Section 2.1 Sizing the Market
The first task in any data-driven decision process is to make sense of your data. In the Market It! project, you have a limited set of data that was gathered by your marketing division from a collection of "test markets," each of which is a representative sample of the entire national market for your product. However, the test markets each have different sizes and were tested at different price points. Your first task therefore is as follows:
Proposition 2.1.1. Standardize your data to the national market.
Determine what quantity \(q\) of your product would sell in the national market at each tested price point \(p\text{,}\) by scaling up the results from each test market proportionally.
The key quantitative reasoning strategy for this decision involves no calculus and little algebra; instead, it is an instance of proportional reasoning. Mathematically, the same strategy you might use to scale up a cookie recipe to feed a crowd is the strategy you'll use to scale up the demand in each test market to predict demand in the nationwide market for your product.
Subsection 2.1.1 Motivation 1
Each of your test markets represents only one small (though representative) slice of the potential nationwide market for your product. The first step is therefore to scale up each test market to answer the question: based on how many we would sell in this market, how many would we sell in the (much larger) national market as a result?
Subsection 2.1.2 Decision Report 1
Your company's marketing department has completed a study in a number of test markets for your product around the country. Your marketing data file contains the results of this study, formatted as shown in this example:
Market # Market Size Price Projected Sales
1 144,900 $265.95 570
In other words, in this example, in test market #1:
- There were a total of 144,900 potential customers in this test market;
- A sample of potential customers were asked: Would you buy our product at $265.95 each?
- Based on their responses, the study predicted a total of 570 items would sell in this test market, at this price.
Your data also indicates the approximate size of the potential national market for your product, which is much larger than the test markets studied. Meanwhile, your Vice President of National Sales, excited about your product's sales potential, wants to set a sales goal of 1.5 million units on the national market for your new product.
Exercises 2.1.2.1 Exercises
1. Decision Report 1: Is this sales goal realistic?
Download: Click to download this Decision Report assignment (PDF).
Decide: Does your test marketing data support the possibility of selling 1.5 million units on the national market, if the price were right? Write a short memo to manage your Vice President's expectations, explaining in your analysis how your data supports your conclusion.
Deliver: Use test marketing data to construct a table of national market quantities \(q\) (measured in thousands of units) vs. the unit price \(p\) at which that quantity would sell (measured in dollars per unit).