Determining market capacity.
Market capacity is the quantity (value) of goods that the market can absorb under certain conditions over a certain period of time. As a rule, market capacity is determined in terms of specific goods and services.
Market capacity is the possible volume of sales of a product/service at a certain price level. The market capacity indicator is calculated in money - i.e. this is the maximum amount that the seller(s) in a given market can receive under constant circumstances (volume of supply, level of demand, prices, etc.). In some cases, market capacity can be expressed in physical terms, but a business is usually interested not in how many pieces it can sell, but in how much it can earn for it.
Determining market capacity
Market capacity (calculated, forecast) - value of market capacity obtained on the basis of calculation methods. Capacity measurements are variable in nature, and therefore the resulting values may vary depending on the information collection methods and calculation formulas used. The simultaneous use of several approaches increases the likelihood of obtaining accurate results and, when there is a lack of information, is practically the only acceptable alternative.
Determining market capacity
The production method for determining market capacity in theory is also found under the name “based on structural characteristics market".
The total market capacity (E) will be calculated
E = P + V imp – V ex + V meas.
where P is the volume of production in the country for the period under review,
V imp and V ex are the values of the volumes of imports and exports of products, respectively,
V change skl – the amount of change in the volume of warehouse stocks at the beginning and end of the period
Determining market capacity.
Determining market capacity by industry growth
The essence is to calculate the market capacity by extrapolating data on its growth over the past few years or more, provided that the macro environment is stable. Thus, the market capacity of a certain period is taken as the basis.
And multiplied by the growth factor.
E = E prsh * k growth,
Where E prsh is the capacity of the previous period, taken as the base,
k growth - growth coefficient (with 5% growth, the coefficient will be equal to 1.05).
Determining market capacity
Research Panel Index Method
It is sometimes called the "Nielsen panel method". To calculate market capacity based on a panel of sellers, using this methodology, we have the following formula
E = (∑ (Vin - V iк) + Pr i) / K n * 12/T * Ktotal, i=1, … K n,
Where Vin and V iк are the volume of warehouse stocks at the beginning and end of the study period in the i-th store
For i, sales volume in the i-th store during the study period K n number of stores included in the panel
T period for which data is collected, expressed in months
Ktot is the total number of stores selling the product under study.
Determining market capacity
Method based on product consumption rates
This technique is used for systematically purchased and quickly consumed consumer goods (for example toothpaste). The basis of the formula is the amount of consumption during one use of the product. Then the calculation of the capacity will take the following form
E = ∑ D i * C * T i ,
D i - number of product users in the selected group,
WITH - volume of product consumption per use,
T i - frequency of circulation per year.
H arr =C*T – annual consumption rate
Determining market capacity
Method of summing primary, repeat and additional sales
Part of this method is familiar through the lens of repeat sales for durable goods. In this case, a simplified approach is applied, related to the service life of a unit of goods and the total quantity of goods in use, which gives
Epovt= V*(1/ T sl) ,
V is the total volume of the product in use, T is the service life of the product.
Determining market capacity.
We now turn to the total market size for durable goods, using the volume of initial, repeat and additional sales.
It should be remembered that the primary sales market is summed up from those who purchase products for the first time; additional sales market - those who purchase goods
To already existing. Hence
E = Eper + Epovt + Edop
Determining market capacity
Purchasing power index method
The method is applicable mainly to assess the capacity of regional markets, provided that the capacity of the entire market is known. Thus we have
Ep = E * And ps,
Where is the capacity of the regional market, Ips is the index of purchasing power of the regional
market, when calculating with weighting coefficients the shares of disposable income, retail turnover and population in relation to the country are taken into account.
(∑ (Vin - V iк) + Pr i) / K n is also called the panel index. A completely similar scheme is used to carry out calculations on the consumer panel. It is worth remembering that the “research panel index method” for the same product when using seller panel techniques must be the same as the buyer panel.
Determination of shares of the enterprise.
Market share is the ratio of the sales volume of a certain product of a given organization to the total sales volume of this product carried out by all organizations operating in a given market. This indicator is key when assessing competitive position organizations.
The information basis for calculating the market share of a product of a certain brand (for simplicity, the market share of a certain brand) is the sales volume of competing products. Thus, market share is a calculated indicator, except in cases where it is determined by an expert method by asking experts direct questions regarding their opinion on the value of this indicator for individual products.
