CHAPTER II

MARKET STUDY

Introduction

One very important component of business strategy is the market study. This chapter will
provide data gathering and evaluation of information regarding consumers’ preferences, which is
a vital factor in attaining and establishing company’s goals. This chapter contains the product
description, which includes the properties, uses, users and the area of dispersion. Also included
in this chapter is the study for the demand and supply that would determine the marketability of
the proposed product. Through this analysis, the proponents will be able to come up with the
appropriate marketing strategies to be applied. It also studies the factors that can affect the
market on demand and supply.

This chapter aims to present the activities to be undergone to promote the product for it to
fit the market.

A. Product Description

Name of the Product

The proponents named the product “Espiron“ which is derived from the Spanish
word for fishbone Espina and “ron” from the last syllable of the word “Polvoron”. The
Spanish translation of the word fishbone is used since the special add-on ingredient is the
pulverized fishbone.

Properties of the Product

It is a semi-sweet concoction made of toasted flour, powdered milk, sugar, butter,

plus he special ingredient which is the pulverized Milkfish bones. It has a golden brown
color due to the toasting process of the dominant ingredient which is flour. It is a very
 crumbly shortbread and round in shape with the use of a round molder. It has about 95
calories each serving, 4.8 fat, 11-12 g carbohydrates, 1.5 protein.

Uses of the Product

The product of the enterprise can be served for all kinds of occasions. It could be
a holiday delicacy served for Christmas, New Year’s Eve, or birthday parties. Since it is
light and handy, it could be a convenient snack consumed anywhere like at school, mall,
cinemas, or on the road during road trips or traffic. It could also be a special pasalubong
or gift to loved ones. It can be sold anywhere from pasalubong centers to sari-sari stores
or even high-end bakeries. It could also be consumed every after meals and would make
a very good dessert.

Users of the Product

Since the product can be easily eaten in just two bites, it is consumable by any
individuals of different ages.

Geographical Area of Distribution

The target area of dispersion would cover a large area of community. The
products manufactured would be distributed to key pasalubong centers in the entire city
where tourist would most likely shop. It would be displayed at different stalls and market
places where it could be accessible to buyers.

B. Demand Analysis

The analysis of the demand is essential in planning the production as well as in

expecting how the product will be received by the market. The target market for the
product is the whole population of Baguio City. The demand will be based on the
historical consumption of polvoron sold within Baguio City. Data were gathered through
online questionnaires sent to Baguio City residents.
 Table 1
Historical Individual Population of Baguio City

Year Historical Population

2011 334,280
2012 342,897
2013 351,735
2014 360,801
2015 370,100
(Source: National Statistics Office)

Computation of sample size using Slovin’s Formula:

n = N / (1 + N e2) Where:
n = 370,100 / {1 +( 370,100 * 0.05 2)}
n = sample size
n = 399.57
N = Population size
n = 400
e = margin of error

The sample size of the study is 400 based on the result of the computation using the Slovin’s
formula.

Annual Historical
Rate of
Year Population Consumption Demand
Polvoron Consumers
per Consumer in Pieces
2011 334,280 97.5% 188 61,273,524
2012 342,897 97.5% 188 62,853,020
2013 351,735 97.5% 188 64,473,026
2014 360,801 97.5% 188 66,134,823
2015 370,100 97.5% 188 67,839,330
Table 2
Historical Demand
Computation of Consumption Rate (CR):

Cr = Grand Total (Annualized Consumption)/ Number of Polvoron Consumers

Cr = 73,513/ 390

Cr = 188.14918718 = 188

Table 2 shows the total historical demand in pieces which is computed by multiplying the
population by the rate of polvoron consumers and the annual consumption per consumer.

Sample Computation:
Historical Demand in Pieces in 2011:

Historical Demand in Pieces = 334,280 x 97.5% x 188

Historical Demand in Pieces = 61,273,524

Table 3
Actual Cross Tabulation
Frequency/Quantity 1-5 6-10 11-15 16-20 Indefinite TOTAL
Everyday 4 1 0 0 0 5
Once a week 77 66 6 0 0 149
Thrice a week 1 0 0 0 0 1
Once a month 74 48 19 7 0 148
Twice a month 38 16 4 8 0 66
Once a year 1 0 0 0 0 1
Twice a year 1 1 0 1 0 3
Indefinite 15 0 0 0 2 17
TOTAL 211 132 29 16 2 390

