Download Chapter # 6 Demand estimation through Marketing Research

Chapter # 6
Demand estimation
through
Marketing Research Approach
Tahir Islam
Assistant professor in Economics
Kardan higher Education Kabul
Demand estimation through
marketing Research approach
• In this chapter we will discuss demand
estimation though marketing research
• In previous chapter we estimate demand
through regression analysis
• Production of a good or supplying of product to
the market depends on correct estimation of
demand in case of incorrect estimation of
demand firm would decrease the profit
• Similarly excess supply of product to the market
tends to fall the price of good, and profit margin
of a firm would decline
Demand estimation through marketing
Research approach (cont….)
• We can estimate demand through the
following techniques
• Consumer surveys and observational
Research
• Consumer Clinics
• Market Experiments
Demand estimation through marketing Research approach
(cont….
•The survey conducted at a big shopping centers by trained
interviewers with sophisticated questions
•Consumers questionnaires provide useful information to
the firm
• We have a sample of questionnaires
Demand estimation through marketing Research
approach (cont….
•Do you know how much your monthly consumption of
beer would change if price of beer rose by 10%
•If your income increase by 20%
•If beer producer doubled its advertising expenditures
•If alcoholic content of beer were reduced by 1% point
•If price of competitor product (beer) reduced by 2%
Demand estimation through marketing Research
approach (cont….
•Demand estimation through marketing Research approach
(cont….)
• Through giving answer of these questions manager can
get a rough idea about the market demand
•Some time consumers are unable or unwilling to provide
accurate information
•In this case manager is not able to estimate the market
demand, so consumer survey is replace by observational
research
Observational research:
•This refers to the gathering of information on consumer
preferences by watching them buying and using goods
Demand estimation through marketing Research
approach (cont….
•However consumer survey is useful and is the
only way to obtain information about possible
consumer response
•Especially if a firm is thinking of introducing a new
product or changing the quality of an existing one
•The only way that the firm can test consumer
reaction is to directly ask them, since no other
data are available
Consumer Clinics
•Another approach to estimate demand is consumer
clinics
•
These are laboratory experiments in which the
participants are given a sum of money and asked to
spend it in a simulated stores to see the react , but
•change the price of product in different stores
•Different product packing in different stores
•Different product displays in different stores
•Different price of competing product in different
stores etc
•Participants have the incentive to purchase the
commodities they want the most
•This method is more realistic than consumer survey,
because in this method we are observing the actual market
behavior
Shortcomings of this method
•The results are questionable because participants know
that they are in an artificial situation and that they are being
observed
•Sot they are not likely to act normally
•The sample of participants must necessarily small
because of the high cost of running the experiment
•Inference or results from small sample are dangerous
•Market Experiments
•Market experiments are conducted in the actual market
place
•There are many ways of performing market experiments
•One way is to select several markets with similar
socioeconomic characteristics
Change the commodity price in some markets or stores
Packing in other markets or stores
The type and amount of promotion in still other markets and
stores
Then record the response (purchase) of consumers in the
different markets
By using census data or survey for various markets, a firm
can also determine the effect of age ,sex, level of education,
income, family size and so forth on demand for the
commodity
•Advantages of this method
•We can ensure the validity of the results by conducting on a large scale
•Consumers act /behavior is normal as consumers are not aware that they are
part of an experiment
•
•Disadvantages of this method:
•In order to keep costs down, the experiment is likely to be conducted on
too limited a scale
•The experiment is conducted for short period of time
•So inference or results about entire market and or more extended period
of time are questionable
•Irregular factors such as strike or bad weather seriously effect the result
•Demand estimation through marketing Research approach (cont….)
Demand estimation through marketing
Research approach (cont….)
• Competitors could try to sabotage the
experiment by changing prices and other
determinants of demand under their control
• Competitors also monitor the experiment and
gain useful information that the firm would prefer
not to disclose
• Firm might permanently lose customers in the
process of raising prices in the market where it is
experimenting with a high price