Why analyse the market?
Market analysis: a detailed examination of the features of a market such as market size and sales used to predict future trends
Enable a business to identify opportunities to be explored and threats to be overcome
Aspects to be analysed:
· Size of the market in terms of value and volume.
· Growth in the market (gives an indication of future activity and potential profits)
· Is the market divided into segments so that easily identifiable groups of consumers with similar wants and needs can be targeted
Reasons for analyzing:
· Gathering evidence for devising a new strategy
· Identifying patterns in sales
Methods of analysing the market. Moving Averages.
Moving average: a technique for identifying an underlying trend by smoothing out fluctuations in data.
Aims to take out extreme variations in figures, eg. Seasonal factors, by calculating an average from an agreed number of weeks or months.
Firms with high turnover of stock or high daily sales are likely to use shorter periods of time such as weekly or monthly, compared to businesses where timescales are much longer, e.g. construction.
Trend: a general direction in which something tends to move, eg. Sales are increasing
Use of moving averages is important when a business wants to assess its current market situation to inform marketing planning.
Extrapolation: a prediction of a future trend based on an identified current trend
Can be used to predict future sales figures.
Help with marketing, distribution and promotional strategies as well as other functional areas.
Budget setting, workforce and production planning will all be better informed if the business has an idea of future sales
Relies on what is happening in the past continuing in the future
May be the case in slow moving markets. In high tech, dynamic markets, change can happen very rapidly and products tend to have relatively short product life cycles, extrapolation is less useful and can be misleading.
Similarly, health scares and severe weather conditions are very hard to predict yet have a devastating impact on the sales of a wide range of goods and services.
Correlation: an apparent (statistical) relation between two factors (variables) which can be either positive or negative
In marketing involves finding out if there is a correlation between one factor, and sales.
Can help firms identify the most significant factors affecting demand.
Can then become part of marketing tactics.
Correlation should be treated with caution, as it is almost impossible to isolate one element of the consumer decision making process an observed link might just be coincidence
The more rigorous the research and the more often the relationship is observed, the more reliable the findings.
Benefits of market analysis
These questions are easier to answer if a thorough examination as been conducted first:
1. What oppurtunities are there in the market?
2. What is likely to happen to this market in the future?
3. What are the most significant influences on demand in this market?
Market analysis will aid the business to answer these questions with some degree of certainty.
However, can be diffciult to analuyse a business's own marketing activities (its marketing data).
marketing data: information gathered about the response to the marketing activities of a business.
Test markets: to replicate all elements of a product launch including promotion, distribution and price, to a geographic region or demographic group to judge the viability of the product in the market before a full scale launch.
Goal is to achieve results that represent the response of the whole market
Can be very difficult to select a suitable test market, particularly if the company is planning on international expansion.
If not a typical representation, the data collected will be inadequate or misleading.
Difficult to isolate the impact of a new or updated product on consumers.
Reactions may be effected by external influences e.g. Competitor launching anew product or advertising campaign.
Also, danger of a rival gaining details of new product/ service and producing a copy- will reduce first mover advantage. (Particular concern in fast moving markets. Is it worth the risk?)
Primary market research
Source of marketing data which can be used to gather information when devising a new strategy
Will need a high confidence level if it is to be used as a basis for decision making
Reasons why data might be incorrect or misleading include:
· If it is backdata, it might not reflect a change in consumer buying habits and suggest a trend which is unrealistic
· Data might be biased
· If the forecasts are too far into the future, the chances of them being accurate are greatly reduced
Use of IT in analysing markets
Advantages of IT
· Information can be processed quickly and used for sales forecasting techniques such as extrapolation, moving averages and correlation
· Information can be used to build up an electronic database of consumer buying behavior, as well as a detailed profile of each costumer so that future products and promotions can be targeted more effectively
Disadvantages of IT
· Possibility of information overload which can slow down the decision making process because the opportunity to reach a conclusion never actually appears, just a a continual stream of dta.
· Data is available very quickly which may cause decision makers to overreact or misinterpret apparent trends leading to unfortunate decisions being taken.