Key Steps in market and demand analysis and their inter relationship
INTRODUCTION Origin of the Report: Formal business report writing is a mandatory requirement of the Business Communication course of the BBA program. This report was assigned to give the students a better understanding of their studied theories and real life application of it. Project management is a very important aspect of a Business firm. It is very important to know how a new project affects financial position of the firm and whether the new project is going to give some profit or create more liability thorough a loss. That’s why this report was assigned to understand how a firm makes analysis of a new project and the products market demand. Problem & Objectives: Problem Statement: •
A report on “Market and Demand Analysis”.
Objectives of the Report: Primary Objectives: •
The primary objective of the report is to fulfill the requirement of the course Financial Market & Institutions of the BBA Program.
The secondary objective of the report is to analyze the market demand of new product and how any firm makes the analysis.
Limitations of the Report: Research work is very much comprehensive. It is an accumulation of both information and creative thinking. It requires a great effort and long sound planning to make a report. It is true that we got help from many highly qualified people. But still we faced some problem. We felt lack of experience in every stage of our work. And there was not enough time for this project. But we tried our level best to overcome this. On top of that our topic was about market and demand analysis, which is a very complex topic. In this respect, there may be some lacking in the report because of our knowledge limitation. We tried to present the data available accurately. Still there might be some problems with the presented data & our interpretation. But all these errors are totally unintentional. At the end we are very happy to present this report to the readers and its success will depend on the positive response of the readers. Methodology: Primary Data: • Primary data was collected from Bata Shoes Bangladesh. Secondary Data: • No Secondary data was gathered to prepare this report. Literature Review Introduction: Under intense pressure to improve service, create innovative new products, and speed delivery, the manufacturing sector remains one of the most competitive. Executives need to align supply, demand, and finance plans to achieve total visibility into business performance—and sustainable competitive advantage. The first step in project analysis is to estimate the potential size of the market for the product proposed to be manufactured and get an idea about the market share that is likely to be captured. Market and demand analysis is concerned with two broad issues-(1)What is the likely aggregate demand for the product? (2)What Share of the market will the proposed project enjoy? Market and demand analysis try to find out these questions. Key Steps in market and demand analysis and their inter-relationship: Given the importance of market and demand analysis, it should be carried out in an orderly and systematic manner. The key steps in such analysis are1) Situational analysis and specification of objectives, 2) Collection of secondary in formation, 3) Conduct of market survey,
4) Characterization of the market, 5) Demand forecasting, 6) Market planning. 1) Situational analysis and specification of objectives: In situational analysis, the project analyst may informally talk to customers, competitors, middlemen, and others in the industry. It may provide the basis for a formal study. And it is also necessary to spell out its objectives clearly and comprehensively. A helpful approach to spell out objectives is to structure them in the form of questions. And also bear in mind that question should be relevant to the market and demand analysis. For example, if “Bata” has developed an improved newly designed Laptop Bag manufacturing project, which will be analyzed later of the part of the report with mathematical and also in practical term, Then the CEO of the “Bata” needs information about where and how to market the new Bag. The objectives of market and demand analysis in this case may be to answer the following questions: •
Who are the buyers of the Bags?
What is the total current demand for bags?
How is the demand distributed temporally and geographically?
What is the break-up of demand for bags of different size?
What selling price should be?
How can potential customers be convinced about the superiority of the new Bags?
