Market Potential of a Product: Definition & Analysis Example

What is market potential?

Market potential is defined as the total of the market size for a product at a given period of time. It is always calculated at a specific time. The measurement of market potential is usually done by two ways-either by sales value or by sales volume.

Example of market potential

The market potential for five motor bikes may be Rs 50,000,000 in a year. On the other hand, the market potential for cars may be 500,000 units each year. Now, this is a measure of sales volume rather than sales value.

We should know that the market potential is just a snapshot in time. It's a fluid number that changes. It is dynamic which changes with the economic environment. It represents the upper limits of the market for a product. For example, the demand for products that are typically financed, like cars and houses will be affected by rising and falling interest rates.

Market Potential Analysis

Marketing process will be successful if we find out the market potential of a product and therefore it requires marketing research. First of all, analysis of your potential customer base is important. Then analyze your competition because they are who you compete with and very importantly analyzing the current environmental conditions. It is because current environmental conditions may affect market potential and it is therefore important.

How to determine Market potential for any product or service?

1)  Analyzing Potential Customer Base

Important information that is required will be:
•   The population size of your target market
•   their product preferences
•   their household income.
And hence we can come to know about the number of potential customers and whether they can actually afford the product. You need to determine the size and demographic characteristics of your potential consumers

We can analyze the data using either primary data or secondary data. Both are effective and are used. Primary data is the first hand information, and secondary data is the second hand information which is not directly obtained.

2) Analyzing Competition

If you are willing to bring out a new product in the market you have to analyze your competitors well. It is said that a marketer should know its future competitors to actually position himself in the market. You have to know the competitors’ strengths, weaknesses, threats and opportunities and for that SWOT analysis is important.

3) Analyzing the Current Environment

We all know that market potential is not a static concept. It is absolutely dynamic which changes with the general economic and political environment.

For example:
•   If interest rates go up, the demand for a particular product will go down and this will decrease the product's overall market potential.
•   A change in tax rates may also suppress spending less money is available on discretionary purchases, thereby reducing a product's overall market potential.
•   On the other hand, market potential can increase if wages increase, taxes are lowered or interest rates decline. Thus to conclude we can say that market potential is defined as the total of the market size for a product at a given period of time.

What is Actual Market?

Actual Market is a type of environment situated in the market which is characterized by heavy transaction volume and day to day transactions hold importance in it. It can be called as commodity market because commodities in actual market are delivered immediately.

The actual market is basically concerned with the buying and selling of commodities. Commodities are tangible goods that are needed by humans. It usually involves diverse types of products.

Commodities are goods which can be of three types. The first one being FMCG products also known as fast moving consumer goods. These goods are needed every now and then like salt, sugar, rice, Colgate etc. Then we have durable goods which are long lasting and their need arises once in a while, like TV, ac, fridge, sofa set.

And then lastly, we have speciality goods. These are expensive goods which when bought adds status and pride to our value. Like ancient articles, jewellery, paintings. These goods are bought with care and a lot of thought unlike FMCG which can be bought without a second thought.

Read More:
Consumer Vs. Business Markets
What is the product of life cycle?
The Importance of Product Positioning to the Marketing Plan
Market Segmentation - Definition, Bases, Types & Examples

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