Table 4
Annualized Consumption
Frequency/Quantity 1-5 6-10 11-15 16-20 Indefinite TOTAL
 (3) (8) (13) (18)
Everyday 4320 2880 0 0 7200
Once a week 12012 27456 4056 0 43524
Thrice a week 468 0 0 0 468
Once a month 2664 4608 2964 1512 11748
Twice a month 2736 3072 1248 3456 10512
Once a year 3 0 0 0 3
Twice a year 6 16 0 36 58
Indefinite
TOTAL 22209 38032 8268 5004 73513

Table 4 shows the annual consumption of polvoron which is computed by multiplying the
total quantity consumed by the corresponding respondents by the frequency of
consumption. For the quantity consumed, the midpoints of the quantity ranges were used.

Responses which were not specified as to quantity such as “It depends” or frequency such
as “Occasionally” were grouped under “Indefinite”. These responses were not included in
the computation of annualized consumption since they cannot be quantified.

Sample computation:

Annualized consumption of respondents eating 1-5 pieces of polvoron everyday:

Annualized Consumption = 4 respondents x 3 pieces x 360days

Annualized Consumption = 4,320 pieces

Table 5
Frequency Distribution of Polvoron Consumers
Responses Frequency Percentage
Yes 390 97.5%
No 10 2.5%
TOTAL 400 100%
Table 5 shows that 97.5%, a majority of the respondents, consume polvoron. This is an
indication that there exists a high demand for the product.

Table 6
Frequency of Polvoron Consumption
Frequency Number of Respondents Percentage
Everyday 5 1.28%
Once a week 149 38.20%
Thrice a week 1 0.26%
Once a month 148 37.95%
Twice a month 66 16.92%
Once a year 1 0.26%
Twice a year 3 0.77%
Indefinite 17 4.36%
TOTAL 390 100%

Table 6 shows how frequent the respondents consume polvoron. The highest percentage
of the consumers eat polvoron once week immediately followed by the consumers who
eat polvoron one a month. The lowest percentage are those who eat thrice a week and
those who eat once a year. From this, we can observe that polvoron is consumed
moderately as it is not usually eaten everyday nor is it eaten once a year.

Table 7
Quantity of Polvoron Consumption
Quantity Number of Respondents Percentage
1-5 211 54.10%
6-10 132 33.85%
11-15 29 7.44%
16-20 16 4.10%
Indefinite 2 0.51%
TOTAL 390 100%

In Table 7, it can be seen that most respondents consume 1-5 pieces of polvoron. As the
quantity of polvoron increases, the percentage of consumers decreases. This observation
shall be taken into consideration in the packaging of the product. Not too many pieces of
polvoron must be placed in a pack so as not to discourage buyers who cannot consume
such amount.

Table 8
Willingness of Respondents to Buy the Proposed Product
Response Frequency Percentage
Yes 388 97%
No 12 3%
TOTAL 400 100%

As shown in Table, 97% of the respondents are willing to buy the proposed product. This
is a good indication of a high demand for the product.

Table 9
Quantity of the Proposed Product the Respondents are willing to Buy
Quantity Number of Respondents Percentage
1-5 175 45.10
6-10 145 37.37
11-15 30 7.73
16-20 25 6.44
50 1 0.26
Indefinite 12 3.10
TOTAL 388 100%

The highest percentage of respondents, 45.10%, are willing to buy 1-5 pieces of the
proposed product.

Examples of responses under “Indefinite” are “Free sample”, “It depends on the taste”
and “It depends on the price”.
 Table 10
Summary of Standard Deviation
Statistical Method Standard Deviation
Arithmetic Straight Line 24,306.5480
Arithmetic Geometric Line 1,219,206.79
Statistical Straight Line 15,598.68394
Statistical Parabolic 623,179.92129

As shown in table 10, the Statistical Straight Line Method yields the least standard
deviation, therefore, it will be used in the projection of demand for the product.
 Table 11
Statistical Straight Line Method

(x
Year Y x x2 xy a + b Yc Y-Yc (Y-Yc)2
)

201 59590720. 1641341. 61232061.