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Effective trade on a national scale or in a particular region would be impossible without effective management risks. The most important quantity characterizing the level of demand for a product or service in a selected niche, determined by the nature of the product, target audience and geographical boundaries, is called market capacity. This concept occupies an important place in the planning and forecasting procedures of a company. Correct calculation of market capacity will help to model the situation regarding the degree of probable influence of the enterprise in its segment of economic relations and formulate a business plan. This is a key concept for both the marketing department and the entire organization as a whole. Data on the value of this indicator are widely used when making management decisions of the company, help determine the strategy of action, and also play a vital role in increasing the scale of activity.
Why do companies calculate market capacity?
To capture a new market segment, at the first stages of business planning, an organization needs to calculate its capacity. With its help, you can easily assess the degree of benefit that an organization can acquire by engaging in a particular business activity.
The essence of this calculation is to determine the projected sales value. As a rule, information for 12 months is taken for calculation. In order to carry out such analytics correctly, it is necessary to take into account the number of companies already operating in a given segment in a specific area, as well as the degree of satisfaction of demand for a similar product or service in the market niche. Without taking into account these indicators, for any organization, the production of a new product will obviously become unprofitable.
In the process of analyzing market capacity, you can determine both the existing value and the possible one. In this case, the second indicator must be greater than the first. As a rule, the calculation of possible sales volumes is made in rubles or tons.
When the value of the existing market capacity is established, the scale of production, procurement and sales is calculated, the size of the customer base, penetration indicators, etc. are determined. For this analysis, you should refer to statistical data, marketing research of your organization, information from open sources, reporting, as well as insider information when analyzing competitors. The probable market capacity is a prognostic category, the value of which is determined by the methods of extrapolation and expert assessment.
The value of the possible sales volume has enormous weight in the process of making a management decision about the penetration of an organization into a certain niche of economic relations. As a rule, when calculating the probable market capacity, indicators of its existing size and the potential of the company in its segment are summed up.
A large difference between possible and actual data indicates the potential profitability of working in a particular niche. On the contrary, if during the calculation it was established that this discrepancy is small, then the market is in a state of stagnation. Most likely, in conditions of fierce competition, effective activity in this segment will be impossible, or the resources spent on this project will be incomparable with the profit that it can bring.
Calculating market capacity has the following positive consequences.
Calculating the value existing on this moment time of market capacity, an organization can with a high probability determine its place in the system of economic relations, as well as the relative share of sales occupied by competitors. Moreover, studying the position of rivals is no less important than clarifying your market positions.
By analyzing trends in capacity changes, it becomes possible to relatively accurately plan sales and, as a result, formulate an up-to-date marketing strategy enterprises.
By using mechanisms for calculating market capacity, the organization increases the degree of accuracy of forecasts regarding future sales volumes of goods and services, as well as the level of effectiveness of advertising campaigns.
Calculation of market capacity and its types
As a rule, three types of market capacity are calculated.
Actual
Existing market capacity is a value characterized by the volume of real demand for a product or service, as well as the purchasing power of the target audience of this product. The determination of this indicator is based on existing information.
Available
Calculating the market capacity of this type is a narrowing of the number of potential buyers to those who would be satisfied with the terms of the transaction with our company and truly interested in our unique selling proposition. When determining this indicator, an important factor is the availability of resources and working capital in an organization to cover the demand for a given product or service.
With this calculation of market capacity, the company limits its sales volumes to the value of the target audience, while cutting off buyers who do not meet certain criteria.
Potential
Probable market capacity – characterizes the share in common system implementation that the organization can take at its most high degree efforts regarding product promotion and high customer demand for this product or service. The concept of potential market capacity refers to the maximum value that can realistically be achieved using all available resources of the organization.
This is an indicator that characterizes the situation in which an enterprise occupying a certain niche is most likely to use its marketing capabilities in such a way that consumers know and buy goods and purchase services of that particular brand or brand.
Types of market capacity are calculated in rubles, pieces, kilograms, etc. Regardless of the unit of measurement, this indicator is one of the fundamental ones in determining the degree of actual and potential influence of a company in the overall system of economic relations.
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*Calculations use average data for Russia
Market capacity is one of the key characteristics of any market, and without deep and detailed information about this indicator, “entering it” in pursuit of bold and ambitious plans would be wrong.
I noticed an interesting pattern... Sometimes very important issues, in particular “market capacity”, when developing business plans investment projects(chapter " Marketing plan") are not given due attention. At first glance, this seems absurd, and yet it is true. Is this done intentionally? This is a question for conspiracy theorists. Yes and in classic book on marketing by F. Kotler “Practical Marketing”, as far as I remember, even such a term is not used...
