Market Sales Potential


Market sales potential is a quantitative approximation of effective demand. Specifically, market sales potential is the maximum level of sales that might be available to all organizations serving a defined market in a specific time period given 1) the marketing mix activities and effort of all organizations, and 2) a set of environmental conditions. As this definition indicates, market sales potential is not a fixed amount. Rather, it is a function of a number of factors, some of which are controllable and others not controllable by organizations. For example, controllable marketing-mix activities and marketing related expenditures of organizations can influence market sales potential. On the other hand, consumer disposable income, government regulations, and other social, economic, and political conditions are not controllable by organizations, but do affect market sales potential. These uncontrollable factors are particularly relevant in estimating market sales potential in developing countries.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

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Pro Forma Income Statement


Because marketing managers are accountable for the profit impact of their actions, they must translate their strategies and tactics into pro forma, or projected, income statements. A pro forma income statement displays projected revenues, budgeted expenses, and estimated net profit for an organization, product, or service during a specific planning period, usually a year. Pro forma income statements include a sales forecast and a listing of variable and fixed costs that can be programmed or committed.

Pro forma income statements can be prepared in different ways and reflect varying levels of specificity. They have a typical layout consisting of six major categories or line items:

  1. Sales—forecasted unit volume times unit selling price
  2. Cost of goods sold—costs incurred in buying or producing products and services. Generally speaking, these costs are constant per unit within certain volume ranges and vary with total unit volume.
  3. Gross margin (sometimes called gross profit)—represents the remainder after cost of goods sold has been subtracted from sales.
  4. Marketing expenses—generally programmed expenses budgeted to produce sales. Advertising expenses are typically fixed. Sales expenses can be fixed, such as a salesperson’s salary, or variable, such as sales commissions. Freight or delivery expenses are typically constant per unit and vary with total unit volume.
  5. General and administrative expenses—generally, committed fixed costs for the planning period, which cannot be avoided if the organization is to operate. These costs are frequently called overhead.
  6. Net income before (income) taxes (often called net profit before taxes—the remainder after all costs have been subtracted from sales.

A pro forma income statement reflects a marketing manager’s expectations (sales) given criterion inputs (costs). This means that a manager must think specifically about customer response to strategies and tactics and focus attention on the organization’s financial objectives of profitability and growth when preparing a pro forma income statement.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

Consumer Sovereignty


Mainstream economics uses some simple starting points; it believes that they are the best possible. First is that agents have more wants than they can attain, so that they feel scarcity; in fact, for practical purposes, wants are assumed to be endless. Second, third and fourth are that agents are self-interested, rational, and the best judges of their own well-being. These four assumptions are indeed usually good starting points, rather than starting by assuming that agents are completely fulfilled, altruistic, irrational, and not well-placed to evaluate their own situation. They are not equally good as finishing points. Sometimes good arguments exist for not accepting them.

An assumption that agents are the best judges of their own well being is less questionable for businesspeople and corporations, given the resources they have for analysis. Debate focuses more on consumers. The phrase consumer sovereignty is sometimes read descriptively, to mean that consumers are sovereign, in that procedures are induced via profit-seeking and competition  to provide what consumers want. Sometimes it is read normatively, to mean that consumers should be sovereign, their wishes should prevail concerning what is good for them. The normative claim can rest on three different bases: that consumers do make good choices; that the alternative stance is worse – to use someone else’s judgments and estimates of what is good for a person and how good it is; or quite differently, that people have the right to make their own choices and mistakes.

Consumers will not make good choices automatically and unconditionally. Our wants are not simple; for example, some are wants to not to have other wants (such as the desire to smoke or a compulsion to gamble). Establishing a mature balance between wants involves skills. Choice is also unlikely to bring satisfaction if taken on the basis of weak information. Markets often do not provide consumers with full and reliable information, for it is hard to exclude people from information and therefore to ensure payment for it, so its market supply is weakened. Instead, in a commerce-dominated society, one of the main types of information that adults get will be images that say the good life is obtained through high consumption of commodities; there is too little counteracting public information.

The issue of consumer sovereignty goes beyond whether choices are good for the chooser. Other people are affected. Some wants may thus be unacceptable, notably wants that bring harm to others, including even wants to harm others. Mainstream economists have unfortunately often taken a don’t-want-to-know approach to ethics in which they confuse acceptance of all wants with a value-neutral stance.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

Order Cost


Order cost includes all incremental costs associated with placing or receiving an extra order that are incurred regardless of the size of the order. Components of order cost include:

  • Buyer time: Buyer time is the incremental time of the buyer placing the extra order. This cost should be included only if the buyer is utilized fully. The incremental cost of getting an idle buyer to place an order is zero and does not add to the order cost. Electronic ordering can significantly reduce the buyer time to place an order by making order placement simpler and in some cases automatic.
  • Transportation costs: A fixed transportation cost is often incurred regardless of the size of the order.
  • Receiving costs: Some receiving costs are incurred regardless of the size of order. They include any administration work such as purchase order matching and any effort associated with updating inventory records. Receiving costs that are volume dependent should not be included.
  • Other costs: Each situation can have costs unique to it that should be considered if they are incurred for each order regardless of the quantity of that order.

The order cost is estimated as the sum of all its component costs. The order cost is often a step function; it is zero when the resource is not fully utilized, but takes on a large value when the resource is fully utilized. At that point the order cost is the cost of the additional resource required.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

New Product Sales Forecasting


Forecasting sales for a new product is an especially hazardous undertaking because no historical data is available. Companies typically employ consumer panels to obtain reactions to the products and to gauge probable purchase behavior. Test market data may also guide forecasts.

Since few products introduce totally new features to the market, forecasters can gain insight by carefully analyzing the sales of competing products that the new entry may displace. The situation method provides the forecaster with an estimate of market size and potential demand.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

New Product Concept


Webster’s says a concept is an idea or an abstract notion. Businesspeople use the term concept for the product promise, the customer proposition, and the real reason why people should buy. It is a stated relationship between product features (form of technology) and consumer benefits—a claim of proposed satisfactions. This promise is open to four interpretations:

  • The producer’s perception of the features of the new product.
  • The consumer’s perception of the features of the new product.
  • The producer’s estimate of the benefits delivered by that set of features.
  • The consumer’s estimate of the benefits delivered by that set of features.

These are only forecasts, guesses, at this time—not reality, even with a prototype in hand. They rest on expectations.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

Estimation of Demand


Potential and forecast are distinct concepts, but they become blurred when estimates of demand are developed. The techniques used to estimate demand differ in their emphasis on the proposed marketing effort. For example some techniques neglect the level of marketing effort and concentrate on the maximum amount of commodity that might be demanded from an industry or company. Estimates produced with the emphasis are closer to being market or sales potential estimates than they are sales forecasts.

Other techniques give great weight to the marketing effort planned for the period and are sales forecasts in the true sense of the word. Still other techniques use historic sales as a basis for future demand estimates. They rely on the implicit assumption that marketing effort in the future period will be similar to what it was in the past.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

 

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