What Is the Estimated Market Potential for the Concept?
One of the crucial pieces of information needed at this stage of development is the products’ estimated market potential. Without sufficient market potential there is little likelihood that the new product will succeed. “Sufficient” market potential is a relative concept—smaller banks may require less potential for a successful introduction than their larger counterparts. However, whatever the size of the bank, an estimate of market potential is extremely important at this point.
Market potential may be defined in either dollar amounts or units of products. Both can provide key information to the planner. Market potential is typically considered to be the total amount (in dollars or units) of product that could be sold in a given market for a given period of time if everyone who would buy one did indeed buy one. Put another way, market potential is the limit of market demand, considering that the marketing efforts of all banks in a geographic market for a specific period of time go to infinity. Market potential estimates are closely related to the definition of a market. A market is composed of people with the ability to buy and the willingness to buy. This definition actually provides a systematic method for estimating market potential. First, estimate the number of individuals or households, or whatever demographic unit is appropriate. Then eliminate all those whose incomes would preclude them from buying and then all those who indicate no inclination to buy. The remaining figure will represent an estimated percentage of those people who have both the ability and the willingness to buy the concept—in short, the potential for that product market.
Another way of calculating market potential for a new product is to consider market potential to be a range of possible estimates. These ranges can vary from a worse-case scenario to a best-case scenario and include a most likely estimate. The value of treating marketing potential as a range instead of an exact figure is that it allows the planner to consider several different possible situations.
Market potential estimates can be calculated by taking the percentage of positive responses to a question such as:
Do you intend to buy the new asset management account within the next six months?
Yes ____________ No ____________ Don’t Know ____________
This percentage is then multiplied by the number of households that comprise the targeted market (s) for the proposed new product in the given market area. This figure tells us the total number of households intending to purchase the new asset management account within the next six months. This is our most likely estimate. By placing confidence limits around this estimate, best-case and worse-case scenarios are identified and a range of potential can be extrapolated.
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