The information needed to estimate the market potential for a product in industrialized nations tends to be more readily available than in emerging markets. In fact, for the most developed markets, research agencies exist for the sole purpose of supplying market data to companies. Euromonitor (www.euromonitor.com) is one such company with an extensive global reach in consumer goods. The company sells reports and does company-specific studies for many international corporations and entrepreneurs. Some of the information in a typical industry analysis includes:
■ Names, production volumes, and market shares of the largest competitors
■ Volume of exports and imports of the product
■ Structure of the wholesale and retail distribution networks
■ Background on the market, including population figures and key social trends
■ Total expenditure on the product (and similar products) in the market
■ Retail sales volume and market prices of the product
■ Future outlook for the market and potential opportunities
The value of such information supplied by specialist agencies is readily apparent—these reports provide a quick overview of the size and structure of a nation’s market for a product. Reports vary in their cost (depending on the market and product), but many can be had for around $750 to $1,500. The company also allows online purchase of reports in small segments for as little as $20 each. We discuss other sources for this type of market data later in this chapter.
Thus companies that enter the market in industrialized countries often have a great deal of data available on that particular market. What becomes important then is the forecast for the growth or contraction of a potential market. One way of forecasting market demand is determining a product’s income elasticity—the sensitivity of demand for a product relative to changes in income. The income-elasticity coefficient for a product is calculated by dividing a percentage change in the quantity of a product demanded by a percentage change in income. A coefficient greater than 1.0 conveys an income-elastic product, or one for which demand increases more relative to an increase in income. These products tend to be discretionary purchases, such as computers, video games, jewelry, or expensive furniture—generally not considered essential items. A coefficient less than 1.0 conveys an income-inelastic product, or one for which demand increases less relative to an increase in income. These products are considered essential and include food, utilities, and beverages. To illustrate, if the income-elasticity coefficient for carbonated beverages is 0.7, the demand for carbonated beverages will increase 0.7 percent for every 1.0 percent increase in income. Conversely, if the income-elasticity coefficient for MP3 players is 1.3, the demand for MP3 players will increase 1.3 percent for every 1.0 percent increase in income.