What is the prospect of immediate sales
2) Collection of secondary in formation: For purposes of market study, information may be obtained from two sources. These are – (1) Primary sources, (2) Secondary sources. Secondary information is information that has been gathered in some other context and is already available. Primary information, on the other hand, represents information that is collected for the first time to meet the specific purpose on hand. Secondary information provides the base and the starting points for the market and demand analysis. The important sources of secondary information useful for market and demand analysis in Bangladesh is: Bangladesh Bureau of Statistics, National sample survey reports, Plan reports, Bangladesh year book, Economic Survey, Guideline to industries, other publications. 3) Conduct of market survey: Secondary information, though useful often does not provide a comprehensive basis for market and demand analysis. Its needs to be supplemented with
primary information gathered through a market survey, specific to the project being appraised. The market survey may be a census survey or a sample survey. In a census survey the entire population is covered. Census surveys are employed principally for intermediate goods and investment goods when such goods are used by a small number of firms. In other cases a census survey is prohibitively costly and may also be infeasible. Due to above mentioned limitations of the census survey, the market survey, in practice, is typically a sample survey. In such a survey a sample of population is contacted or observed and relevant information is gathered. On the basis of such information, inferences about the population may be drawn. The information sought in a market survey may relate to one or more of the followings: •
Total demand and rate of growth of demand
Demand in different segments of the market
Income and price elasticity of demand
Motives for buying
Purchasing plans and intentions
Satisfaction with existing products
Attitudes toward various products
Socio-economic Characteristics of buyers
Steps in Sample survey: Typically a sample survey consists of the followings steps: a) Define the target population: The target population may be divided into various segments which may have differing characteristics. For example, all television owners may be divided into three income bracket. b) Select the Sampling Scheme and Sample Size: There are several sampling schemes: Simple random sampling, cluster sampling, sequential sampling, Stratified sampling, systematic sampling and no-probability sampling. The sample size, other things being equal, has a bearing on the reliability of the estimates the large the sample size, the greater the reliability. c) Develop the questionnaire: The questionnaire is the principle instrument for eliciting information from the sample of respondents. Developing the
questionnaire requires a thorough understanding of the product/service and its usage, immigration, insights into human behavior, appreciation of subtle linguistic nuances, and familiarity with the tools of descriptive and inferential statistics to be used later for analysis. Since the quality of the questionnaire has an important bearing on the results of market survey, the questionnaires should be tried out in a pilot survey and modified in the light of problems/difficulties noted. d) Recruit and train the field investigators: Recruiting and training of field investigators must be planned well since it can be time-consuming. Great care must be taken for recruiting the right kind of investigators and imparting the proper kind of training to them. Investigators involved in industry and trade market survey need intimate knowledge of the product and technical background particularly for products based on sophisticated technology. e) Obtain information as per questionnaire from the sample of respondents: Respondent may be interviewed personally, telephonically, or by e-mail or snailmail for obtaining information. f) Scrutinize the information Gathered: Information gathered should be thoroughly scrutinized to eliminate data which are internally inconsistent and which are of dubiously validity. g) Analyze and interpret the information: Information gathered in the survey needs to be analyzed and interpreted with care and imagination. After tabulating it as per a plan of analysis, suitable statistical investigation may be conducted whatever possible and necessary. For purposes of statistical analysis, a variety of methods are available. They may be divided into two broad categories: parametric methods and non- parametric methods. Parametric methods assume that the variable or attribute under study conforms to some known distribution. Nonparametric methods do not presuppose any particular distribution. 4) Characterization of the market: Based on information gathered from secondary sources and through the market survey, the market for the product /service may be described in terms of the followings: a) b) c) d) e) f)
Effective demand in the past and present Breakdown of demand Methods of distribution and sales promotion Consumers Supply and competition Government policy
5) Demand forecasting: After gathering information about various aspects of the market and demand from primary and secondary sources, an attempt may be made to estimate future
demand. A wide range of forecasting methods are available to the market .These may be classified into three broad categories. a) Qualitative method: These methods rely essentially on the judgment of experts to translate qualitative information into quantitative estimates. The important qualitative methods are: i. ii.
Jury of executive method, Delphi method.
b) Time series projection methods: These methods generate forecasts on the basis of an analysis of the historical time series. The important time series projection methods are: i. ii. iii.
Trend projection method Exponential smoothing average method Moving average method
c) Causal methods: More analytical than the preceding methods, causal methods seek to develop forecasts on the basis of cause-effect relationships specified in an explicit, Quantitative manner. The important causal methods are: i. ii. iii. iv. v. vi.
Chain ratio method Consumption level method End use method Bass diffusion method Leading indicator method Econometric method
Jury of executive method: This method, which is very popular in practice, involves soliciting the opinions of a group of managers on expected future sales and combining them into a sales estimate. Advantages:
1) Expeditious method for developing a demand forecast. 2) Consider variety of factors like economic climate Competitive environment, consumer preferences, 3) Expertise can be used here.
1) The biases underlying subjective estimates cannot be unearthed easily, 2) The reliability of this technique is questionable.
