areas in the country. Suppose the market potentials for all the markets add up to 2,000
lathes. This means that the Boston market contains 10 percent of the total market
potential, which might warrant the company’s allocating 10 percent of its marketing
expenditures to the Boston market. In practice, SIC information is not enough. The
lathe manufacturer also needs additional information about each market, such as the
extent of market saturation, the number of competitors, the market growth rate, and
the average age of existing equipment.
If the company decides to sell lathes in Boston, it must know how to identify the
best-prospect companies. In the old days, sales reps called on companies door to door;
this was called bird-doggingorsmokestacking. Cold calls are far too costly today. The
company should get a list of Boston companies and qualify them by direct mail or
telemarketing to identify the best prospects. The lathe manufacturer can access Dun’s
Market Identifiers, which lists 27 key facts for over 9,300,000 business locations in the
United States and Canada.
Multiple-Factor Index Method. Like business marketers, consumer compa-
nies also have to estimate area market potentials. But the customers of consumer com-
panies are too numerous to be listed. Thus the method most commonly used in
consumer markets is a straightforward index method. A drug manufacturer, for ex-
ample, might assume that the market potential for drugs is directly related to popu-
lation size. If the state of Virginia has 2.28 percent of the U.S. population, the company
might assume that Virginia will be a market for 2.28 percent of total drugs sold.
A single factor, however, is rarely a complete indicator of sales opportunity. Re-
gional drug sales are also influenced by per capita income and the number of physi-
cians per 10,000 people. Thus it makes sense to develop a multiple-factor indexwith
each factor assigned a specific weight.
The numbers are the weights attached to each variable. For example, suppose Vir-
ginia has 2.00 percent of the U.S. disposable personal income, 1.96 percent of U.S. re-
tail sales, and 2.28 percent of U.S. population, and the respective weights are 0.5, 0.3,
and 0.2. The buying-power index for Virginia would be
0.5(2.00)0.3(1.96)0.2(2.28)2.04Thus 2.04 percent of the nation’s drug sales might be expected to take place in Vir-
ginia.
The weights used in the buying-power index are somewhat arbitrary. Other weights
can be assigned if appropriate. Furthermore, a manufacturer would want to adjust the
market potential for additional factors, such as competitors’ presence in that market,
local promotional costs, seasonal factors, and local market idiosyncrasies.
Many companies compute other area indexes as a guide to allocating marketing
resources. Suppose the drug company is reviewing the six cities listed in Table 1.8.
The first two columns show its percentage of U.S. brand and category sales in these
six cities. Column 3 shows the brand development index (BDI), which is the index of
brand sales to category sales. Seattle, for example, has a BDI of 114 because the brandAnalyzing
Marketing(^124) Opportunities
Market-Buildup Method Using SIC
Codes
TABLE 1.7
(c)
Potential
(b) Number of
(a) Number Lathe Sales
Annual of per $1 Million Market
Sales Establish- Customer Potential
SIC in Millions of $ ments Sales (abc)