Page 158 - DMGT521_PROJECT_MANAGEMENT

Unit 9: Financial Estimates and Projections

Effective Demand in the Past and Present Notes

To gauge the effective demand in the past and present, the starting point typically is apparent
consumption which is defined as:
Production + Imports – Exports – Changes in stock level

The figure of apparent consumption has to be adjusted for consumption of the product by the
producers and the effect of abnormal factors. The consumption series, after such adjustments,
may be obtained for several years.
In a competitive market, effective demand and apparent consumption are equal. However, in
most of the developing countries, where competitive markets do not exist for a variety of
products due to exchange restrictions and controls on production and distribution, the figure of
apparent consumption may have to be adjusted for market imperfections. Admittedly, this is
often a difficult task.

Breakdown of Demand

To get a deeper insight into the nature of demand, the aggregate (total) market demand may be
broken down into demand for different segments of the market. Market segments may be
defined by (i) nature of product, (ii) consumer group, and (iii) geographical division.
1. Nature of Product: One generic name often subsumes many different products: steel
covers sections, rolled products, and various semi-finished products; commercial vehicles,
cover trucks and buses of various capacities; so on and so forth.
2. Consumer Groups: Consumers of a product may be divided into industrial consumers and
domestic consumers. Industrial consumers may be sub divided industry wise. Domestic
consumers may be further divided into different income groups.

3. Geographical Division: A geographical breakdown of consumers is helpful, particularly
for products which have a small value-to-weight relationship and for products which
require regular, efficient after sales service.
Why is segmental analysis required? Segmental information is helpful because the nature of
demand tends to vary from one segment to another. The demand from consumers in high
income brackets may not be sensitive to price variations whereas the demand from consumers
in low income brackets may be very sensitive to price variations and different marketing
strategies may be appropriate for different market segments.

Price

Price statistics must be gathered along with statistics pertaining to physical quantities. It may be
helpful to distinguish the following types of prices: (i) manufacturer’s price quoted as FOB (free
on board) price or CIF (cost, insurance, and freight) price, (ii) landed price for imported goods,
(iii) average wholesale price, and (iv) average retail price.

Methods of Distribution and Sales Promotion

The method of distribution may vary with the nature of the product. Capital goods, industrial
raw materials or intermediates, and consumer products tend to have different distribution
channels. Likewise, methods used for sales promotion (advertising, discounts, gift schemes,
etc.) may vary from product to product.

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