What Is Market Potential?

DSM Digital School of Marketing - market potential

Market potential is the valuation of the sales revenue from all the supplying channels in a market. The potential of the market is the population who is interested in the product or service which is being made or offered by an organisation. In other words, it is the potential money-making capability of a firm if it capitalises on all advantages and everything goes its way.

It is a subset of the entire population where market potential is the population and all of whom may be potential consumers of the product or – alternatively – the service. Put another way, market potential is the maximum population which would be interested in the product and/or service and gives a good insight into the growth possibility as well.

The number of potential consumers is defined by the size of the population and the number of known consumers the product has. Therefore, it is vital for sales managers to keep in mind that there are two types of consumers that make up the potential consumers of the market – potential customers and actual customers.

Evaluating New Market Potential

When sales managers do their evaluations of new markets, many of them focus on actual consumers because they are the ones who actively engage in purchasing products or services. However, for sales managers to have a good picture of the opportunities or threats that might occur from the market, it is important to focus on potential consumers as changes in the number of potential consumers could affect the number of actual consumers.

The total number of potential consumers might shift due to changes in the following aspects of consumers’ purchasing behaviour:

  • Economic preference – The amount that the market can afford to spend on a product or service.
  • Benefit preference – The perception that the market has towards a product or service and what satisfaction they could gain from it.
  • Practicality preference – The practical difference the consumers perceive that the product could make to their lives.

What Is The Replacement Cycle?

This is the period of time between the purchase of an asset and its substitution with the equivalent asset. The replacement may be as a result of the end of the asset’s absolute physical life, its obsolescence or for some other reason.  This is especially important in the information technology industry in which improvements occur with (sometimes variable) frequency.

Replacement cycles may be different for several reasons:

  • A technology may mature to the stage where it offers all of the functionality that buyers want.
  • Buyers’ budgets will vary over time.
  • The replacement cycle may be driven by the cycle for another product.
  • One generation of a product might be more or less enduring than previous generations.
  • New releases of software can trigger upgrades of the hardware that it runs on. The termination of vendor support for old software may trigger both hardware and software upgrades.

Sales managers should have a firm understanding of the replacement cycle of the products and services sold by their teams. During this cycle, it is crucial to keep up to date with all current competitors to ensure consumers do not switch once they get to the replacement time. This mainly concerns IT replacement.

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