But F. Kotler is a theory. Practice is also not far behind, though... from a slightly different perspective. For example, a phrase that I heard from the lips of one leader of a large food enterprise(invited to lead in Rostov-on-Don from Moscow) struck me with her “unconventionality”. He literally said the following: “The market is rubber - as much as we produce, we will sell!” However... it was not possible to sell exactly as much as they produced, and it was sent back to Moscow as it did not live up to the hopes of the business owners.
What is market capacity
And really, how can one say that the market is “rubber”? Any sane person understands that in a “certain territory” you cannot sell more than is bought there. It is this sales volume that is the market capacity. If we turn to business terminology, then in the marketing understanding - market capacity is the total effective demand of buyers for a certain product at the current price level. However, there are other definitions that are similar in essence.
For example:
Market volume- is the volume of those goods or services that are offered and purchased within the market ( market segment). Market capacity is the volume of purchase and sale transactions of goods or services completed in a certain territory (territorial market) or in a separate industry (industrial market).
Market volumecharacterized by the size of population demand equal to the value product offer. At any given moment in time, the market capacity has quantitative certainty, i.e. the volume of supply and demand is expressed in value and physical indicators of the goods or services sold, and therefore purchased.
However, a mistake has already crept in here... Why only “... by popular demand”? What about enterprises and organizations? Why doesn’t the state buy anything?
Why do you need to know what the market capacity is for a particular product/service or group of goods, and what share the enterprise occupies in the market (as a rule, the market capacity and/or position of the organization in this market is calculated)? First of all, in order to correctly evaluate your opportunities to work in this market, and, accordingly, accept the only and true management decision! A decision that will subsequently affect the viability of this enterprise or the product it produces (sells). Of course, this doesn’t always work out, but nevertheless... you have to try.
In other words, market capacity is one of the key characteristics of any market, and without deep and detailed information about this indicator, “entering it” in pursuit of bold and ambitious plans would not be entirely correct. The market, of course, is not “a river that you cannot step into twice,” no, you can enter! Only with significant costs for the organization.
Key indicators that give an idea of the market capacity:
- How is market capacity measured?
- How to determine (calculate) market capacity?
- How does market capacity change over time?
- How to position a company on the market?
- The influence of third-party factors on market dynamics.
How is market capacity measured?
As a rule, market capacity is measured in physical and/or monetary terms. In this case, you should “outline” the territory (not to be confused with the word “devil”), in which the capacity will be calculated. As a rule, this is a city, district or region, i.e. geographically defined territory. And so on increasingly: the federal district, the country, the world...
The year is usually chosen as the time parameter. Why exactly a year? Because many goods and services have a seasonality factor. For example, ice cream and mineral water in the summer it’s simply swept off the shelves, but in the winter it’s somehow not very popular. But cigarettes... smoking in winter is worse than in summer, the decline is 20-25 percent. It would seem, why? But it turns out that in the summer:
Longer daylight hours.
Thirst - beer - cigarette.
Harvest campaign in rural areas(extended working hours).
This is giggling/huffing for you, but for the manufacturers it means millions in sales and profits, of course!
How to determine (calculate) market capacity
As a rule, analytical articles provide certain figures regarding market capacity, but they are not substantiated in any way. Most eminent Russian and foreign authors and marketers in their monographs quite cleverly avoid specific examples and calculations. I would like to immediately stipulate that the estimated market capacity is an “estimated or predicted value” and nothing more.
Why is this so?
Because this value is calculated based on certain assumptions and generalizations various facts and factors that occurred in the past, but not in the future. Summarizing statistical information and expert opinions. That is why it is not uncommon that calculated and real indicators Market capacities vary.
Mathematically, market capacity can be expressed as follows:
E = M * C;
E - market capacity in physical or monetary terms (units/year, rub./year);
M - quantity of goods sold per year (units);
C - cost of goods (rub.)
Expert approach to determining market capacity;
Economic and mathematical modeling of market capacity;
A method for calculating market capacity based on statistical data, as well as a number of other methods.
Within the framework of this article, it is not possible to dwell in detail on this or that technique, because each has its own advantages and disadvantages. However, in the author’s opinion, there is no “universal technique or approach”, therefore The methodology for calculating market capacity for a specific product or service must be selected or developed individually.
