Marketing Management, Millenium Edition - epiheirimatikotita.gr

market potential of different cities, states, and nations. Two major methods of assessingarea market potential are available: the market-buildup method, which is usedprimarily by business marketers, and the multiple-factor index method, which is usedprimarily by consumer marketers.Market-Buildup Method. The market-buildup method calls for identifying allthe potential buyers in each market and estimating their potential purchases. Thismethod produces accurate results if we have a list of all potential buyers and a goodestimate of what each will buy. Unfortunately, this information is not always easy togather.Consider a machine-tool company that wants to estimate the area market potentialfor its wood lathe in the Boston area. Its first step is to identify all potential buyersof wood lathe in the area. The buyers consist primarily of manufacturingestablishments that have to shape or ream wood as part of their operation, so thecompany could compile a list from a directory of all manufacturing establishmentsin the Boston area. Then it could estimate the number of lathes each industry mightpurchase based on the number of lathes per thousand employees or per $1 millionof sales in that industry.An efficient method of estimating area market potentials makes use of the StandardIndustrial Classification (SIC) System developed by the U.S. Bureau of the Census.The SIC classifies all manufacturing into 20 major industry groups, each with a twodigitcode. Thus number 25 is furniture and fixtures, and number 35 is machinery exceptelectrical. Each major industry group is further subdivided into about 150 industrygroups designated by a three-digit code (number 251 is household furniture, and number252 is office furniture). Each industry is further subdivided into approximately450 product categories designated by a four-digit code (number 2521 is wood officefurniture, and number 2522 is metal office furniture). For each four-digit SIC number,the Census of Manufacturers provides the number of establishments subclassifiedby location, number of employees, annual sales, and net worth. The SIC System iscurrently being changed over to the new North American Industry Classification System(NAICS), which was developed by the United States, Canada, and Mexico to providestatistics that are comparable across the three countries. It includes 350 newindustries, and it uses 20 instead of the SIC’s 10 broad sectors of the economy, changesreflecting how the economy has changed. Industries are identified by a six-digit ratherthan a four-digit code, with the last digit changing depending on the country. Thefirst information based on the new system will be published in early 1999 in the newEconomic Census data. 35To use the SIC, the lathe manufacturer must first determine the four-digit SICcodes that represent products whose manufacturers are likely to require lathe machines.For example, lathes will be used by manufacturers in SIC number 2511 (woodhousehold furniture), number 2521 (wood office furniture), and so on. To get a fullpicture of all four-digit SIC industries that might use lathes, the company can usethree methods: (1) It can determine past customers’ SIC codes; (2) it can go throughthe SIC manual and check off all the four-digit industries that, in its judgment, wouldhave an interest in lathes; (3) it can mail questionnaires to a wide range of companiesinquiring about their interest in wood lathes.The company’s next task is to determine an appropriate base for estimating thenumber of lathes that will be used in each industry. Suppose customer industry salesare the most appropriate base. For example, in SIC number 2511, ten lathes may beused for every $1 million worth of sales. Once the company estimates the rate of latheownership relative to the customer industry’s sales, it can compute the market potential.Table 1.7 shows a hypothetical computation for the Boston area involving two SICcodes. In number 2511 (wood household furniture), there are six establishments withannual sales of $1 million and two establishments with annual sales of $5 million. Itis estimated that 10 lathes can be sold in this SIC code for every $1 million in customersales. The six establishments with annual sales of $1 million account for $6million in sales, which is a potential of 60 lathes (6 10). Altogether, it appears thatthe Boston area has a market potential for 200 lathes.The company can use the same method to estimate the market potential for otherGathering Informationand MeasuringMarket Demand 123