61273524 1 1 61273524 + 1 41462.4 1719130614
1 1 5 6
201 59590720. 1641341. 62873403. -
62853020 2 4 125706040 + 2 415470765.6
2 1 5 1 20383.1
201 59590720. 1641341. 64514744. -
64473026 3 9 193419078 + 3 1740441586
3 1 5 6 41718.6
201 59590720. 1641341. 66156086. -
66134823 4 16 264539292 + 4 452119421.6
4 1 5 1 21263.1
201 59590720. 1641341. 67797427.
67839330 5 25 339196650 + 5 41902.4 1755811126
5 1 5 6
Σ =322573723 Σ =15 Σ =55 Σ =984134584 Σ =6082973513
σ=15598.6839
4

a = ΣY/n – b(Σx/n)
=59,590,720.1
b = (n(Σxy)- (Σx)(ΣY))/(n(Σ x2)- (Σ x)2)
= 1,641,341.5
 Table 12
Projected Demand Using Statistical Straight Line Method
Year a + b X = Yc
2016 59,590,720.1 + 1,641,341.5 6 = 69,438,769.10
2017 59,590,720.1 + 1,641,341.5 7 = 71,080,110.60
2018 59,590,720.1 + 1,641,341.5 8 = 72,721,452.10
2019 59,590,720.1 + 1,641,341.5 9 = 74,362,793.60
2020 59,590,720.1 + 1,641,341.5 10 = 76,004,135.10
2021 59,590,720.1 + 1,641,341.5 11 = 77,645,476.60

Yc = a + bx
Table 13
Actual Projected Demand
Percentage of Consumers Actual Projected
Year Projected Demand
Willing to Buy Demand
2016 69,438,769.10 97% 67,355,606
2017 71,080,110.60 97% 68,947,707
2018 72,721,452.10 97% 70,539,809
2019 74,362,793.60 97% 72,131,910
2020 76,004,135.10 97% 73,724,011
2021 77,645,476.60 97% 75,316,112

The above table shows the actual projected demand for polvoron for the next five years.
This was derived by multiplying the projected demand computed using the statistical
straight line method shown in Table 12 by the percentage of consumers who are willing
to buy the proposed product shown in Table 8.

C. Supply Analysis
The supply analysis will aid in determining the existing amount of product
existing in the market and if such amount is enough to meet the demands for the
product. This will be considered in deciding whether or not an additional supply
of the product should be produced.

Table 14
Quantity Sold by Competitors
 Total Number of Pieces Sold
Seller Pieces Sold in a Day Days in a Year
in a Year
A 41-50 360 16,200
B 21-30 360 9,000
C 1-10 360 1,800
D 11-20 360 5,400
E 41-50 360 16,200
TOTAL 135 48,600

Questionnaires were used to gather data from polvoron sellers at the Baguio City Public
Market. The Baguio City Public Market was chosen as the locale for the Supply Analysis
as it is located at the central business district and it houses a large group of the polvoron
sellers within the city. Among the 28 sellers, only 5 agreed to answer. Other sellers
refused to answer due to their indifference towards the study.

The midpoints of the ranges of pieces sold in a day were used as the number of pieces
sold in a day.

Table 15
Competitors’ Increase (Decrease) in Sales Compared to Previous Year
Seller Percentage of Increase (Decrease)
A 5% Increase
B 10% Increase
C 20% Increase
D 10% Decrease
E No change
TOTAL 25% Increase
Divide by: 5
Average Increase in the Sale of Polvoron 5% Increase
Table 16
Historical Supply
Year Historical Supply
2011 223,907
2012 235,102
2013 246,857
2014 259,200
2015 272,160
Historical Supply (2015) = (135/5) x 28 x 360

= 272,160

Historical Supply (2014) = 272,160 / 1.05

= 259,200

Historical Supply (2013) = 259,200 / 1.05

= 246,857

Table 17
Summary Table of Standard Deviation
Statistical Method Standard Deviation
Arithmetic Straight Line 343.0551
Arithmetic Geometric Line 8,897.199962
Statistical Straight Line 220.14588
Statistical Parabolic 3,546.22684

As shown in table 17, the Statistical Straight Line Method yields the least standard
deviation, therefore, it will be used in the projection of supply for the product.
 Table 18
Statistical Straight Line Method

(x
Year Y x x2 xy a + b Yc Y-Yc (Y-Yc) 2
)
223324.
2011 223,907 1 1 223907 211264 + 12060.4 1 583 339,422.76000
4
235384.
2012 235,102 2 4 470204 211264 + 12060.4 2 -283 79,975.84000
8
247445.
2013 246,857 3 9 740571 211264 + 12060.4 3 -588 345,979.24000
2
259505.
2014 259,200 4 16 1036800 211264 + 12060.4 4 -306 93,391.36000
6
2015 272,160 5 25 1360800 211264 + 12060.4 5 271566 594 352,836.00000

