The 2011 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 world outlook for bicycles and bicycle accessories across more than 2000 cities. For the season reported, estimates get to the latent demand, or potential industry earnings (P.I.E.), for your city involved (in millions of U.S. dollars), the percent share town is of the region and in 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 particular players inside market serving the latent demand, nor specific details on the product level. The analysis also does not consider short-term cyclicalities that might affect realized sales. The study, therefore, is strategic in nature, taking an aggregate and long-run view, irrespective from the players or products involved.

This study does not report actual sales data (which are merely unavailable, in a very comparable or consistent manner in almost all of the cities of the world). This study gives, however, my estimates for that worldwide latent demand, or the P.I.E. for bicycles and bicycle accessories. Additionally, it shows what sort of P.I.E. is divided throughout the world's cities. In order to make these estimates, a multi-stage methodology was employed that is often taught in courses on international strategic planning at graduate schools of business.

What is Latent Demand and also the P.I.E.?
The notion of latent demand is quite subtle. The phrase latent typically describes a thing that is dormant, not observable, you aren't yet realized. Demand could be the notion associated with an economic quantity that a target population or market requires under different assumptions of price, quality, and distribution, among other factors. Latent demand, therefore, is often defined by economists as the industry earnings of a 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 in an efficient manner. It is typically expressed because the total revenues potentially extracted by firms. The "market" is scheduled with a given level in the value chain. There might be latent demand on the retail level, on the wholesale level, the manufacturing level, as well as the raw materials level (the P.I.E. of upper levels from the value chain being always smaller than the P.I.E. of levels at lower levels with the same value chain, assuming all levels maintain minimum profitability).

The latent demand for bicycles and bicycle accessories is not 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 marketplace is inefficient (i.e., not representative of relatively competitive levels). Inefficiencies arise from a amount of factors, including the lack of international openness, cultural barriers to consumption, regulations, and cartel-like behavior on the section of firms. In general, however, latent demand is normally greater than actual sales in a very city market.

Another reasons why 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 based on purchasing power parities across countries. Short-run distortions inside value in the dollar, therefore, 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 because the currency of comparison, however, not like a way of measuring transaction volume. The units used within 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 isn't made, though one is implied). The units used within this report are U.S. dollars not adjusted for inflation (i.e., the figures incorporate inflationary trends) rather than adjusted for future dynamics in exchange rates (i.e., the figures reflect average exchange rates over recent history). If inflation rates or exchange rates vary in a substantial way when compared with 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 greater than actual sales because there in many cases are 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 from the players or products involved. If fact, all of the current products or services for the market can cease to exist within their present form (i.e., in a brand-, R&D specification, or corporate-image level) and players might be replaced by other firms (i.e., via exits, entries, mergers, bankruptcies, etc.), and there will probably always be a global latent need for bicycles and bicycle accessories on the aggregate level. Product and service offering details, as well as the actual identity in the players involved, while essential for certain issues, are relatively unimportant for estimates of latent demand.

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

Ignoring, for your 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 common propensity to use would fall. The common propensity to eat could be the level of consumption divided with the amount of income, or the slope from the line from your origin on the consumption function. He estimated this relationship empirically and discovered it to be true inside short-run (mostly based on cross-sectional data). The higher the income, the reduced the common propensity to consume. This kind of consumption function is labeled "A" within the figure below (note the rather flat slope of 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 type of consumption function is show as "B" within the figure below (note the higher slope and zero-zero intercept). The common propensity to use is constant.







Is it declining or perhaps it constant? A variety of other economists, notably Franco Modigliani and Milton Friedman, in the 1950s (and Irving Fisher earlier), explained why both the functions were different using various assumptions on intertemporal budget constraints, savings, and wealth. The shorter time horizon, the greater consumption can depend on wealth (earned in previous years) and business cycles. In the long-run, however, the propensity to eat is a great deal more constant. Similarly, in the long run, households, industries or countries without any income eventually have no consumption (wealth is depleted). Whilst the debate surrounding beliefs about how exactly income and consumption are related and interesting, within this study an extremely particular school of thought is adopted. In particular, we're considering the latent interest in bicycles and bicycle accessories across some 230 countries.... --This text refers for the Digital edition.

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