What factors influence market capacity. Methods for calculating potential market capacity. Methods for determining market capacity
Market volume is the volume of those goods or services that are offered and purchased within a (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 volume characterized by the size of consumer demand equal to the size of product supply. 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 consequently, the goods or services purchased.
There is nothing simpler or more complex in marketing than determining market capacity. The task seems quite ordinary - find out how much competitors sell for a certain period, add imports and subtract exports (if any), while not forgetting to take into account the sales of your own company.
Market volume(calculated, forecast) - the 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.
Production method for determining market capacityIn theory, this method is also found under the name “based on the structural characteristics of the 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
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 a base and multiplied by the growth coefficient.
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).
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.
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,
And the purchasing power index 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.
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 ,
Where D i is the number of product users in the selected group,
With the volume of product consumption per use,
T i circulation frequency per year. 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) ,
Where V is the total volume of goods in use,
T is the service life of this product.
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 add to what they already have. Hence
E = Eper + Epovt + Edop
Potential market capacity- a concept artificially introduced into marketing and having no practical meaning, in connection with the definition of the concept of “market capacity”. Instead of this concept, it is correct to use the concept of potential
The most important, if not the most important, area of work of the marketing department at any trading enterprise is the study of demand for the goods sold. To do this, an indicator such as market capacity is often calculated. With its help, you can predict whether customers will accept the proposed product or not, and thus significantly reduce the risk of losing capital when launching a new product or service.
What is market capacity?
This term means the total sales volume of certain products in a particular region during the billing period. In other words, market capacity is the demand for a specific category of goods, which is expressed in the purchasing power of the target audience or population of the country. This indicator can be calculated both in physical terms (pieces, kilograms, liters) and in monetary terms (rubles, hryvnias, dollars). Market capacity is of the following types: actual, potential and available. In the first case, this indicator is determined based on the current level of development of demand for a service or product. The potential value estimates the maximum possible sales volume. Available capacity is the size of the market that a company can currently target based on the resources at its disposal.
How to determine market capacity?
First, input data is determined: calculation period (usually a year), region for which the indicator will be calculated (Central Russia, USA, Far East, etc.), target audience (young families, population 18+, aged people from 40 years old, women from 35 with average earnings, etc.), group of goods and unit of calculation. It is customary to distinguish the following main methods for assessing market capacity:
1. “Bottom-up”
In this case, the calculation is made from the target audience or consumer. The formula can be written as follows:
EP = CHA * NP * Tsed, where
EP - market capacity,
NA - audience size (target),
NP - consumption rate of the selected product,
Tsed - cost per unit of production.
Statistics data are used for calculations.
2. "Top-down"
The basis for calculations is data on the production of goods or information from the manufacturer. In this case, the indicator is equal to the sum of retail sales of all companies producing similar products. If it is impossible to cover all firms, choose the largest ones, the total share of which is approximately 80-90%. The data is taken from public reporting or a survey.
3. Estimation based on actual sales
In this case, the largest chain stores are selected, with which an agreement is concluded to provide data on real consumer receipts. Based on them, a representative sample is made and then the results are extrapolated to the territory of the country. In this case, it will not be possible to identify the target audience, but you can track real sales over time. Regardless of the choice of method, it is advisable to be guided by the following rule: if the target market is divided into several submarkets, then it is sometimes convenient to determine the market capacity for each such segment and then add the results to find the total value.
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 (supply volume, demand level, 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 the structural characteristics of the 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 the competitive position of an organization.
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.
The article provides complete visual information about how and why market capacity is calculated, and contains theoretical and practical information for independent calculations.
A little theory
Unfortunately, not all entrepreneurs are aware that the development of any business requires a careful and targeted strategic approach. Making decisions blindly can lead to significant financial losses, excess production or lost profits, decreased competitiveness and, as an extreme option, the ruin of the company. One of the main tools for making management decisions is knowledge about the structure and conditions of the market, its capacity. Let's give examples.