Σ = 1,237,226 Σ = 15 Σ = 55 Σ = 3832282 Σ = 1,211,605.20000

σ = 220.14588

a = ΣY/n – b(Σx/n)
=211,264

b = (n(Σxy)- (Σx)(ΣY))/(n(Σ x2)- (Σ x)2)

= 12,060.4
 Table 19
Projected Supply Using Statistical Straight Line Method
Year a + b x = Yc

2016 211,264 + 12,060.4 6 = 283,626.40

2017 211,264 + 12,060.4 7 = 295,686.80

2018 211,264 + 12,060.4 8 = 307,747.20

2019 211,264 + 12,060.4 9 = 319,807.60

2020 211,264 + 12,060.4 10 = 331,868.00

2021 211,264 + 12,060.4 11 = 343,928.40

Yc = a + bx

Table 19 shows the projected supply of polvoron for the next 5 years starting from 2016
until 2020. It shows a continuously growing number polvoron supplied to the market.
This will be considered in determining if the whether or not the future supply will then be
able to meet the demand for the product.

D. Demand-Supply Analysis

Table 20
Unsatisfied Demand

Year Projected Demand Projected Supply Unsatisfied Demand

2016 67,355,606 283,626 67,071,980
2017 68,947,707 295,687 68,652,020
2018 70,539,809 307,747 70,232,062
2019 72,131,910 319,808 71,812,102
2020 73,724,011 331,868 73,392,143
2021 75,316,112 343,928 74,972,184

Table 20 shows the unsatisfied demand for the next five years. It was derived by
subtracting the projected supply from the projected demand for each year. The extreme
amount of unsatisfied demand is an indication that an additional supply for the product is
needed to meet such demand. This presents an opportunity for the enterprise to capture a
large portion of the market.

E. Price Study

The proposed selling price of the product is highly influenced by the purchasing power of
consumers and the assessment of the costs to be incurred in the operation and production
of the product.

Everyone knows that the price of commodities changes from time to time due to the
erratic changes in the economy. Price is the amount of money expected, required or given
in payment for something. It is also the value expended or endured in order to purchase
products or avail services. Other factors influencing the existence of the product such as
inflation rate and fluctuation of demand and supply of the product will surely affect
selling price of the finished products, hence the prices of the product have a direct
relationship with the demand and supply as well as the economy.

The price of the Espiron will be priced slightly lower that the regular polvoron due to
added ingredient which will serve as a healthier and cheaper alternative that that of the
usual materials. Though setting a lower price, this will easily penetrate the market. Such
method was adopted by G. Co for the following reasons:
1. A lower price connotes good quality.
2. Setting a lower price gives flexibility on the adjustments of prices in case
there is an
error in estimating the price of the product.
3. And lastly, the lower price would maintain the operation of the company,
thus, giving the company the ability to meet the demand of the consumers.

The researchers have computed the price of the product as P100 per pack.

Raw Materials Cost (1) P32,090.88

Labor Cost (2) P13,680.00

P12,635.03
Factory Overhead (3)

Production Cost P58,405.91

Divide by: Monthly Production (pack) (85x24) less
1,999
Spoiled Goods
Product Cost Per Pack 29.21
 Add: Markup Per Pack 342%

Selling Price Per Pack P 100.00

F. Factors Affecting the Market

A. Factors Affecting Demand

1. Income

The income of the enterprise's prospective consumers will have a large

impact in the demand for it determines their ability to buy the product. Moreover,
there is a positive (direct) relationship between a consumer's income and the
amount of the good that one is willing and able to buy. In other words, when
income rises, the demand for the product will increase; when income falls, the
demand for the product will decrease. In dealing with this factor, the management
will ensure that the product will be at its cheapest possible price for the consumers
to afford.

2. Population

The population growth signifies an increase in demand. Consequently,

there will be an increasing number of consumers or buyers demanding for the
product. And as a result, the enterprise should increase its production to satisfy
the demand caused by the growing population.

