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Principles of Marketing

Measuring and Forecasting Market Demand

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If you have a new product idea in mind and you are intent on putting together a business to bring it to the market, then one of the first things that you need to know is how big your potential market would be. If you overestimate the market size, then you may end up investing far too much into your production and inventory capacity, leading you to lose money on your investment.

On the other hand, if you underestimate the market size, then you may end up being stuck with a limited capacity that will not service the volume of demand, leading you to lose out on the growth opportunity and, at worst, having some other business steal your potential market away from you. This is why a careful estimate of the potential market size can be crucial for ensuring success.

But let us start with the bad news. There is no way for us to predict the future with 100 percent accuracy (and if ever you do, then that is just pure luck!). Nobody can truly predict the future, especially for products that have yet to be launched. Below are some examples of predictions that were not accurate.

  • “The horse is here to stay but the automobile is only a novelty,” said an investment banker in 1903 when asked about the viability of investing in the Ford Motor Company.
  • “Television won’t last. It’s a flash in the pan,” said Mary Somerville, a pioneer of radio broadcasting, in 1948.
  • “There is no reason anyone would want a computer in their home,” said Ken Olsen, head of business computer firm Digital Equipment Corporation, in 1977. In that same year, the Apple II computer was launched, heralding the phenomenal rise of home computing. (Business Insider 2012)

The fact is, predicting the future is purely an exercise in guesswork. Therefore, properly forecasting demand for a new product will actually be a matter of making one’s guess as objective, as educated, and as scientific as possible.

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