[MUSIC] Okay so now that we have gone through two examples about how to go about augmenting your product or service lets look at how you might go about estimating product demand. In this session, we're going to familiarize ourself with two very important concepts of how marketeers think about, what is the market for a product? One, it's the volume. What is the volume? It's essentially the number of buyers that you expect to get for your products or service times the quantity per buy in a given period of time, lets say in a year. So that's how we speak about volumes. The next one is the value. So what's the value of what we expect this market to be. That is the produce of the volume as estimated by the previous equation, times the average price per unit. Simple, correct? So, how do you go about estimating what might be the potential volume or value for, let's say, this fast moving consumer good product? Let's take the case of Nestle Dolce Gusto, a product that was introduced here in Spain in late 2007. How are you going to go about estimating what is going to be the adoption, the volume and the value for this particular product in this market. Let's say Spain. Well, often times the demand is hard to predict, but it doesn't mean that you should not try. There are many ways in which it will try to remove the uncertainty for what's the overall size of this market. How would he have gone on about it? Okay. Let's start from easier to a little bit more difficult. Let's say for example that you will look at another product that Nestle has in it's portfolio, Nescafe, the soluble coffee. Okay? For once you may have bought secondary data from secondary data providers, such as Nielsen or Cantor. Well, what's the level of penetration of this in the Spanish households, correct? So that would be one very gross approximation as to what this product might be a substitute for. But you can get a little bit better. For example, you might look at high quality, premium, gourmet coffee and how many of these cups are prepared in the Spanish market in any year. You can look at the kilograms of coffee that are sold, of this kind of category. Who makes, on how many occasions. You can estimate from the consumption, roughly speaking, how many of those cups are consumed, per average, in Spanish households. And this may be a little bit of a refinement for how you can go about consuming. As the product is closer to the premium quality gourmet coffee, than it is to the soluble coffee, but you can refine yourself even more. What will you do next? For example, you can look at a competitive product. In particular, an espresso, this product was launched before in the European market and in the Spanish market. It’s a product that is produced by your own company, but as far as the Dolce Gusto manager is concerned, it is its main competitor. The one that they need to try to beat. Right? So you might look at the launching of Nespresso and say what is the uptake for this product, what's the level of penetration after one, two and three years in different Spanish households, okay? Now the products are not exactly the same, because Dolce Gusto is mainly sold at retail at hypermarkets and supermarkets whereas Nespresso has its own boutiques, and it sells online. Okay. So, could you refine this prediction or remove the uncertainty, which was the purpose of conducting the research even more to try to estimate your demand? Well, certainly. As it turns out, you're lucky if you are the marketing manager for Spain, because the product had been launched in some other larger European markets the years prior and particularly in France, in the UK, and in Germany. So you certainly will have a look at, how did the adoption curve happen? And what the numbers were after the first year of lounging in some of the other European markets. And refine even more what your estimate is for the demand. And the volume for this particular product. And why is it important to estimate the demand? It's very obvious, right? Not only do you have to prepare a factory to be able to serve that demand, but you also have to determine what's the amount of marketing spending that you're going to put behind this project to be able to fuel its growth [MUSIC]
