Chapter 3 – Collecting Information and Forecasting Demand
I.  Chapter Overview/Objectives/Outline
A. Overview
Knowledge of various forms of marketing information and the marketing environment are critical elements in effective marketing management and strategy. The transition from a marketing focus on buyer needs to buyer wants, and the transition from price to non-price competition are important aspects of this process. Most successful firms operate with some form of marketing information system and evaluation of the marketing environment, but the system varies greatly with the size and level of sophistication. In many cases, information is not readily available, comes too late, or cannot be trusted. Many companies are learning in the challenging environment of the 21st century that they lack an appropriate information system, lack access to appropriate information, or they do not know what information they lack or need to know to compete effectively.
A well-designed market information and marketing environment assessment system consists of four sub-systems. The first is the internal records system, which provides current data on sales, costs, inventories, cash flows, and accounts receivable and payable. Many companies have developed advanced computer-based internal report systems to allow for speedier and more comprehensive information.
The second market information subsystem is the marketing intelligence system, supplying marketing managers with everyday information about developments in the external marketing environment. Here a well-trained sales force, detailed awareness of activities in the distribution channel, competitive intelligence, purchased data from syndicated sources, and development of a corporate marketing intelligence office to provide information throughout the firm will enhance the firm’s marketing efforts.
The third subsystem, marketing research, involves collecting information that is relevant to specific marketing problems facing the company. The scientific method, creativity, multiple methodologies, model building, and cost/benefit measures of the value of effective decision-making information characterize good marketing research. The marketing research process generally consists of six steps: defining the problem and research objectives; developing the research plan; collecting information; analyzing the information; presenting the findings; and making a decision based on the research.
The fourth system in the research process is the marketing decision support system (MDSS).  The MDSS consists of statistical and decision tools to assist marketing managers in making better decisions. MDSS is a coordinated collection of data, systems, tools, and techniques with supporting software and hardware. Using MDSS software and decision models, the organization gathers and interprets relevant information from the business and the environment and turns it into a basis for marketing action. MDSS experts use descriptive or decision models, and verbal, graphical, or mathematical models, to perform analysis on a wide variety of marketing problems. 
To carry out their responsibilities, marketing managers need estimates of current and future demand. Quantitative measurements are essential for market opportunity, planning mar¬keting programs, and controlling the marketing effort.  The firm prepares several types of demand estimates, depending in the level of product aggregation, the time dimension, and the space dimension.
A market consists of the set of actual and potential consumers and the market offer. The size of the market depends on how many people have interest, income, and access to the market offer. Marketers also must know how to distinguish between the potential market, available market, qualified available market, served market, and the penetrated market. Marketers must also distinguish between market demand and company demand, and within these parameters, also to distinguish between potentials and forecasts. Market demand is a function, not a single number, and as such is highly dependent on the level of other variables.
A major marketing research task is to estimate current demand. Total demand can be estimated through the chain ratio method, which involves multiplying a base number by successive percentages. Area market demand is estimated by the market-buildup method (for business markets) and the multiple-factor index method (for consumer markets). In the latter case, geodemographic coding systems are proving a boon to marketers. Estimating industry sales requires identifying the relevant competitors and estimating their individual sales, in order to judge their relative performance.
To estimate future demand, the firm can use several major forecasting methods: expert opinion, market tests, time-series analysis, and statistical demand analysis. The appropriate method will vary with the purpose of the forecast, the type of product, and the availability and reliability of data.
Change in the macro environment is a primary basis for market opportunity. Organizations and firms must start the search for opportunities and possible threats with their macro environment. The macro environment consists of all the actors and forces that affect the organization’s operations and performance. They need to understand the trends and mega trends characterizing the current macro environment.  This is critical to identify and respond to unmet needs and trends in the marketplace.
The macro environment consists of six major forces: demographic, economic, natural, technological, political/legal, and social/cultural. The demographic environment shows a worldwide explosive population growth; a changing age, ethnic, and educational mix; new types of households; geographical shifts in population; and the splintering of a mass market into micro-markets. The economic environment shows an emphasis on global income distribution issues, low savings, and high debt, and changing consumer-expenditure patterns. The natural environment shows potential shortages of certain raw materials, unstable cost of energy, increased pollution levels, and the changing role of governments in environmental protection.