3. Tastes and Preferences

Tastes and preferences of the consumer directly influence the demand for
a product. They include changes in fashion, customs, habits, etc. If a product is
preferred by the consumers, then demand for such a product rises. On the other
hand, demand for a product falls, if the consumers have no taste for that product.
This will lead the enterprise to advertise its product to change consumer tastes and
preferences in favor of its product.

4. Consumer expectations of future prices

Another factor which influences the demand for good is consumer's

expectations with regard to future prices of the goods. Consumers expect that in
the near future, the price of the good would rise, then in the present they would
demand more goods so that in the future, they don't need to pay higher price.
Similarly, when the consumers expect a fall in the price of a good, they will
postpone a part of the consumption of good with the resulting to the decrease in
their present demand for such good.

5. Marketing Strategies

Marketing strategies made by a firm to promote the sales of its product is

an important factor in determining its demand. Through advertisements and
promotions, consumers will be aware that the product exists. These are ways to
persuade customers about its superior quality. And when these means are proved
to be successful then there will be an increase in the demand. To implement
strategies, the enterprise will attach small leaflets inside the pack of the product
containing its name and benefits.

B. Factors Affecting Supply

1. Increase in the Price of Raw Materials

It would give a great impact to the pricing and production cost if the prices of
raw materials increase.

While the price is still low, the enterprise will purchase more raw materials.
The reserved raw materials, however, would be controlled regularly to avoid
spoilage.

2. Technology
 The advancement of technology is really advantageous to the enterprise
because it can help in producing more polvoron at a shorter time. Having the
proper knowledge on how to handle and use it would simplify the production
process and help conserve time and effort making the work more effective and
efficient.

3. Unforeseen Events

Unforeseen events would include the occurrence of natural disasters like,

massive fish kills and other similar fortuitous events. Sales during these times
decline because of delay or cancellation of deliveries, thus, causing deferment in
production.

As a counteraction, the enterprise should prepare and make contingency plans

to deal with these circumstances to avoid big losses.

4. Competitors

More competitors can affect the demand of the product, and the demand of the
product affects its supply. Therefore, if there are a lot of competitors who produce
similar goods, the demand of the product would decrease because consumers’
taste and preferences change over time, thus leading also to the decrease in
supply.

The enterprise will offer a delicious polvoron at an affordable price. The

enterprise will also make the best innovations possible which would satisfy its
customers. New techniques would be used to attract more customers.

5. Source and Cost of Production

Raw materials and manpower are needed to run the operations. If these
operating expenses are high, production will drop down, resulting to lesser
supply. On the other hand, if operating expenses are low, there would be more
funds allocated in manufacturing and production will also increase.
G. Marketing Program

Product

The demand study shows that a lot of people eat polvoron. Considering
this, the enterprise came up with the idea of innovating the said food product by
offering a healthier and more nutritious one. Espiron is a polvoron made of
powdered milkfish fishbone. As a result of a research, milkfish fishbone has been
found to be a good material for a calcium-rich and protein-packed polvoron. The
benefits and components of Espiron are factors that would encourage everyone to
try it. It would be served in a good packaging form for the convenience of the
consumers. The proponents will not only be focusing on the appearance and the
benefits of the product, but for the consumer’s satisfaction and pleasure as well.

Price

To fit into everyone’s budget, this product will be offered to the public at a
reasonable price. The production cost, related expenses, packaging cost and
markup would lead to the determination of the product’s price. Production cost
would be comprised of the prices of raw materials, direct labor, utilities and other
necessary expenses.

Place

The proposed manufacturing site of the enterprise is at 18 th Sergeant

Floresca Street, Aurora Hill, Baguio City. This area was chosen because it is near
Baguio City Public Market, thus, making it more accessible for clients and time
efficient when delivering to and from establishments.

Promotion

1. Flyers
To be able to penetrate the market, the enterprise will be using
flyers to advertise the product. 2,000 copies of flyers will be produced
which will contain the name of the enterprise, the features of the
 product and the enterprise’s contact number, in case of orders and
deliveries. The flyers will be distributed to different people, most
especially to the owners of pasalubong centers around Baguio City.
The enterprise will also be using social networking sites for further
publicity.

2. Packaging

CALCIUM- PROTEIN-PACKED
RICH
Illustrated above is the outer packaging of the product. It is a clear bag printed with the
design, the product name, and the logo of the enterprise. Each pack will contain 12 pieces
of polvoron which are individually wrapped in Japanese paper also marked with the
product name.