Market Capacity Assessment
Market capacity is an important criterion, showing the state of demand for a particular product. Market capacity can be defined as the total effective consumer demand at a given price level.
Market capacity is real and potential. The actual capacity of the market shows the actual sales volume, and the potential – the maximum with a favorable set of circumstances.
Many leading companies periodically determine the market size in order to gain a leading position. Trading companies use this parameter to increase sales, and production organizations – to optimize the production plan. Also, market capacity serves as a fundamental parameter for calculating other quantities that are no less important in the complex market analysis procedure. For example, market share, market saturation rates, etc.
There are several ways to determine market capacity.
Market capacity based on production volume
Market Capacity Assessment This group of methods for determining market capacity is based on the plans of leading manufacturers and the existing production level.
For example, a selective analysis of leading manufacturers can be carried out, which is of great value with a large number of manufacturing enterprises producing the same product. For the purposes of this method, the percentage of large, medium and small producers is calculated in percent, after which each share is multiplied by the coefficient of the sample within each category. The sum of the values obtained and is the capacity of the market.
For example, the share of large enterprises is 10%; the share of averages – 5%; the share of small – 0.1%. The coefficients of the sample are 6, 2, 1, respectively.
The market capacity will be equal to 70.01% (10% x 6 + 5% x 2 + 0.01% x 1).
Estimation of market capacity by consumption and consumption rates
This method is based on the current level of consumption and is more suitable for determining potential market capacity. When using this method, the market capacity is calculated as the result of multiplying the volume of product consumption per person, a given period of time in months and the number of people using the product. Consumption rates are determined on the basis of marketing research.
For example, the volume of consumption of goods per person is 20 kilograms per year. The number of people using the product is 500. Thus, the market capacity will be equal to 120,000 kilograms (20 x 12 x 500).
Estimation of market capacity based on sales volumes
Market Capacity Assessment When using this method, the sales volume of all trading companies for the product under investigation is taken as the base. Not less than 80% of organizations should participate in this analysis, and only the actually sold goods should be included in the calculation without taking into account stock balances and returns.
The capacity of the market will be equal to the total sales volume for the studied area or area multiplied by 12 and divided by the investigated period of time in months.
For example, the total sales volume for the study area for two years amounted to 562,600 million rubles. The market capacity will be equal to 281 300 million rubles (562600 x 12/24).
Estimation of market capacity based on nomenclature, price and advertising
This method is based on comparing the sum of all item positions with the sales volumes of the own enterprise. The same procedure applies to pricing and advertising. The result will be more accurate if the compared assortment is identical.
Capacity estimation based on comparison with previous period
This method takes as a basis the fact that the prevailing values for the previous period will be stable while maintaining the same sales conditions. In this case, the market capacity of the studied period will be equal to the market capacity of the previous period of time.