Let's say you sell goods for 200,000 rubles per month, and together with your competitors - for 800,000 rubles. But you know that the market can consume goods worth 950,000 rubles, how will you behave in this case? Surely, you will begin an aggressive marketing policy towards other players in order to win the remaining market share?
Another example: your sales are 450,000 rubles/month, and together with your competitors, similar products are sold for 600,000 rubles/month. while the market can purchase a similar product for 1,000,000 rubles. What will you do with this information? Of course, expand production.
Or the third situation: your sales are 900,000 rubles/month, together with your competitors you sell for 980,000 rubles/month, and the maximum purchasing power of the market is 1,000,000 rubles/month. What does this state of affairs tell the manager? - the need to invest stable income from sales in the development of a new product or even business.
To summarize: market capacity is the amount of a product that can actually be sold in a clearly defined market in a specific period of time. Capacity may be temporary
- daily (how much bread can one region buy in a day?),
- monthly or quarterly (how many hairdressing services will the city buy per month?),
- annual (how many tons of confectionery products will a particular region eat in a year?).
And on a territorial basis, respectively, local and niche. Also, market capacity can be potential (the most probable here and now), actual (total sales volumes of all operators) and available (that part of the market that your company can conquer).
Now let’s figure out how to get this valuable information and calculate market capacity.
What data is needed to calculate market capacity?
| Incoming information | Explanations |
|---|---|
| market definition and audience size (KA - number of audience) | Here we determine the territory in which the goods are sold, the number of actual or probable consumers and the form of accounting. For example, goods such as bread, cable television, toilet paper, and televisions are purchased not individually, but for the family, so the market is calculated in households. Personal consumption goods - cosmetics, clothing, piece products and items (bottled beer, cakes, toothbrushes, etc.) are calculated per person. Quantitative indicators can be obtained from free statistical sources. |
| degree of consumption intensity and frequency of purchases (PP - consumption frequency) | The second input figure for analysis is the frequency of purchases of a product in a certain period of time (or, as an alternative, the rate of consumption of a product per person). For example: cable television is paid once a month (monthly purchase), bread - daily, toilet paper - once 2-3 weeks (pack per family), televisions - once every 5-7 years. This kind of information can be obtained based on a consumer survey, generally accepted standards (for example, it is recommended to change a toothbrush every six months) or on an expert assessment. |
| average bill - average cost of a product in rubles. (SP - average price) | Not only your product is taken as a basis, but also the entire competitive line. You can calculate the average cost yourself by receiving the price lists of all competitors. Customer surveys (at what price do you usually buy this product?) are also very effective. |
| average volume and type of product (O - volume) | For example, if we are talking about:
This indicator may not be used in calculations. but it is a kind of criterion for consumption volumes. |
Calculation technique
Step 1: calculate the maximum potential capacity
To calculate the total potential market capacity of your product in a certain region, we use the formula:
Total potential market capacity = KA*PP*SC
Let's look at the example of a cable television provider. Input data:
Considered time interval: quarter;
Considered territorial market: city N with a population of 320,000 people;
Number of audience: 106,000 households (if there is no information on the number of households in your region, you can use Russian population statistics, according to which an average of 3 people live in one house).
Consumption frequency: 1 time per month (subscription fee), respectively, 3 purchases per quarter (if your product is purchased less frequently, then the frequency may not be expressed in whole numbers: an annual subscription to a solarium translated into a quarterly period will have a frequency of 0.25).
average price: 180 rubles
Average volume and type of product: Basic package with 120 channels.
Let's calculate: 106,000 consumers *3 purchases per quarter*180 rub. = 57,240,000 rub. - we got the potential market capacity. i.e., such an amount can be earned by all cable television providers, provided that absolutely all apartments and houses in the city are connected. Now it is necessary to bring these figures closer to commercial realities.
Step 2: determine the audience using the product
We continue to look at the example of the capacity of the market for cable television services in a particular city. We determine the target audience of cable TV services (survey, statistics, observations) and bring it to a certain size.
