URP_4161
PROJECT PLANNING
LECTURE – 2: MARKET AND DEMAND ANALYSIS
Md. Manjur Morshed, Lecturer
Department of Urban and Regional Planning (URP)
Khulna University of Engineering and Technology (KUET)
MARKET AND DEMAND ANALYSIS

First step of project analysis is to estimate potential size of the
market (e.g. for health services, estimate the requirement)

What is the market? – social, economic and cultural factors

What is the demand (coverage)? – difference between demand and
supply

Necessary Steps:
1. Situation analysis and specification of objectives
2. Collection of secondary information
3. Conduct a market survey
4. Characterization of the market
5. Demand forecasting
6. Uncertainties of demand forecasting
7. Marketing plan
STEPS IN MARKET & DEMAND ANALYSIS
(INTER-RELATIONSHIP)
Collection of Secondary
Information
Situation Analysis and
Specification of Objectives
Demand
Forecasting
Characterization
of the Market
Conduct of Market
Survey
Market
Planning
PROJECT EXAMPLE


A local government is deciding among three locations for
construction of a bridge
What would be the step-wise activities to select one
particular site?
MARKET AND DEMAND ANALYSIS

Step 1: Situation analysis and specification of objectives




Generate enough data to measure the demand
Reliable projected demand and revenues
Clear and comprehensive objectives are needed
Questions to be asked:

Who are the beneficiaries?

What is current and future transport demand?

Is the demand distributed temporarily?

What are the types of transport mode?

How will it be financed?

What is the plan for cost recovery (revenue generation)?

How to convince the acceptance of the project?

What is the resettlement plan and budget?

Who will carry out the project?
MARKET AND DEMAND ANALYSIS

Step 2: Collection of Secondary Information




Information are collected from secondary and/or primary sources
Secondary information provides the base for analysis
Secondary information provide leads to primary information
collection
Sources of secondary information:

Statistical year book

Regional development organization (e.g. LGED, municipalities)

Development plan (master plan of municipalities)

Economic survey report

Household survey report

Ministry of transportation, public works, commerce and industry

Local NGOs

University research and publications
MARKET AND DEMAND ANALYSIS

Step 2: Collection of Secondary Information

Evaluation of secondary data to check accuracy, reliability and
relevance to the current project

Who gathered the info?

When and how was the info gathered?

What was the target population and sample size?

How was the sample chosen?

What was the sampling bias and non-response bias?

What was the degree of misrepresentation by respondents?

Editing, tabulation and analysis problem.

Proper statistical analysis
MARKET AND DEMAND ANALYSIS

Step 3: Conduct a Market Survey


A market survey is necessary to understand the change in socialeconomic and environmental impacts of the project
Steps of a survey

Define the target population

Sampling scheme and sample size

Develop questionnaire

Recruit and train the field investigator

Obtain info as per the questionnaire

Scrutinize the information gathered

Analyze and interpret the information
MARKET AND DEMAND ANALYSIS

Step 4: Characterization of the Market

Information gathered from secondary sources and through the
market survey can be used to describe following market features:

Effective transport demand in the present and future

Breakdown of transport demand (car, bus, truck)

Price (transport cost, product cost etc.)

Consumers

Supply and competition

Government policy
MARKET AND DEMAND ANALYSIS

Step 5: Demand forecasting

1. Qualitative Methods
Jury of executive method
 Delphi method


2. Time Series Projection Methods
Trend Projection method
 Exponential smoothing method
 Moving Average method


3. Casual Methods: forecast based on cause-effect relationship
Chain ratio method
 Consumption level method
 End use method
 Bass diffusion model
 Leading indicator method
 Econometric method

MARKET AND DEMAND ANALYSIS

Step 5: Demand forecasting

1. Qualitative Methods

Jury of executive method
 Opinions of a group of managers on expected future outcome
 Several advantages




Expeditious method for developing demand forecast
Permits variety of factors e.g. economic competition, consumer
preference, technology
Use of managerial judgment
Delphi method
 Elicits the opinions of a group of experts with the help of a mail survey
 Steps:



1. A questionnaire is sent to a group of experts by mail and asked to express
their view
2. The responses are summarized without disclosing the identity of
experts, and sent back to the experts, along with a questionnaire to modify
previous answers (e.g. extreme views expressed in the first round)
3. The process may be repeated till a reasonable agreement emerges among
the experts
MARKET AND DEMAND ANALYSIS

Step 5: Demand forecasting

2. Time series projection method


Trend projection method
Linear Yc = a + bX (for odd number of events)
Observed Value
(Y)
Index Value
(X)
Index Value
Squared (X2)
Prodeuced of Observed
and Index Values (XY)
1940
17
-4
16
-68.00
1945
23
-3
9
-69.00
1950
29
-2
4
-58.00
1955
35
-1
1
-35.00
1960
43
0
0
0
1965
52
1
1
52.00
1970
63
2
4
126.00
1975
77
3
9
231.00
1980
87
4
16
348.00
Sum
426.00
...
60
527.00
Year
MARKET AND DEMAND ANALYSIS

