The 2009 Report on Bicycles and Bicycle Accessories: World Market Segmentation by City [Paperback] review

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Market Potential Estimation Methodology
Overview
This study covers the planet outlook for bicycles and bicycle accessories across more than 2000 cities. For the entire year reported, estimates get for your latent demand, or potential industry earnings (P.I.E.), for your city under consideration (in numerous U.S. dollars), the percent share the city is of the region and of the globe. These comparative benchmarks enable the reader to quickly gauge a city vis-a-vis others. Using econometric models which project fundamental economic dynamics within each country and across countries, latent demand estimates are created. This report does not discuss the specific players inside market serving the latent demand, nor specific details in the product level. The research also does not consider short-term cyclicalities that may affect realized sales. The study, therefore, is strategic in nature, taking an aggregate and long-run view, irrespective of the players or products involved.

This study does not report actual sales data (which are simply just unavailable, inside a comparable or consistent manner in practically all of the cities from the world). This study gives, however, my estimates for that worldwide latent demand, or perhaps the P.I.E. for bicycles and bicycle accessories. Additionally, it shows how a P.I.E. is split over the world's cities. In order to create these estimates, a multi-stage methodology was employed that's often taught in courses on international strategic planning at graduate schools of business.

What is Latent Demand and also the P.I.E.?
The idea of latent demand is pretty subtle. The word latent typically identifies something which is dormant, not observable, or otherwise yet realized. Demand could be the notion of your economic quantity that the target population or market requires under different assumptions of price, quality, and distribution, among other factors. Latent demand, therefore, is often based on economists because the industry earnings of the market when that market becomes accessible and attractive to serve by competing firms. It is really a measure, therefore, of potential industry earnings (P.I.E.) or total revenues (not profit) if a companies are served within an efficient manner. It is usually expressed because the total revenues potentially extracted by firms. The "market" is defined in a given level inside value chain. There may be latent demand on the retail level, at the wholesale level, the manufacturing level, as well as the raw materials level (the P.I.E. of higher levels of the value chain being always smaller as opposed to P.I.E. of levels at lower levels of the same value chain, assuming all levels maintain minimum profitability).

The latent need for bicycles and bicycle accessories just isn't actual or historic sales. Nor is latent demand future sales. In fact, latent demand might be lower either lower or more than actual sales if a companies are inefficient (i.e., not representative of relatively competitive levels). Inefficiencies arise from the quantity of factors, like the lack of international openness, cultural barriers to consumption, regulations, and cartel-like behavior on the part of firms. In general, however, latent demand is usually larger than actual sales in the city market.

Another reason sales usually do not equate to latent demand is exchange rates. In this report, all figures assume the long-run efficiency of currency markets. Figures, therefore, equate values depending on purchasing power parities across countries. Short-run distortions in the value in the dollar, therefore, usually do not figure into the estimates. Purchasing power parity estimates of country income were collected from official sources, and extrapolated using standard econometric models. The report uses the dollar since the currency of comparison, and not like a measure of transaction volume. The units used on this report are: US $ mln.

For reasons discussed later, this report does not consider the notion of "unit quantities", only total latent revenues (i.e., a calculation of price times quantity is never made, though one is implied). The units used with this report are U.S. dollars not adjusted for inflation (i.e., the figures incorporate inflationary trends) and never adjusted for future dynamics as a swap rates (i.e., the figures reflect average exchange rates over recent history). If inflation rates or exchange rates vary in a substantial way in comparison to recent experience, actually sales also can exceed latent demand (when expressed in U.S. dollars, not adjusted for inflation). On another hand, latent demand could be typically higher than actual sales since there are often distribution inefficiencies that reduce actual sales below the amount of latent demand.

As mentioned earlier, this study is strategic in nature, taking an aggregate and long-run view, irrespective of the players or products involved. If fact, every among the current products around the market can cease to exist within their present form (i.e., at the brand-, R&D specification, or corporate-image level) and the gamers can be replaced by other firms (i.e., via exits, entries, mergers, bankruptcies, etc.), and there will be a worldwide latent need for bicycles and bicycle accessories at the aggregate level. Product and repair offering details, and the actual identity of the players involved, while very important to certain issues, are relatively unimportant for estimates of latent demand.

The Methodology
In order to estimate the latent interest in bicycles and bicycle accessories on a city-by-city basis, I oftentimes tried a multi-stage approach. Before applying the approach, one needs a basic theory that such estimates are created. In this case, I heavily rely on the utilization of certain basic economic assumptions. In particular, there exists an assumption governing the shape and kind of aggregate latent demand functions. Latent demand functions relate the income of your country, city, state, household, or individual to realized consumption. Latent demand (often realized as consumption when an marketplace is efficient), at any level of the value chain, takes place if an equilibrium in realized. For firms to offer a market, they need to perceive a latent demand and become in a posture to serve that demand at a minimal return. The only most significant variable determining consumption, assuming latent demand exists, is income (or other savings at higher levels from the value chain). Other factors that can pivot or shape demand curves include external or exogenous shocks (i.e., business cycles), or changes in utility to the product in question.

Ignoring, to the moment, exogenous shocks and variations in utility across countries, the aggregate relation between income and consumption may be a central theme in economics. The figure below concisely summarizes one facet of problem. In the 1930s, John Meynard Keynes conjectured that as incomes rise, the typical propensity to take would fall. The typical propensity to eat may be the degree of consumption divided from the amount of income, or slope from the line from your origin for the consumption function. He estimated this relationship empirically and discovered it being true within the short-run (mostly based on cross-sectional data). The higher the income, the lower the typical propensity to consume. This sort of consumption function is labeled "A" in the figure below (note the rather flat slope from the curve). In the 1940s, another macroeconomist, Simon Kuznets, estimated long-run consumption functions which indicated that this marginal propensity to take was rather constant (using time series data across countries). This sort of consumption function is show as "B" within the figure below (note the higher slope and zero-zero intercept). The average propensity to consume is constant.







Is it declining or is it constant? A number of other economists, notably Franco Modigliani and Milton Friedman, inside the 1950s (and Irving Fisher earlier), explained why the two functions were different using various assumptions on intertemporal budget constraints, savings, and wealth. The shorter enough time horizon, the greater consumption can depend upon wealth (earned in previous years) and business cycles. In the long-run, however, the propensity to use is more constant. Similarly, inside long run, households, industries or countries without having income eventually haven't any consumption (wealth is depleted). While the debate surrounding beliefs about how income and consumption are related and interesting, in this study an extremely particular school of thought is adopted. In particular, were considering the latent need for bicycles and bicycle accessories across some 230 countries. The smallest have under 10,000... --This text refers on the Digital edition.

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