Let's say, based on the results of a survey, you see that 45% of all respondents living in your coverage area (city N with 106,000 households) use or want to use cable television: (106,000/100)*45= 47,700 households - a quantitative indicator of your market in which all your competitors operate.
Step 3: determine the purchase period
In the case of our example, this period is a month (subscription fee). If you have consumer goods or services, then you should again proceed from the results of a survey of city residents or product consumption standards.
For example, the standard for bakery products per person per day is 300 grams, respectively, per month - 9 kg. Bread is usually bought per family, so one household receives an average of 0.7-1 loaves per day (not everyone eats lunch and dinner at home).
If we talk about cosmetics, then this is an individual product. Eg. Day face cream is usually packaged in 30 ml. One-time use is 0.3-0.5 ml. those. A jar of cream will last a woman for 2-3 months.
Step 4: calculate the average purchase price
To do this, you need to make a price and product range of your competitors.
For example:
We bring the price per ml to our reference jar of 30 ml and see that its average market price is 30 * 2.25 = 67.5 rubles.
Step 5: determine the share of competitors
To do this, it is necessary to conduct a serious study of the representation of competitors and their sales volumes. If we are collecting information for everyday goods, it will be enough to conduct an inventory of competitors' sales points in the city. If these are services, calculate the average flow of clients (observation, survey, purchasing data from employees, control visit). Based on practice, we can say that the simplest and most effective method of obtaining information is guerrilla marketing, or, more simply, questioning competitors’ employees.
For example, a cosmetics manufacturer may instruct its supervisors to measure the availability of competitors' products on shelves or request this information from stores. In the case of cable television, a follow-up call would work well: introduce yourself as a subscriber and ask directly how many people use the services of the provider.
Of course, the numbers will be very approximate, but this is not a problem, i.e. Marker values are needed for calculation.
Step 6: calculate market capacity
To make the description clear, let's return to our cable TV. We have potential capacity, we calculated it by multiplying all households in the provider’s coverage area by the average cost of the package, and we received 57,240,000 rubles or 106,000 subscribers.
Let us remember that this is the absolute maximum of the market, beyond which it will not be able to develop under current conditions. Now let's calculate the actual capacity:
(own sales volume + shares of all competitors).
For example:
- the cable TV provider has 14,000 subscribers in its database (47% of the total volume),
- competitor A - 8,000 subscribers (27%),
- competitor B - 7,000 subscribers (23%),
- small networks - 1,000 subscribers (3%).
Total 30,000 subscribers* average price 180 rubles = 5,400,000 rubles - monthly market capacity covered.
Now consider the survey data, according to which 47,700 households seek or use cable TV services. 47,700*180 rubles (average price) = 8,586,000 rubles. - This full actual (real) market capacity.
We consider: total actual capacity 47,700 - covered capacity 30,000 = 17,700 subscribers (or 3,186,000 rubles, or 37.1%) - this is the uncovered part for which we must fight.
Step 7: calculate the available market capacity
Here we will need information about the share of each competitor. Consider:
In a realistic forecast of available market share, it is natural to assume. that its distribution will roughly correspond to the same pattern observed among competitors, i.e. the percentage share, plus or minus, will remain, which means that cable television providers can count on:
- your company - 8319 subscribers (47% of the total volume),
- competitor A - 4749 subscribers (27%),
- competitor B - 4071 subscribers (23%),
- small networks - 531 subscribers (3%).
8319*180 rub/month = 1,497,420 rub/month - this is available market share, although you can always strive to conquer 100% of the unreached part.
Quite often, when calculating a business plan for a future business, no one remembers that there is such a thing as market capacity. This could be a fatal mistake. Since theoretical calculations based on how many clients are needed to reach the break-even point can be broken by the realities of life - there simply may not be a sufficient number of even potential clients in your area. In order for your business to suffer a similar fate, you need to learn how to calculate market capacity.