Delphi method: This method is used for eliciting the options of a group of experts with the help of a mail survey. The steps involved in this method are: 1) A group of experts sent a questionnaire by mail and asked to express their views,
2) The responses received from the experts are summarized without disclosing the identity of the experts ,and sent back to the experts, along with a questionnaire meant to prove further the reasons for extreme views expressed in the first round, 3) The process may be continued for one or more rounds till a reasonable agreement emerges in the views of the experts. Reasons for this method: 1) It is intelligible to users, 2) It has fancy name, 3) It seems to be more accurate and less expensive, Trend projection method: The trend projection method involves- 1) determining the trend of consumption by analyzing past consumption statistics and 2) projecting future consumption by extrapolating the trend. Here the linear relationship is: Yt = a + bT Where Yt is the demand for year t, t is the time variable, a is the intercept of the relationship, and b is the slope relationship. The parameters, a and b, of the linear relationship is estimated with the help of the following equations: ∑TY–nTY b= ∑T2–nT2 a=
Y – bT
The advantages of the least squares method are: 1) It uses all the observations, 2) The straight line derived by an objective, Statistical procedure 3) A measure of goodness of fit is available. The advantages of the least squares method are: 1) The method is somewhat more complicated than the methods discussed earlier, 2) The results of such an analysis are valid only when certain conditions are satisfied. Exponential smoothing average method: In Exponential smoothing, forecasts are modified in the light of observed errors. If the forecast value for year t, Ft, is less than the actual value
for year t, St, the for the year t+1, Ft+1, is set higher than Ft. If Ft>St,Ft+1 is set lower than Ft. In general Ft+1= Ft+αet Where Ft+1 is the forecast for year t+1, α is the smoothing parameter and et is the error in the forecast for year t= St- Ft. The mean squared error is defined asΣ (Si-Fi) ^2/n Where Si is actual value of sales in period i, Fi is forecast value of sales in period t, and n is number of periods in the “warm-up” sample. Moving average Method: As per the moving average method of sales forecasting, the forecast for the next period is equal to the average of the sales for several preceding periods. In symbols, Ft+1= (St+ St-1+........+ St-n+1)/n Where Ft+1, is the forecast for the next period, St is the sales for the current period, and n is the period over which averaging is done. Chain ratio method: The Chain ratio method uses a simple analytical approach to demand estimation. However, its reliability is critically dependent on the ratios and rates of usage used in the process of determining the sales potential. While some of these ratios and rates of usage may be based on objective proportions, others will have to be subjectivity defined. Consumption level method: Useful for a product which is directly consumed, this method estimates consumption level on the basis of elasticity coefficients, the important ones being the income elasticity of demand and the price elasticity of demand. Income elasticity of Demand: The income elasticity of demand reflects the responsiveness of demand to variations in income. It measured as follows: EI=Q2-Q1/I2-I1 × I1+I2/Q1+Q2 Price elasticity of demand: The price elasticity of demand measures the responsiveness of demand to variations in price. It is defined as: EP= Q2-Q1/P2-P1 × P1+P2/Q1+Q2 Where, Ei and Ep is the income elasticity of demand and price elasticity of demand respectively. Q1 is the quantity demanded in the base year, Q2 is the quantity demanded in the following year, I2 is the income level in the base year, I2 is the income level in the
following year, P1 is the price level in the base year and P2 is the price level in the following year. Bata o The Bata Shoe Organization was founded in 1894 by Czech businessman Tomas Bata in the city of Zlin, what was then Czechoslovakia. Coming from a family of shoemakers with a long heritage of eight generations and over three hundred years, Tomas Bata capitalized on knowledge, expertise and skills to propel his newly founded company forward. The introduction of factory automation, long distance retailing and modernized shoe making ensured the profitability of the company from the very beginning. It is now the world’s largest manufacturer and marketer of footwear operating across the globe. o Today the Bata Shoe Organization is a sprawling geo-centric company encompassing operations in more than 70 countries around the world and is managed by 4 regional commercial business units (CBUs) across five continents. It serves 1 million customers per day, employs more than 50,000 people, operates 5,000 retail outlets, manages a retail presence in over 70 countries and runs 27 production facilities across 20 countries. o In Bangladesh, Bata started its operation in 1962. The company is one of the largest tax–paying corporate bodies contributing Tk. 1.2 billion (year 2009) which represents approximately 70% of tax paid by the entire footwear sector of Bangladesh. Currently Bata Shoe