Companies all over the world make goods because there is market for such goods, if there is no market then there will be no supply of goods by the company and that is the reason why market potential analysis is the most important part as far as companies are concerned because if market potential is of 100 units and company is manufacturing 10000 units than there is no way in this world by which company can sell the remaining units and it will result in big loss for the company. Market potential never remains constant rather it keeps changing, given below is the process by which market potential analysis is done –
- First Step – The first and foremost step in doing market potential is to analyze the potential customer base because customer base and population are two different things and if the company make products according to population rather than the customer base than it will go wrong, so for example if a life insurance company decides to sell policies to old age people instead of young people or companies selling air conditioners try to sell its products in those areas where majority of time there is snow then company cannot achieve success and so on.
- Second Step – After doing an analysis of potential customer base next step is to analyze the competition which is there in the market for which company is targeting its product because without analyzing the competition if the company is entering the market than it is equivalent to person driving the car on a highway blindfolded. Hence for example if a mobile manufacturer is thinking of selling a mobile phone with a good camera then first it should analyze what competitors are offering and also the price at which they are offering and then manufacture and price its own product so that it can be competitive.
- Third Step – The last step in the analysis of market potential is the analysis of current environment conditions that may have an effect on the market potential. Environmental conditions include things like government policies, economic environment, technological advancement and many other factors. Hence suppose a car manufacturer has planned to introduce small car into the market but government introduces additional tax on small cars then the whole idea of company introducing the small car will fail due to this extra environmental factor of the government introducing taxes on small cars which in turn will make the small car expensive.
As one can see from the above that market potential analysis is a very dynamic process and company should be vigilant in doing this analysis because any mistake on the part of the company can have disastrous results as far financial position of the company is concerned.