Ready ideas for your business
The methodology for calculating the capacity of the tobacco products market, developed and tested by the author at the end of 1999, gave the following results: at a dollar exchange rate of 27 rubles. The annual market capacity of Rostov-on-Don and the Rostov region in monetary terms was $64.1 million/year. I repeat that this is a calculated value. What was she actually like? This question could perhaps be answered by Donskaya Tabaka marketers, but, in all likelihood, my calculations in 1999 went unnoticed by them.
Carrying out calculations using different techniques, you can get results with a fairly large scatter. Especially if you count it in monetary terms. At what prices should we calculate? Wholesale or retail? Marketing methodologists don’t tell us anything about this, so if you calculate something in monetary terms, it is advisable to indicate what prices you are starting from. But...the choice is always up to the specialists who deal with this problem based on the specific task at hand.
How market capacity changes over time
Market capacity may change over time, or it may remain the same. Such changes are called market “dynamics” or market capacity dynamics. The reasons for market changes can be very different. This is discussed in more detail below. The main thing is to take into account the very fact of possible expansion or contraction of the market when developing a business plan. This is extremely important, but market capacity dynamics are usually not given much attention special significance, but in vain!
How to position a company on the market
How to position? Here everything is more or less clear, but it’s easier to show it with an example. Let's say you are called GopStopSelmashVagonStroy LLC and produce combines: 100 combines per year. And the company Krasny Proletary LLC produces combine harvesters “similar in technical characteristics” at a rate of 70 pcs./year.
There is also a company called Blue Dandelion LLC, which imports 30 new combines and 50 used ones a year. What conclusions can be drawn? How to position your serious organization for this market? Statically and dynamically...
Let's start with statics, it's easier. Then you draw a sign:
The table shows that the market capacity per year is 250 units products, while 28% of the market share is imported, and 12% is used imports.We have, as before, a market capacity of 250 units/year.Your share is 40%. So your company has been positioned “for the market”!
What will happen next? Here are the options. We begin to assume... Another company appeared that began to supply equipment from overseas... What is this probability? In the coming year it will be extremely low. Next? Maybe. What will be his share? The question is open, but less than what Blue Dandelion LLC had. Although not a fact.
Market dynamics
First of all, you need to force your marketer or other specialist to answer a fairly serious question... How will the capacity of your market change over time? Will the market “fall” or “rise”? By what % to the current state?
Let's say your analyst predicted that market growth will be 10% next year and another 8% the next year after the current one. Moreover, the security service reported that the director of Blue Dandelion LLC was arrested for non-payment of VAT, and this company is in the process of liquidation. What do we have? Let's try to position your products on the “market”, what happens?
Does it turn out beautifully? The market is growing, and your share (albeit calculated) decreases!. A management decision must be made. Although these numbers can be interpreted differently.
The influence of third-party factors on market dynamics
Third-party factors can be very different. These include changes in macroeconomic indicators and purely technical or technological factors. For example, the capacity of the fuel oil market is falling. The reason is purely technological - the conversion of boiler houses to gas. There are other reasons, for example, political...
Let's focus on macroeconomic factors. Market capacity depends on the market need for a given product or service, as well as other factors. These factors include:
the degree of development of this market;
the appearance on the market of similar or other goods with similar properties (characteristics);
elasticity of demand;
price level;
changes in macroeconomic indicators;
product quality;
efficiency of market promotion and advertising costs;
other factors.
How do macroeconomic indicators affect market capacity? Yes, very simple! If there is more money, then the average consumer will switch to higher quality food products. Like today “Anakom”, and tomorrow and always - “Doshirak”.
However, it should be borne in mind that any calculation of market capacity has its own characteristics and sometimes requires the introduction of certain correction factors and various kinds of “assumptions”, and the above examples are not so complex, but illustrative, and that is why they were chosen as educational material. It remains to add that the choice of methodology and approach when assessing market capacity must be treated with special care and attention.
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The main objective of market research is to determine market capacity.
Market capacity is the existing or potential volume of sales of a product over a certain period of time.
The capacity of the commodity market is understood as the possible volume of sales of goods (specific products of the enterprise) at a given level and ratio of different prices. Market capacity is characterized by the size of population demand and the amount of product supply. At each moment of time, the market has quantitative and qualitative certainty, i.e. its volume is expressed in value and physical indicators of the goods sold, and consequently, the goods purchased.
To determine the capacity of national commodity markets when preparing and conducting expert operations, the concept of “visible” consumption of goods is used, i.e. own production of goods in the country minus exports and with the addition of imports of similar goods.
