A market forecast is a core component of a market analysis. It projects the future numbers, characteristics, and trends in your target market. A standard analysis shows the projected number of potential customers divided into segments.
Market Forecast – Example
The AMT computer store has a simple market forecast. The plan defines two target market segments, and the forecast projects how many potential customers in each of those segments by years, for five years.
In the market forecast, the numbers indicate that there are 25,000 home offices included in the market, and that number is growing at an estimated five percent per year. There are also 10,000 small businesses in the area, and that number is also growing at five percent per year.
These numbers are estimates. Nobody really knows, but we all make educated guesses. AMT’s owners researched the market as well as they could, then estimated populations of target users in their area and the annual growth rates for each.
The chart below offers a visual representation of the AMT market forecast.
The table below shows the market forecast described for AMT.
|High-end Home Office||10%||25,000||27,500||30,250||33,275||36,603||10.00%|
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Normally you would also look at market value, not just market size. For example, even though AMT’s high-end home segment is 2.5 times larger than its small business segment as measured by number of customers, the small business customer spends almost four times as much as the home office customer. Therefore the small business market is a more important market in terms of dollar value. The table below shows AMT’s method for tracking market value.
|Market Segment||Avg $ per cust.||Market Value||Product Attitude||Loyalty Status||Buyer Readiness|
|High-end Home Office||$3,200||$98 Million||Positive||Medium||Medium|
|Small Business||$12,500||$138 Million||Indifferent||None||Defensive|
The important numbers in this table are the average purchase per customer and the market value:
Average purchase per customer is an educated guess based on AMT’s experience. Sales managers got together to make the estimate. Although AMT would have liked some external source of information to use for this, there was none available. Notice that the home office customer tends to purchase much less overall than the small business customer.
The market value is simple mathematics. Multiply the number of potential customers in the market by the average purchase per customer. In this case they took the average number of customers in each segment over the five-year forecast period and multiplied that by the average purchase per customer, to calculate the market value.
The other items in this market analysis table are subjective qualities that help with marketing. AMT assigns these points to people charged with preparing marketing materials.
A market forecast should always be subject to a reality check. When you think you have a forecast, you need to find a way to check it for reality. In AMT’s case, if the total market is worth some estimate they could estimate sales of all the competitors and see if the two numbers relate to each other. In an international market, you might check production and import and export figures to see whether your estimates for annual shipments appear to be in the same general range as published figures. You might check with vendors who sold products to this market in some given year to see whether their results check with your forecast. You might look for macroeconomic data to confirm the relative size of this market compared to other markets with similar characteristics.
Review Target Focus
The market analysis should lead to developing strategic market focus. That means selecting the key target markets. This is the critical foundation of strategy. We talk about it as segmentation and positioning.
Under normal circumstances, no company will attempt to address all the segments in a market. As you select target segments, think about the inherent market differences, keys to success, competitive advantage, and strengths and weaknesses of your company. You want to focus on the best market, but the best one is not necessarily the largest one or the one with the highest growth. It might be the one that matches your own company profile.
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