Definition
Let's define the terminology. In the simplest possible terms, the explanation of the concept of “market capacity” can be presented as follows: any product or service cannot be sold more than one is willing to buy. In other words, Market capacity is determined by the demand for a particular product or service.
From the above definitions, it follows that it is necessary to first identify the maximum possible number of potential customers before starting to develop a business strategy. Of course, it is not a fact that all possible clients will become yours, since here you need to decide on both the target audience and your potential competitors.
It is completely logical that the conclusion arises that market capacity is a key characteristic necessary for drawing up a business plan. To build a successful business strategy, it is simply vital to estimate the number of your potential customers.
Units
Typically, the assessment of market capacity includes values expressed in monetary or physical terms. Moreover, these values are tied to a specific territory. It should also be taken into account that the calendar year should be taken as the time period during which this value is assessed, since most goods and services have their own seasonal ups and downs. Thus, the practical majority of goods and services have a decline of 20-25% in the summer months, and with the onset of autumn, demand increases.
Formula for calculation
I would like to immediately draw attention to the fact that the determination of market capacity made using formulas is nothing more than a predicted or, in other words, calculated value. Respectively, the data obtained should be correlated with economic and demographic data.
All calculations using formulas and the values used in them are based on past data and it is not a fact that in the next six months or a year the situation will remain unchanged. Therefore, one should not be surprised when these theoretical data do not completely coincide with real ones.
The market capacity formula is as follows:
E = M * C;
E — market capacity in monetary or physical terms (units/year, rub./year);
M - quantity of goods sold in the selected time period (units);
C is the cost of the product (rub.).
Calculation methods
There are different methods and approaches to how to calculate market capacity. Here are just a few:
- capacity modeling based on an economic-mathematical approach;
- expert approach;
- statistical technique.
Using calculations based on different methods, we can get results that will be very different from each other. Any of the above methods has its advantages and disadvantages, so it makes no sense to dwell on any of them in detail. The application of one or another technique occurs individually, depending on the situation and the goals pursued.
Read also: What is loan debt restructuring?
Dynamics of market capacity
Over time, market capacity may decrease or increase, or it may remain unchanged. Therefore, when calculating market capacity in marketing, it is advisable to take into account possible future changes in the market, both downward and upward.
Before you start making calculations, you need to think about how market dynamics might change, at least in the near future.
When predicting market changes, it is worth paying attention to even such seemingly insignificant factors, such as, for example, troubles with the tax authorities of your direct competitors. Yes and again, yes! Even such “minor” little things can “skew” the market in your favor, especially if the competitor is large.
Of course, the market itself and pricing on it can be influenced by more significant factors. For example it could be:
- political situation;
- the emergence of similar products or services;
- market development;
- pricing policy in the market;
- consumer properties of the product;
- macroeconomic fluctuations;
- change in demand;
- advertising costs;
- many other factors.
How can all these factors affect your future business? And it's very simple. Let's look at a fairly simple example. Let's say you're going to start selling gardening equipment in a city with a population of 800 thousand people. Before you start calculating market size, you need to sit down and think about these things:
- how many potential consumers of your product are in your area;
- your potential competitors;
- solvency of your clients;
- How developed is this segment in your region;
- How can you attract untapped customers?
In addition, nuances such as seasonality will be very important factors in promoting your products. It's no secret that the peak sales of gardening products occur in spring and early summer. It should also be taken into account that if the majority of the population in your city works at several enterprises that are city-forming, then if these enterprises begin to experience difficulties and there are layoffs of workers, then your business may suffer significantly.
As you can see, there are a great many nuances that should be taken into account and most of them are based on assumptions. After all No one can accurately predict the future situation. One can only make assumptions based on previous statistics.
Types of market
There are several types of market: actual, available and potential. Let's take a closer look at each of these types.
The actual market is the market segment that is currently available to your company. It includes paying consumers who use your services or buy your products.
The available market is the market segment that you can win by winning over your competitors' customers. That is, in fact, if you become better than your competitors, their clients will go to you.
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