Note on Estimating market potential, stage of estimating market potential, steps of estimating market potential and Entry strategies

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Estimating market potential

The total amount of possible sales in the market known as market potential. Estimating or assessing market potential is the process of identifying market potential or demand for products in foreign markets. It requires managers to use innovative research methods for gaining insights or data. Estimating the market or market potential for a new business or business expansion is very critical in determining the economic feasibility of a venture. Its very difficult task to indentify and select the positioning strategy.

The equation of estimating market potential is given below:


Where, MP = Market potential

N = Number of possible buyers

P = Average selling price

Q = Average annual comsumption

Stage of estimating global market

There needs two stages to be followed while estimating global market.

Estimating industry market potential:Estimating industry market potential is the analysis of overall market demand. Estimating industry market potential is an estimate of the likely sales of all the firms in the particular industry for a specific period of time. It helps international business managers analyze and assess market potential. So the firm can design its marketing mix to achieve the target goal. Some of the indicators for assessing the market potential and opportunity are

  • Gross National product
  • population
  • personal income
  • cultural factors
  • substitution of products
  • buyer's behavior

International managers can use variety of methods to estimate industrial market potential. Some of them are

  • Simple trend analysis
  • monetaring key industry specific indicators
  • monetaring key competitors
  • connecting with supplier's network
  • attending international trade fair

Estimating company sales potential: Estimating company sales potential is the estimating the sales and demand of the particular product in the foreign market. It requires the researchers to obtain highly refined market information. Some of the determinants of the company sales potential are

  • Nature of the competition
  • quality of products
  • access to distribution channel
  • firms contact and capabilities
  • firms reputation
  • quality of human resources

Steps of estimating market potential

There are the five steps of estmating market potential that are listed below:

  1. Defining the target market and market segments is the first step of estimating market potential.
  2. After that geographical boundraies of the market should be defined.
  3. Derive average expenditure of the category.
  4. Determine the average household income of the areas and state.
  5. Determine the market share.

Entering and operating in international market

Exporting and importing : Exporting is the most commonly used method for entering foreign market. It involves direct or usual marketing channel to access the fpreign market. Now, it is being supported by the internet. Exporting is a way to increase market size. It can be either direct or indirect. In direct, the company sells to a customer in another country. Exampe: export agents, marketing intermediaries etc. and indirect exporting usually means that the company sells to a buyer in the home country. Example: Trading company, piggy backing.Similarly, importing is the process of selling goods or services made in the another country in the home country. Both of them entail minimal investment and risk. Exporting and importing is a co-operative agreement or contract between different exporters and the company and company agrees to export their goods and services and take care of documentation and papers.

Collaborative ventures: Collabobratives ventures is simply collaboration of two or more firms to create their collanorative business ventures to enter in the international market. Some of the types of such ventures are

  • Strategic alliances: Strategic alliances is the collaboration of two or more firms to follow any specific strategy. There may be contractual agreement in between the companies for the co-operation on particular task such as developing new products through research and development. It may be any reationship between business entities for the purpose of achieving some strategic goals. Joint ventures are a subset of strategic alliance as they are used to purse long range strategic goals. It can minimize the political risk.
  • Joint ventures: Joint ventures is a collaborative arrangement between unrelated parties or firms which exchange or comb ine various sources while remaining separate and independent legal entities. It is also temporary patnership between two or more person without use of the firm name for limited purpose. Limited patnership expire after the completion of the venture for which it was formed. It may be of two types. They are holding equity and contractual agreement.
  • Consirtia: When more than two organizations from different countries participate then such joint venture is called the consirta. It is the process of collecting different informations, listening the risk.
  • Turnky operation: Turnky operation is the project in which a firm agrees to setup operating plant for the foreign client and hand over when the plant is fully operational. Turnky operation is mostly used in infrastructure development where foreign direct investment is prohibited.

Licensing and franchising: Licensing is arrangement whereby a company allows another company to use its brand name, trademark, technology, patent and other assets in the exchange for loyalty which is usually based on sales. It is lower risk entry mode and it permits excess to the gobal market.. Licensing works for the products. Licensee pays fees to the licensor for licensing. In it , no standards set for licensee about how to operate business. It is less cost then franchising interms of initial investment and ongoing charges. There is no close realtionship between licensor and icensee. Training and support are not so provided in case of licensing. Example: Pepsi-Cola

Similarly, Franchising is the strategy where by the franchiser gives the franchisee the right to use it's brand name and all related trademarks in return for loyalty. Franchisee agrees to abide by strict rules as to how operates the business. Franchising works best for the services. Franchisee pays royalties to franchiser for franchising. There must be strict rules or standards to be followed by the franchiser. It is costly because royalty should be paid at each profit. There is close relationship between franchiser and franchisee. Training and support provided on branding and marketing. Example: KFC

Wholly owned subsidiaries: wholly owned subsidiaries is another form of foreign investment made through which company is controlled. It is of two types. They are green field investment and acquisition. A green field investment venture involves the establishment of fully new operation in a foreign country. It is to transfer production to the location where labor is cheaper. It is difficult to execute. Face start up problems. Similarly, acquisition means acquiring operating unit from the established one in the foreign target markets. It means country of relatively bigger size acquire another established or existing company. It is easy to execute. No start up problems.


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