Entrepreneur's Handbook
DEMAND ESTIMATION
As stated above, the measurement of market opportunities depends largely on revealing the market potential. These activities, which are called demand estimation, are of critical importance especially in the early stages of the business. Through demand estimation, the entrepreneur measures the level of sales in a given time period. The entrepreneur will also be able to calculate the size of the opportunity, estimated growth rate, profitability and efficiency through estimating the business demand.
Demand estimation studies are one of the necessary activities for every business. However, it is particularly important as the amount of demand stands at the center of the important decisions to be made in the first years of the enterprise. Because critical decisions such as in what capacity the entrepreneur will establish a business before the enterprise is established, and how big a target audience will be served can only be reached after demand estimation is made. Since the estimation purposes of businesses differ, the methods developed in this regard are very diverse. For example, there are many mathematical (quantitative) methods that an enterprise operating for twenty years can use while estimating its future demand by taking into account past sales data. However, for a beginning entrepreneur, all these methods are not useful as there is no available data. For this reason, the methods that can be used by entrepreneurs at the beginning stage are examined.
The first of these methods is market tests used to determine the market potential of new products. (Uzkurt, 2012). This method is especially recommended for products that have significant differences from existing products. The main reason for this is to reveal the potential demand of the product on the one hand, and to plan potential improvements in the product by taking user reviews of the product on the other. Collecting user reviews is as important as demand estimation, as the product has not been in the market before. In market tests, the product is used by potential customers in the laboratory environment or at the point of consumption. User experiences before, during and after use are taken and evaluated. Testing a limited number of features of the product in market tests is important in order not to make a research error. For example, while trying to determine what is the best price for the product with product market testing, trying to test product features may lead to erroneous results. Therefore, the test setup should be done well. Recently, many services have started to be offered on the Internet regarding market tests. For example, the Fikrimuhim.com website provides evaluation services to companies that want to get user experience with their product. An estimation can be made on the information such as user profile and satisfaction, product usage frequency, product amount as a result of these tests.
Apart from market tests, judicial estimation method is frequently used in newly established businesses. In the judicial estimation method, which is the oldest and fastest estimation method, the opinions of people with experience and expertise in the sector are used. Here, estimation is made by taking sales potential estimates for existing or new products from experts in line with the developments in the sector. This method can be useful in the absence of available data, just like in market testing. It is also used extensively because it produces fast and easy data. However, the experience and expertise of the participants are of great importance as its functioning is based on personal evaluations (Perreault, Cannon and Joreme, 2013).
Besides the judicial estimation method, consumer surveys are also methods that can be used in estimating market demand. In this method, current or potential buyers are directly asked to what extent they will purchase during the estimation period. This method is very useful, especially due to the small number of companies operating in the industrial market. However, as the number of users increases, the method will become more difficult to use. (Kerin and Hartley, 2015). In this case, it is recommended to use the purchasing power factor method. The factor method has been developed to estimate the market potential of companies operating mainly in the consumer products category. Since the number of buyers is very high here, it is very difficult to identify every possible customer and estimate the purchase amount. Therefore, the sales estimation is made by developing a factor. The factor here refers to one or more variables that affect sales. (Perreault vd. 2013). For example, if it is desired to estimate diaper sales, it is possible for the entrepreneur to calculate a market potential based on the number of babies, the birth rate and the average amount of use. For example, suppose you want to estimation demand for Izmir. According to TURKSTAT data, 2% of Turkey's population (80,810,525 people) is 0-2 years old babies and the population of İzmir is 5.37% of the country. Accordingly, the total market potential of İzmir;
İzmir province market potential will be = 80.810.725 x 0,02 x 0,0537 = 86.790.
When the number of people determined here is multiplied by the cloth price, the market potential can be easily determined as a value. Although this method is useful in the absence of reliable data, it requires developing healthy assumptions and identifying factors that may be in line with sales data. In addition, this method will not give an idea about the business demand as it includes the estimation of the region-based demand.
Using only one of the methods listed above in market measurement may result in erroneous results. As a result, estimation about the future is made in all of these methods. Especially since new entrepreneurs do not have past sales performances, there may be significant deviations in these estimation accuracy margins. For this reason, it will be useful to make the estimations based on the data as much as possible and to reach the result by using more than one method.