Market potential is defined as the maximum demand or high response for a particular group of customers in a specific geographic area for a given product or service expressed in a specific time and under specific conditions and competitive environment.
Factors on which the concept of market potential depends
- Maximum response to demand under certain assumption, it means a significant boundary condition for the final demand.
- The next condition on which the concept of market potential depends is a group of relevant consumers interested in a given product or service. It is important to focus not only on the current consumer but also pay attention to the potential consumer because the goal is to achieve maximum demand. The market potential can be diversified because everything depends on what group of customers will be the recipients.
- The geographic area is the next factor that must be clearly defined, because it will relate to market potential. First of all, you should find and defined into mutually exclusive subsets of consumers, this is very important because thanks to this the management will be able to easily determine the sales department and control in various areas.
- The important aspect is realizing that the concept of market potential is a clear knowledge of the product or service for which you need to determine and estimate the market potential. This is important when the product has its numerous substitutes, it is desirable to have market potential for the product class rather than the particular product.
- The period in which the market potential will be estimated requires an earlier determination, it should be long enough to coincide with the planning periods in the enterprise. We can use both long and short periods, it all depends on the company.
- The last factor influencing the potential of the market is useful to understand the environmental and competitive conditions relevant to a particular product or service, to investigate what the external environment may be, and to check the nature and scope of competition. This is important in estimating the potential of the market because the company has no influence on these factors.
Assessment of market potential
In order to properly assess the potential of the market, companies should estimate the number of potential customers and the number of products that will be able to buy. The calculations related to the number of potential clients may change due to the evolution of the life cycle or with possible evolution.
- Identification of probable market segments: a significant number of markets includes more than one segment. The task of the company is to predict which segments can evolve, additionally it should be taken into account that customers in a given segment will not buy every time.
- Estimation of the number of customers in a given segment: enterprises should estimate the potential number of customers who want to make purchases in the period for which they are looking for a market potential.
- Estimate the number of products customers will buy: The company estimates the number of products that customers are likely to purchase each segment during the period.
Market potential is an upper bound to actual sales, based on a set of assumption about future market condition. Market potential is important when contemplating entry in new markets.
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Author: Justyna Galon