Step 5: Demand forecasting

2. Time series projection method


Trend projection method
Linear Yc = a + bX (for even number of observations)
Observed Value (Y)
Index Value
(X)
Index Value
Squared(X2)
Prodeuced of Observed
and Index Values(XY)
1940
17
-9
81
-153.0
1945
23
-7
49
-161.00
1950
29
-5
25
-145.00
1955
35
-3
9
-105.00
1960
43
-1
1
-43.0
1965
52
1
1
52.00
1970
63
3
9
189.00
1975
77
5
25
385.00
1980
87
7
49
609.00
1985
100
9
81
900.00
Sum
526.0
330
1528.0
Year
MARKET AND DEMAND ANALYSIS

Step 5: Demand forecasting

2. Time series projection method

Trend projection method
100
100
80
60
40
20
0
50
0
Exponential
Linear
100
80
60
40
20
0
100
80
60
40
20
0
Logarithmic
Polynomial
MARKET AND DEMAND ANALYSIS

Step 5: Demand forecasting

3. Casual Method

Chain Ratio Method

Question: How many of URP 4/1 Students live in Lalon Shah Hall

Total Student = 60 (80% male)

Total Male = 48 (80% live in student hall)

Total male-hall student = 35 (Lalon shah hall 25%)

URP 4/1 student in Lalon Shah Hall = 9
MARKET AND DEMAND ANALYSIS

Step 5: Demand forecasting

4. Consumption Level Method

Useful for a product which is directly consumed

Estimates consumption level on the basis of elasticity coefficients

Example: Income elasticity and price elasticity of demand

Income elasticity of Demand

EI= (Q2-Q1/I2-I1 ) * (I1+I2/Q2+Q1 )

Where, Q1=is the quantity demanded in the base year, Q2= quantity
demanded in the following year, I1=income level in the base year, and
I2=income level in the following year

Income of elasticity of demand along with projected income may be used
to obtain a demand forecast.
MARKET AND DEMAND ANALYSIS

Step 5: Demand forecasting

4. Consumption Level Method

Can be used to project future level of demand

Projected demand =
Present per capita demand * (1+Per capita change in income
level*Income elasticity of demand)

The aggregate demand projection= Projected per capita demand *
Projected population

Same calculation is true for price elasticity of demand

The price elasticity coefficient may also be used to study the impact of
variation in future on the economic viability of the project

Problem: Short-term, assumes that the consumption pattern remains
unchanged
MARKET AND DEMAND ANALYSIS

Step 5: Demand forecasting

5. End Use Method

Consumption Coefficient method

Rules:

Identify the possible use of the product

Define the consumption coefficient of the products for various uses

Project the output levels for the consuming industries

Derive the demand for the product

Assume a steel producing factor that sells steel to 4 companies (A, B,C,D)
Intermediate Company
A
B
C
D
Total Steel Demand
Consumption Coefficient Projected Output in year X Projected Demand for Steel
2
20
40
3
30
90
0.5
15
7.5
1
33
33
170.5
MARKET AND DEMAND ANALYSIS

Step 5: Demand forecasting

6. Econometric Method

Mathematical representation of economic relationships derived from
economic theory

Primary objective is to forecast future behavior of the economic variables

Two types:

Single Equation Model -Grade= A0+A1T+A2C+ A3S
Here, A0=Merit, T=Teacher, C=Class Attendance, S=Self-read

Simultaneous Equation Model – House Rent = E+I+D+W
Here, Economy, Income, Distance (e.g. market), Water (Khulna)

Construction and use of an econometric model involves four steps

Specification, Estimation, Verification, Prediction
MARKET AND DEMAND ANALYSIS

Step 5: Demand forecasting

6. Econometric Method

Advantage:

The process of econometric analysis sharpens the understanding of
complex cause-effect relationship


Basis for testing assumptions
Disadvantage:

Expensive and data-demanding

Depends on variables (defining variables is complex)
MARKET AND DEMAND ANALYSIS

*** Improving Forecasts






Check assumptions: variable changes
Stress fundamentals: Who are the consumers?
Beware of the history: trend is a trend until it bends
Watch out for euphoria: Consumer preferences change quickly
Don’t be dazzled by technology: do not rely only on mathematical
forecasting
Stay flexible: be ready and leave a market quickly
MARKET AND DEMAND ANALYSIS

6. Uncertainties of Demand Forecasting

1. Data About Past and Present Market
Lack of Standardization – future prediction may not reflect uniform
concepts
 Few observation – sampling must be enough
 Influence of abnormal Factors: War, natural disaster


2. Methods of Forecasting
Inability to Handle Unquantifiable factors: change of culture
 Unrealistic assumptions: Chosen method may be unrealistic
 Excessive Data Requirement: predicting future variables difficult


3. Environmental Changes
Technological changes: everyone uses smartphone
 Shift in Government Policy: incentive for bicycle (loss of car industry)
 Development in the International Scene: Rise of oil price, Rana Plaza
 Discovery of New Sources of Raw Materials: Solar re-charging sell-phone
 Vagaries of Monsoon: influence a wide range of product demand

MARKET AND DEMAND ANALYSIS

*** Coping with Uncertainties







Conduct analysis with data based on uniform and standard
definitions
Ignore the abnormal or out-of-the-ordinary observations
Critically evaluate the assumptions of the forecasting methods
Adjust the projections derived from quantitative analysis
Monitor the environment imaginatively
Consider likely alternative scenarios and their impact on market
Conduct sensitivity analysis to assess the impact on the size of
demand for unfavorable and favorable conditions