Company (Bangladesh) Limited operates two manufacturing facilities – one in Tongi and the other in Dhamrai. With a production capacity of 110,000 pairs of shoes daily, the company also has a modern tannery facility with an output of 5 million square feet of leather annually. Annual shoe sales currently stands at slightly more than 30 million pairs with a turnover for the year 2009 of Tk 5 billion o Bata is playing a pivotal role in developing the leather industry of the country. Bata has a firm commitment to eco-friendly business and a state of the art Effluent Treatment Plant (ETP) has been set up to provide a pollution free environment for both workers and the locality. o Fashion would never be complete without a well designed pair of shoes. This marketing insight has prompted Bata to introduce a number of designers’ collections for men, women and children. Internationally renowned brands such as Bata Comfit, Marie Claire, Hush Puppies, Scholl, Nike, Bubblegummers, Sandak, Weinbrenner and B’first are a few names that testify to the momentous change towards branded shoe marketing in Bangladesh. Specialized shoe categories such as athletic shoes have been targeted through development of the Power brand. Uncompromising quality with striking designs have put Bata shoes in a key position to appeal to different segments of consumers. o Another major change in the Bata business policy is the segmentation of retail outlets according to profiles of different market segments and the introduction of novel concepts such as Bata City Stores. These selective outlets, in conjunction with other types of outlets such as Bata Bazar and Bata Family Stores, are adding a new level of consumer satisfaction. The City Stores incorporate spacious floor space allowing a
comfortable shopping experience, modern interior décor enriched with novel shelving systems, fittings, fixtures and lighting that can be found in the large retail shops in the Far East and Europe. Bata has a network of 242 retail outlets located strategically in different parts of the country. These retail outlets are an integral part of our brand marketing. This extensive retail network is supplemented by an equally extensive network of depots and dealers. Bata has 13 Wholesale depots covering Bangladesh. Under these depots 390 RWD (Registered Wholesale Dealers) and 553 DSP (Dealer Support Program) stores are operating. Bata Bangladesh has already developed its vision up to 2013 showing significant business growth as well as increased market share. o One of the critical areas associated with external shareholders and the community at large is the Corporate Social Responsibility Program of the company. From supporting nationwide sports sponsorships and disabled persons to addressing environmental concerns, scholarship programs, charity contributions etc – Bata has always supported individuals and communities in need. Partnerships with other voluntary and charitable organizations are another prominent feature of Bata’s corporate social responsibility. Bata, in partnership with CARE, extends assistance to over two thousand rural women in order to become independent entrepreneurs in the Rajshahi, Comilla and Chittagong division selling shoes from door to door under its Rural Sales Programme. o Since its inception, Bata Shoe Company (Bangladesh) Ltd. has strived towards one goal – customer satisfaction. With the vision of building a worldwide family of satisfied customers and dedicated workers the legacy of Tomas Bata continues strong and unabated to this day – the tradition is safe. Bata shoes have been time tested to be the most reliable in durability and accessibility. They care for clients across the board with a wide range of styles at reasonable prices.
Made from ejected PVC,mailnly protective wear for ladies, gents and children market.
Bubblegummers is the leading children's footwear brand in Latin America and has development an extensive presence in Asia and in Europe. Bubblegummers offers good quality, comfortable, funny and colorful shoes for the 0 to 9 olds that assure the healthy growth of a child's foot.
New range of self design shoes with combination of vibrant colored material upper with self branded outsole. Suggested retail price RM11.99-59.99. POP Material to feature the latest designs. Bubblegummers also carry a wide range of accessories:-e.g.: Full range of casual bag, school bag, stationary and others. Also complimented with non BBG BRAND accessories. Namely featuring latest cartoon theme accessories.
Marie Claire shoes are for women with an active lifestyle who seek contemporary modern styles, Marie Claire shoe stores successfully opened in Latin America and Asia. Bata Brands is the trademark owner of Marie Claire for shoes worldwide (except in Japan and Korea).
The Weinbrenner line is made up of leather shoes and boots, low, mid and high cut. Cuts or design are dictated by fashion, but can include Goodyear welt construction, rugged moccasin and other strongly outdoor associated cuts but always in casual style. Closure generally with laces and eyelets, sometimes supplemented with hooks, D-rings and straps with buckles. Colors will be of natural tones including black, brown, cafe© and burgundy. “Outdoors is Yours” is a tagline commonly used.
