I have sometimes made the point that ‘market forecasts’ are of little value as a start-point for strategy development [ sorry to the folk who make a living feeding the apparently insatiable demand for ‘independent market forecasts’]. This is because market development is not an ‘independent variable’. The way customers respond is a function of what suppliers offer, as much as it reflects some innate desire to consume. An old example – the ‘market’ for 24-hour global TV news was zero before CNN offered it, but then grew at a rate that reflected CNN’s success in getting its service adopted – not because the number of people who wanted it grew by x,000 per month.
Just come across another couple of extreme cases.
- The ‘market’ for mortgages in middle-east countries is apparently near-zero – but the rate at which ‘demand’ will grow will reflect the rate at which banks develop and provide Shariah-compliant products. For such a bank, ‘forecasting’ growth of this market is pointless, as its growth will depend totally on what suppliers will do.
- Same applies to some alternative-energy markets – roof-top solar heating, domestic combined-heat-and-power, ground-source heat pumps etc. The current ‘market size’ for many of these is currently tiny, because the technology is immature and costly, and ‘growth in demand’ is a meaningless concept – demand will develop in response to the rate at which each technology’s performance and price improves … which in turn depends on the sales rate. [All explained in chapter 6 of the book]
The exceptions to this general point relate to highly mature markets, where interactions between competitive suppliers and potential customers long ago played out, leaving demand to be most strongly influenced by economic, social and other mechanisms. Even then, there is often much that strategy can do to improve performance way out of line with market ‘trends’.
Kim
Isn’t this primarily a segmentation issue. There is a relatively mature market for news. When cnn develops a new product to serve that market it doesn’t make international news in to an independent segment yet with its own dynamics. People budget time and money to spend on news and change that behaviour only slowly over time as new tools and options become available, making it more or less attractive to spend time and money on news rather then entertainment, hollidays, housing, commuting or sports or food. Market segmentation is therefore ultimately an agregation of the budget segmentation process that many people use in making buying decisions. E.g worldbank did some interesting work on transportation budgets in time and % of total income over a wide range of income brackets and a long timeperiod.
Most market forecasts are actually supply forecast driven by the limited resources of suppliers to inform customers of their product and convince them to spend money on them. I.e. determined by the willingness of the producer to spend. There could be elements in the customers decision making process that can not be influenced by the producer and which causes delays in the uptake of a new product, e.g. waiting to see how early adopters react, waiting for the second generation of products etc.
To the extent that market forecasters segment their markets wide enough, i.e. related to budget decisions of their customers they actually can be helpfull in working through these adoption rate questions which tend to show some typical uptake patterns. In that sense they do similar work to that of the financial technical analyst – making all kinds of decisionpoints visible that will influence decision making (Margin call points, portfolio balance issues, warning points etc).
The most important thing to forecast though is the moment at which the cost of solution B falls below the cost of solution A. The oil age will not end because of a lack of oil, but when the value proposition of an alternative dips under the value proposition of oil. Just as maps are disappearing from cars now the cost of a navigator is approaching that of a map while the extra convenience, time savings etc mean that the value is significantly higher.