Or = Vв + Vi - Ve
Or - market volume
Vв - production volume
Vi - volume of imports
Ve - export volume
Market capacity is measured in physical and/or monetary terms.
It is necessary to distinguish between two levels of market capacity:
1. potential
2. real.
The actual market capacity is the first level.
Potential capacity denotes the maximum possible sales volume in a market situation when all potential customers purchase goods based on the maximum level of their consumption. Real Capacity assessed as the achievement of actual or projected sales volume of the analyzed product.(2)
Methodology for studying market capacity
The practice of marketing research shows that data on the market capacity of certain goods and the share occupied by individual manufacturers are currently of great interest to the manufacturers themselves. They are necessary both to expand the position of a company that already has a strong position in the market, and to penetrate the market of a new company or brand.
The need for such information has already been formed: today there are many organizations that conduct this kind of marketing research. However, after reading reports and articles on such studies, numerous questions arise both about the methodology of conducting and about writing the reports. Therefore, I would like to raise the question of the correctness of using certain methods to study market capacity and the most common, in our opinion, errors. We think that this kind of discussion will be interesting and useful to specialists working in this field.
Studying market capacity or market demand involves determining the sales volume in a designated market of a certain brand of product or a set of brands of product for a specific period of time. (3)
The study of these parameters is usually carried out in five main areas:
1. analysis of secondary information;
2. production and sales of products;
3. costs and consumer behavior;
4. capacity calculation based on consumption rates of this type goods;
5. determination of capacity based on “reduction” of sales volumes (when the known market capacity in one region is the basis for calculating market capacity in another region by adjusting it using reduction factors).
Consider:
1. Analysis of secondary information . Includes an analysis of all documentation that may contain information about the market we are interested in and may be useful in marketing activities: statistical data, data from governing bodies, market reviews, specialized magazines and articles, Internet data, etc. However, the information obtained by such method, most often turns out to be incomplete, quite difficult to use when practical application and often of dubious reliability. (4)
2. Market research from the standpoint of production and sales of products. Includes research into manufacturing, wholesale and retail. Information obtained from this source allows us to determine real sales volumes and representation of manufacturers and brands. Given that the number of sellers is smaller than the number of buyers, such research is often carried out more quickly and costs less than consumer research. The problem is how accurate the information provided by manufacturers or sellers will be, and how representative the surveyed sample of sellers will be of the general population (the entire mass of retail outlets operating on the market selling products).
3. Costs and consumer behavior. We study either the costs that consumers made for the products we are interested in over a certain period of time, or the frequency of purchases and volumes of purchased products together with the average retail selling price, or the consumption rates of a given product. At the same time, the study allows us to raise a wide layer of materials relating to the behavior and motivation of consumers: their attitude towards a particular brand, the volume of a one-time purchase, the frequency of purchasing a product, the expected price of a product, the degree of brand distinctiveness, brand loyalty, motivation for choosing a particular brand goods, etc. The question of the accuracy of such information is how accurately and truthfully buyers will reproduce their consumption data.
4. Calculation of capacity based on consumption rates for a given type of product . This approach is typically used for food products, raw materials and consumables. The statistical basis for calculations is the annual consumption rates per capita and the total population. Thus, the final capacity figure is obtained by multiplying the consumption rate per inhabitant by the value of the total population.
5. Determination of market capacity based on “reduction” of sales volumes. A similar calculation method is used mainly by companies with significant experience in individual geographic markets. The calculations use data on the actual volume of product sales in one region and factors that determine sales. Using the latter, the coefficients of bringing sales of one region to another are determined (coefficients of bringing the population, average wages, urbanization, prices, consumption patterns, etc.).
Conducting research on manufacturers and sellers of products in order to obtain market data is quite common for a marketing company, but errors can occur here too.
As experience shows, one of the most common mistakes is failure to ensure representativeness of the sample.
Identification of cause-and-effect relationships in the market under study is carried out on the basis of systematization and analysis of data. Systematization of data consists of constructing grouped and analytical tables, time series of analyzed indicators, graphs, diagrams, etc. This is the preparatory stage of information analysis for its quantitative and qualitative assessment.
Processing and analysis is carried out using known methods, namely grouping, index and graphical methods, construction and analysis of time series. Cause-and-effect relationships and dependencies are established as a result of correlation and regression analysis of time series.
Ultimately describing the cause-and-effect relationships caused by the interaction various factors, will allow us to build a development model in the market and determine its capacity.