Power embodies diversity with ranges in running, training, court, basketball, football and Outdoor that combines function with creativity. To enhance the different categories there is also a range of young, casual and trendy collection of shoes. The range that has technical features and functions to boast the Power image is the badminton and court collections. Bata Today • •
Serves 1 million customers per day Employs more than 50,000 people
Operates 5000 retail stores
Manages a retail presence in over 70 countries
Runs 27 production facilities across 20 countries
Recently Bata has introduced some new products under this product line. These products have some special qualities like double stitching, molded and massage insole, latex foam insole, soft textile or cambrelle lining will be used to emphasize the brand image of both comfort and style. Unit rubber, PVC, PU or TPR sole are commonly used. “Get Comfortable Today” is a tagline commonly associated with these range of shoes. Before getting this product in the market Bata bas conducted several analyses and then forecasted a market demand. As this data and information are very confidential, they didn’t provide us any data. Here, we used all assumed data for our calculation purpose. Trend projection method: T
∑ T = 105
∑ Y = 48,500
T = 7.5
Y = 3,464
∑ T 2 = 1,015
∑ TY = 421,600
Exponential smoothing average method In exponential smoothing the forecast for t + 1 is Ft + 1 = Ft + α et
Where Ft + 1 = forecast for year) et
= smoothing parameter
= error in the forecast for year t = St = Ft
F1 is given to be 2100 and α is given to be 0.3 The forecasts for periods 2 to 14 are calculated below: Period t
Forecast for t + 1
(et St =Ft)
(Ft + 1 = Ft + α et)
F2 = 2100 + 0.3 (-100) = 2070
F3 = 2070 + 0.3(130) = 2109
F4 = 2109 + 0.3 (-9) = 2111.7
F5 = 2111.7 + 0.3(188.3) = 2168.19
F6 = 2168.19 + 0.3(331.81) = 2267.7
F7 = 2267.7 + 0.3(9332.3) = 2547.4
F8 = 2547.4 + 0.3(1052.6) = 2863.2
F9 = 2863.2 + 0.3(1136.8) = 3204.24
F10 = 33204.24 + 0.3(695.76) = 3413.0
F11 = 3413.0 + 0.3(587) = 3589.1
F12 = 3589.1 + 0.3(610.9) = 3773.4
F13 = 3772.4 + 0.3(527.6) = 3930.7
F14 = 3930.7 + 0.3(969.3) = 4221.5
421,600 – 14 x 7.5 x 3,464 =
1,015 – 14 x 7.5 x 7.5
= 254 227.5
a = Y – bT = 3,464 – 254 (7.5) = 1,559 Thus linear regression is Y = 1,559 + 254 T Moving average method: St + S t – 1 +…+ S t – n +1 Ft + 1 = n Where Ft + 1 = forecast for the next period St = sales for the current period n
= period over which averaging is done
Given n = 3, the forecasts for the period 4 to 14 are given below: Period t
Forecast for t + 1 Ft + 1 = (St+ S t – 1 + S t – 2)/ 3
F4 = (2000 + 2200 + 2100)/3 = 2100
F5 =(2200 + 2100 + 2300)/3= 2200
F6 = (2100 + 2300 + 2500)/3 = 2300
F7 = (2300 + 2500 + 3200)/3= 2667
F8 = (2500 + 3200 + 3600)/3 = 3100
F9 = (3200 + 3600 + 4000)/3 = 3600
F10 = (3600 + 4000 + 3900)/3 = 3833
F11 = (4000 + 3900 + 4000)/3 =3967
F12 =(3900 + 4000 + 4200)/3 = 4033
F13 = (4000 + 4200 + 4300)/3 = 4167
F14 = (4200 + 4300 + 4900) = 4467
Income Elasticity of Demand: Q1 = 60 Q2 = 70 I1 = 1000 I2 = 1200 Q1 – Q2 Income Elasticity of Demand E1 =
x I2 - I1
E1 = Income Elasticity of Demand Q1 = Quantity demanded in the base year Q2 = Quantity demanded in the following year I1 = Income level in base year I2 = Income level in the following year 70 – 60
I1 + I2
1000 + 1200
Q2 – Q1
x 1200 – 1000
70 + 60
22000 E1 =
= 0.846 26000
Price Elasticity of Demand: P1 = Rs.40 P2 = Rs.50 Q1 = 1, 00,000 Q2 = 95,000 Q2 – Q1 Price Elasticity of Demand = Ep =
P1 + P2
x P2 –P1 Q2 + Q1
P1, Q1 = Price per unit and quantity demanded in the base year P2, Q2 = Price per unit and quantity demanded in the following year Ep = Price Elasticity of Demand
95000 - 100000 Ep =
40 + 50 x
50 - 40
95000 + 100000
- 45 Ep =
= - 0.0231 1950
By applying the above procedures Bata Shoe Bangladesh has determined the Demand of their new Product. Here to mention that, this data are assumed, not actual.
Conclusion Bata Shoe Bangladesh is the largest manufacturer and marketer of footwear operating across the country. Last year it has paid the highest tax. We have contacted with them to know about their whole procedure. But as this information are very confidential, they only provided us the given data and procedure. They have conducted some of the mentioned procedure and estimated the market demand. After this forecasting, they have produced the products and bring it into the market.