DUBLIN – Research and Markets has announced the addition of the “The 2009-2014 Outlook for Advertising Agencies in the United States” report to their offering.
What is latent demand and the P.I.E.?
The concept of latent demand is rather subtle. The term latent typically refers to something that is dormant, not observable, or not yet realized. Demand is the notion of 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 commonly defined by economists as the industry earnings of a market when that market becomes accessible and attractive to serve by competing firms. It is a measure, therefore, of potential industry earnings (P.I.E.) or total revenues (not profit) if the United States is served in an efficient manner. It is typically expressed as the total revenues potentially extracted by firms. The market is defined at a given level in the value chain. There can be latent demand at the retail level, at the wholesale level, the manufacturing level, and the raw materials level (the P.I.E. of higher levels of the value chain being always smaller than the P.I.E. of levels at lower levels of the same value chain, assuming all levels maintain minimum profitability).
The latent demand for advertising agencies in the United States is not actual or historic sales. Nor is latent demand future sales. In fact, latent demand can be either lower or higher than actual sales if a market is inefficient (i.e., not representative of relatively competitive levels). Inefficiencies arise from a number of factors, including 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 typically larger than actual sales in a market.
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 in this report are U.S. dollars not adjusted for inflation (i.e., the figures incorporate inflationary trends). If inflation rates vary in a substantial way compared to recent experience, actually sales can also exceed latent demand (not adjusted for inflation). On the other hand, latent demand can be typically higher than actual sales as there are often distribution inefficiencies that reduce actual sales below the level of latent demand.
As mentioned in the introduction, this study is strategic in nature, taking an aggregate and long-run view, irrespective of the players or products involved. In fact, all the current products or services on the market can cease to exist in their present form (i.e., at a brand-, R&D specification, or corporate-image level) and all the players can be replaced by other firms (i.e., via exits, entries, mergers, bankruptcies, etc.), and there will still be latent demand for advertising agencies at the aggregate level. Product and service offerings, and the actual identity of the players involved, while important for certain issues, are relatively unimportant for estimates of latent demand.
Key Topics Covered:
INTRODUCTION
Overview
What is Latent Demand and the P.I.E.?
The Methodology
Step 1. Product Definition and Data Collection
Step 2. Filtering and Smoothing
Step 3. Filling in Missing Values
Step 4. Varying Parameter, Non-linear EstimationStep 5. Fixed-Parameter Linear Estimation
Step 6. Aggregation and Benchmarking
SUMMARY OF FINDINGS
REGIONAL OVERVIEW
DISCLAIMERS, WARRANTEES, AND USER AGREEMENT PROVISIONS
For more information visit http://www.researchandmarkets.com/research/2293e3/the_20092014_outl