The technological environment exhibits accelerating technological change, unlimited opportunities for innovation, varying R&D budgets, and increased regulation of technological change. The political/legal environment shows substantial business regulation and the growth of special interest groups. The social/cultural environment shows individuals are changing their views of themselves, others, and the world around them. Despite this, there is a continuing trend toward self-fulfillment, immediate gratification, and secularism. Also of interest to marketers is the high persistence of core cultural values, the existence of subcultures, and rapidly changing secondary cultural values.
B. Learning Objectives
• Understand demand measurement terminology.
• Know the methods of estimating current demand.
• Know the methods of estimating future demand.
• Understand some of the major forces impacting an organization or firm’s macro environment.
• Know the major trends influencing marketing decisions in the macro environment.
C. Outline
I. Introduction
A. Considerable expansion of detailed buyer wants, preferences, and behavior, in real-time mode, but still many gaps
B. Shifts in the environment (global) and growing non-price competition, along with technology, forcing many changes
C. Information needs changing rapidly and requires equally rapid knowledge of what works and does not work with consumers
II. Marketing Information, Intelligence, and Research - The more information the firm has available, the better the opportunity to gain and hold competitive advantage. This requires an MIS (Marketing Information System)
A. Internal Records and Database Systems
1. The Order-to-Payment Cycle - The heart of the internal records system
2. Sales Information Systems - Technology has allowed sales reps to have immediate access to information about their prospects and customers. Salesforce.com is one of the most popular software tools.
3. Marketing databases facilitate datamining efforts which provide customer and prospect insights.
a) Data-warehouse usually contains all customer and prospect data, all marketing mix information by time periods, competitive information, macro environment data and other relevant information. Design strategy is to hold all data. Retrieval is not easy. Data extracts from Data-warehouse are input to Data Marts.
b) Operational Data stores are databases designed for quick read/write access but hold limited information, ie.e information necessary for customer interaction as well as channel interaction. Feeds updates to Data-warehouse
c) Data Marts are subsets of the Data-warehouse. Marketers use specific software to access Data Marts. But data mart can be as simple as an Excel Spreadsheet. Most data-mining efforts acces Data Marts
B. Marketing Intelligence
1. A set of procedures for managers to obtain everyday information about pertinent developments in the marketing environment
2. Internal records systems supplies “results” data, and the marketing intelligence system supplies “happenings” data 
3. Steps for improving marketing intelligence (refer to table 3.1): 
a) Train sales force to observe and report new developments
b) Motivate channel members and others to share intelligence
c) Network externally to collect intelligence on competitors
d) Develop customer advisory panels
e) Purchase information from outside suppliers
f) Gather customer feedback on competition
III. Marketing Research System 
A. Marketing Research
1. Defined - Systematic design, collection, analysis, and reporting of data and findings relevant to a specific marketing situation facing the company
2. Suppliers of Marketing Research - Can be achieved through an in-house department, an outside marketing research firm, or a variety of other cost efficient ways. Increasing amounts of information available via the Internet
B. The marketing research process (6 steps defined in Figure 3.1)
1. Step 1 -Define the problem and research objectives
2. Step 2 - Developing the Research Plan - Decisions on data sources, research approaches, research instruments, sampling plan, and contact methods
a) Data sources - primary and secondary data
b) Research approaches
(1) Observational
(2) Focus groups
(3) Survey research
(4) Analyze customer behavioral data – transaction data provides the most accurate information on customer behavior
(5) Experimental research p- capture cause and effect
c) Research instruments
(1) Questionnaires
(2) Qualitative measures
(3) Technical  devices – e.g. galvanometers, neuromarketing
d) Sampling plan
(1) Sampling unit - who is to be surveyed?
(2) Sample size
(3) Sampling procedure – method of chosing respondents
e) Contact methods - mail, telephone, personal, online (refer to table 3.2)
