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.
This example of a simple market forecast defines two target market segments and projects the potential customers in each of those segments by years, for five years.
In the market forecast, the example 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 growing at five percent per year.
These numbers are estimates. Nobody really knows, but we all make educated guesses. The developers of the plan researched the market as well as they could and then estimated populations of target users in their area and the annual growth rates for each.
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You can use your market forecast numbers to draw a chart of projected market growth, like the one shown here below. It offers a visual view of the market forecast.
Normally you would also look at market value, not just market size. For example, although the high-end home segment is 2.5 times larger than the 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 important numbers in this table are the average purchase per customer and the market value.
The other items in this table are subjective qualities that help with marketing. The planners assign 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 this case if the total market is worth some estimate, you 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 macro-economic 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 will be the one that matches your own company profile.
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