Milner Strategic Marketing Ltd has written a white paper on how using a market model can help companies to better understand their market and outperform the competition. A market model is a mathematical representation of core elements underpinning a company’s market, which can be used to forecast future trends and potential changes affecting these key elements.
The white paper explains the role of the market model in strategy and planning, market theories, model theories, how to structure and refine a market model and the benefits of using a market model.
Some of the strategic and economic benefits discussed in the white paper are:
Every department needs to plan for the future and needs to base this on a view of the market. The cost of individual models for each department is not always clear from the overall picture of company finances; a single model built with the needs, support and data of all departments will reduce costs.
Market data is needed by different departments at different times. Long term forecasts may be required for Board strategy, Investor relations or R&D, whilst shorter term forecasts are useful for marketing promotions and temporary personnel recruitment contracts. Constructing a new market forecast for every plan or business case takes up valuable time, so using data from a single market model would save time.
A market model enables the company to align its opinions about the market into a company-wide accepted view. This can be used by the Board, Finance, Marketing, Sales, Product Management and Development, Operations, Investor Relations, Distribution and HR departments (see Figure 1). This means each interdepartmental interaction can start with “what are we going to do?” instead of “what is going on?”
Figure 1 The market model has many uses across the company
Using the best experts, not best efforts
The white paper demonstrates the complexity and knowledge required for market modelling and forecasting. While forecasting can be done in-house, the potential financial benefits of a market model mean it should be entrusted to experts rather than internal best efforts.
First mover market advantage
Diffusion of Innovation theory describes how different types of consumers with different attitudes to risk, product maturity, product features, price and other factors will adopt a product over time. A market model will help to forecast when each type of consumer will start to adopt the product, so the company can adapt their sales, marketing, product and distribution plans accordingly to maximise financial benefit. First-mover advantage means a company can adapt to the changing market dynamics before their competitors and increase its market share.
Better preparations for the unexpected
Some changes in the market (Political, Economic, Social, Technological, Environmental or Legal) are not under the company’s control. A market model can be used to forecast the scale and impact of these possible changes, in extensive detail. Pre-organising response plans (e.g. for expected price changes by a competitor or availability of new technologies) will allow the company to react quickly and efficiently.
Benefits for Investors
Information from the market model is valuable to investors in companies of all sizes. In small, privately-owned companies the market model quantifies the size and scope of their market opportunity for investors. When private companies are sold, information from the market model is very important for the Information Memorandum. When companies float or IPO on main stock markets (or lower capital markets such as AIM in the UK), data from the market model is used to describe the target market, give market size and share information and other key disclosures. For publicly quoted companies, data from the market model is used to provide market context to the company’s financial performance by the Investor Relations team.
To read the full white paper on ‘Forecasting the Future for Profit’, please click here< Back