marketing research depend on specificity of enterprise activity, on purposes of carrying out the given research. Approach to the selection method of an investigation, the frequency of reevaluation, and selection of input data depends on many factors.
An important factor influencing the choice also is a competition type in the market: in the case of pure competition and in the case, for example, oligopoly approaches to the assessment of market size may differ due to differences in the number of competitors, the availability of information and other features of the competitive environment. It is obvious, that in the case of pure monopoly of the evaluation becomes meaningless.
An additional point is that it is necessary to take into account the market segmentation, because consumer behavior and marketing activities of the company in various segments can essentially differ. In such cases the market sizes are defined separately on each segment, and then are summarized. For example, determining the market share of pharmaceutical companies requires identifying two main segments: over-the-counter drugs and prescription drugs. In turn, these two groups are divided into commodity subsegments, such as cardiovascular, oncologic, antihistamines and other medications. It is important to create a more complete image of the market. Also the segmentation of consumer groups, if the same product marketed to different consumer groups, should be taking into consideration. In addition, it is necessary to pay attention on industry characteristics that affect the availability of information: the openness of company’s financial statements in the market, the prevalence of "shadow" schemes of work, etc.
The next point is estimation the boundaries of the territory within which the market size is estimated. Transnational companies do business in a global scale while areas for the small businesses are single countries, regions or districts. In accordance with the business scale the sources of information will be different.
Important input parameter for the assessment is the initial price of the product (service) in the case when the market size is measured in monetary units. When determining the market size it is important to distinguish between the usage of retail and wholesale prices: if the company operates in a segment of b2b, then the calculations will be based on wholesale prices, and if b2c – on retail.
One more important parameter is time. Most often, a year is selected as this parameter, because during this period it is possible to determine seasonal changes the in demand for goods or service most accurately. For seasonal goods such as fresh fruits and vegetables, shoes and clothes it is necessary to calculate the market size during the different periods of time (seasons) for obtaining a full picture of the market and planning of marketing activity.
Authors of article pay attention on that fact that universal approach to estimation of market size doesn’t exist because of various combinations of factors, stated above. In modern marketing there are the following approaches :
- based on structural characteristics;
- by production volumes;
- by volume of consumption;
- by sales volumes;
- indirect methods.
On the basis of structural characteristics, such as export and import volumes, manufacture scales, the markets of the countries and regions are analyzed. The main source of the information for similar researches is the data of state statistics. The given method is very convenient and clear, however the received information can be incomplete and inexact because real volumes of production and international trade operations can be hidden because of concealment of real data by the companies, especially in some branches and the countries, and also some subindustries can be not included in statistics.
In the next approach based on the production volume analysis, the market estimation is carried out in a country scale on the basis of an assessment of domestic production regardless export-import transactions (at their small share). The advantage of this approach is that carrying out field studies often is not required, because only statistical data more often are used. However, this method has the same disadvantages as the previous one, especially if the industry has high share of shadow economy. In both methods, as in the case of the analysis of structural indicators, as well as production volume, it is difficult to accurately assess the market for services.
It is more difficult to estimate the market, using the approach based on the analysis of consumption volumes in those cases, in which one static data is insufficient and serious marketing research is required. This method very expensive as include expenses on following actions:
Usually this approach is applied to the markets of consumer goods. This approach is characterized by possibility of research of circumstances not perceived by means of observation, but reliability of the information is lower, a problem of the samples representativeness appears. . So, the sample structure under the significant indicators (income level, other social-demographic and economic indices) should correspond to entire assembly of consumers of the given product.
Also, the market size can be determined using the last approach, based on sales results in the wholesale and retail trade, which uses such methods as audit of retailers, the survey of wholesale companies and expertise.
An audit of retail trade is a measurement of goods flow from producer to consumer through the retail trade network. Audit of retail trade allows to define volume of the market and a share of all its participants, market development in time, availability of various trademarks, areas of the best market opportunities for company [5, 6]. In this method indicators of sale of all retail sellers are summarized. In a survey of wholesale companies the main goal is to determine the necessary parameters such as volume and frequency of purchases and brand preferences, and no less important – the search for such qualified individuals.
Heads of commercial services of the companies-participants of the market, representatives of professional associations, research officers of branch institutes, journalists and analytics, dealing with as problems of the given market and officials supervising activity of branch can act as experts. Even in the most closed market the information on sales volumes is accessible. In some markets companies exchange information themselves, e.g. it is practiced in the advertising market.
A number of indirect methods that allows to calculate the size of the market at a lack of statistical data or shortages of resources on their research exists [1, 6]:
- By analogy: The market size is defined proportionally to indicators of the similar market.
- By the adjacent markets: The commodity market can be determined by the market size of complementary goods to this commodity.
- Normative Consumption: Market size is equal to the product of consumers’ number and the rate of commodity consumption.
- Extrapolation: Market size is estimated on the basis of historical data and growth rate of the market.
So, article’s authors conclude that a choice of approach to market size depends on scale of company’s business activity and resources available to perform such a research. According to this statement authors propose to use the following matrix chart to approximately define the appropriate way to estimate market size (Figure 1). The chart is not comprehensive, but it’s purpose to the simplify the process of needed approach definition and help marketing managers to avoid undesirable expenses and to obtain better results.
In the article important factors influencing market size estimation and most popular approaches to such research were considered and existing bibliographical sources on the theme were explored. Thus, it is possible to conclude that there is no common approach to define market size in different market conditions, industry’s peculiarities and competitive situation. Also the dependence of approach on the business activity scale and available resources for performing market research was outlined. As the result of the investigation authors propose the universal model for determination the more suitable approach to market size assessment. This model is designed to help managers in the process of making marketing decisions. The model can be improved and enhanced to be more relevant to the market investigation process and also can be adapted to various conditions in different spheres of companies’ business activity.
Figure 1. Selecting the market size estimation approach.
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