Market potential has been defended as “the maximum demand response possible for a given group of customers within a well –defined geographic area for a given product or service over a specified period of time under well –defined competitive and environmental conditions. “
Another condition on which the concept of market potential depends is a set of relevant coursers of the product or service. It is not merely the present consumer who is to be included by also the potential consumer as maximum possible demand is to be achieved. Market potential will vary depending on which particular group of consumers is of interest.
Further, the geographic area which market potential is to be determined should be well defined. It should be divided into mutually exclusive subsets of consumers so that the management can assign a sales force and supervise and control the activities in different territories without much difficulty.
Another relevant aspect in understanding the concept of market potential is to clearly known the product or service for which market potential is to be estimated. Especially in those cases where the product in question can be substituted by other It is desirable to have market potential for the product class rather than that particular product. For example, tea is subjected to a high degree of cross elasticity of demand with coffee.
It is necessary to specify the time period for which market potential is to be estimated. The time period should be so chosen that it coincides with planning periods in a firm. Both short and long –time periods can be used depending on the requirements of the firm.
Finally, a clear understanding of environmental and competitive conditions relevant in case of a particular product or service is necessary if market potential is to be useful. What is likely to be the external environment? What is likely to be the nature and extent of competition? These are relevant questions in the context of any estimate of market potential since are the factors over which the firm has no control.
It may be emphasized that market potential is not the same thing as sales potential and sales forecast. It is only when a market is saturated can the industry sales forecast be considered equivalent to market potential,” Such a condition is possible in case of well established and mature products. Generally, the industry sales forecast will be less than the market potential. Likewise, a company’s sales forecast will be less than its sales potential. The former is a point estimate of the future sales. While the latter represents a boundary condition which the sales might reach in an ideal situation. “It the latter sense, sales potential is to a firm what market potential is to product class both represent maximum demand response and are boundary conditions. “