3. Step 3 - Collect the Information - Phase most expensive and prone to error
4. Step 4 - Analyze the Information - extract pertinent findings from the collected data
5. Step 5 - Present the Findings - pertinent to the major marketing decisions facing management
6. Step 6 - Make the decision.
IV. Forecasting and Demand Measurement
A. Which market to measure? - potential market, available market, target market (served), penetrated market
B. Market Demand Function
1. Market demand – a function of stated conditions (refer to Figure 3.2a)
2. Market minimum and potential
a) Expansible (much affected by level of industry marketing spending), nonexpansible (not much affected by the level of industry market spending) Also refer to market demand function curves in Figure 3.2a
b) Primary demand, selective demand (market share)
c) Market forecast
d) Market potential (refer to market demand function in figure 3.2b)
     3.         Company demand and sales forecast
  a).  Sales forecast - expected level of sales based on plan and
      environment
  b)  Sales quota - sales goals set for product line, specific business
       entity
  c)  Sales budget - conservative sales representative estimate of expected
       sales volume to be used for making current purchasing, production
       and cash flow decisions
  d)  Company sales potential – sales limit approached by the company
       demand as company marketing effort increases relative to that of
       competitors 
C.      Estimating current demand
1.         Total market potential – maximum sales available to all firms for a
            specific period of time, under a a given level of industry marketing effort
            and environmental conditions.
2.         Area market potential
            a).          Market-buildup method (B-to-B markets)
            b).          Multiple-factor index method  (consumer markets)
3.       Industry Sales and Market Shares – evaluate performance against industry
D.      Estimating future demand
1.         Three stages of forecasting
2.         Macroeconomic forecast, industry forecast, company sales forecast
3.         Sales forecast based on company assumption of market share
           Methods: survey of buyers’ intentions, composite of sales-force opinion;
           expert opinion; past-sales analysis; market test method (Table 3.3)
V. Macro environmental Trends and Forces
A. Introduction - identify trends (sequence of events with momentum and durablility) and fads (unpredictable and short lived occurrences) in macroenvironment. Refer to table 3.4 for a Global Profile of Extremes
B. Demographic environment
1. Worldwide population growth – source of concern for two reasons
a) Resources are required to support vast growth
b) Growth is highest in areas that can least afford it
c) Refer to Marketing Insight “Finding gold at the Bottom of the Pyramid”
2. Population age mix - a strong determinant of needs. Cohorts are groups of individuals born in the same time period who share experiences which influence their values, preferences and buying behavior.
3. Diversity within markets - each ethnic population group has specific wants and buying habits. Diversity goes beyond ethnc groups, e.g. disability.
4. Educational groups - from illiterates to those with professional degrees
5. Household patterns - traditional household is no longer the dominant pattern. Non-traditional households are growing quickly and have special needs
 C.        Economic Environment
       1.         Consumer Psychology – identify consumer spending patterns
2.         Income distribution - four types of industrial structures
a) Subsistence economies - few marketing opportunities
a) Raw-material exporting economies
b) Industrializing economies - new rich class and growing middle class
c) Industrial economies - rich markets
            Five different income distribution patterns
a) Very low incomes
b) Mostly low incomes
c) Very low and very high incomes
d) Low, medium, high incomes
e) Mostly medium incomes
3. Income, Savings, Debt, and Credibility –
 a)         high debt-to-income ratio for U.S. consumers
            b)         Off shore outsourcing is contributing to U.S. unemployment and pressure for skill re-training or career changes

D.     Social-cultural environment - society shapes beliefs, values, and norms
1. People have views of themselves, others, organizations, society, nature, and the universe
2. High persistence of core values
a)  Core beliefs and values passed on from parents to children and
 reinforced by social institutions (difficult for marketers to change)
b)  Secondary beliefs more open to change by marketers
3. Existence of subcultures - Shifts of secondary cultural values through time
E.    Natural Environment - current deterioration is a major global concern and corporations recognize the importance and incorporate environmental issues into their strategic plans. Four environmental trends:
1. Resources are either infinite, finite renewable or finite nonrenewable. The latter provides opportunities for firms to create substitutes
2. Corporations are being forced to view alternative operational and manufacturing strategies in lieu of diminishing resources
3. Anti-pollution pressures requiring altrernative production and packaging strategies including emerging reverse value chain oportunities of recycling and disposal
4. Governments pressured by citizens shortage to take active role but face financial pressures.
5. Many companies adopting a “green” strategy in which they publicize their environmental conservation efforts.
D.     Technological environment
1. Accelerating pace of technological change
2. Unlimited opportunities for innovation
3. Varying R&D budgets
4. Increased regulation of technological change
E.    Political environment
1. Increase in business legislation (EU has been very progressive and a leader in protecting the consumer and the environment. The U.S. has formal policies and structures in place to do the same.)
            a)    protect firms from unfair competition
            b)   protect consumers from unfair business practices
            c)   protect society from unbridled business behavior
2. Growth of special-interest groups (PACs, increased general public pressure via Blogs). Recently major pressure from Privacy advocates

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