Definition

A market forecast is an essential element of a market analysis. It predicts the future trends, characteristics, and numbers in a particular target market. A standard market analysis indicates the predicted number of possible customers divided into different segments.

Market changes cannot be avoided, and the best way to deal these changes is being one step ahead of them. Doing a market forecast allows someone to do this.

Benefits of a market forecast

The benefits of a market forecast include:

  • Understanding customer behavior. Customers have a tendency of changing their patterns and behavior from time to time, and this is mostly caused by various reasons which include changes in market trends and new technology amongst others. Being aware of this allows businesses to plan their strategies accordingly, and adjust the methods they use to reach to their customers, reminding the customers of the reasons why they used their products or services or developing strategies to retain them.
  • Understanding customer’s future needs. The needs of a customer change frequently, and this requires a business to know this ahead of time. As a result, a business can capitalize on this opportunity by offering products or services that satisfy the new needs of the customers.
  • Changes in economy. It is good to understand that economies have different cycles, that is, recessions and booms. Therefore, understanding the sequence which the economy is about to enter and how long the period will last allows a business to prepare adequately. This allows a business not to be caught unaware of any unpredictable circumstances of the economy. Besides, market forecast allows a business to set the right strategies to deal with these cycles in advance.
  • Competition. Almost every business operates in a competitive environment. Conducting a market forecast allows the business to adapt to market changes faster than its competitors and be in a position to make decisions faster. This allows the business to have a competitive edge over its competitors.

Steps of a market forecast

A market forecast has four steps. These include:

  • Defining the market;
  • Dividing the total industry demand into its key components;
  • Forecasting the demand drivers of each segment and predicting the likelihood of them changing; and
  • Performing a sensitivity analysis to get insights of the most critical assumptions and to determine the risks of the baseline forecast.