Lorenz Distribution Situations

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Lorenz distribution situations

The general lack of homogeneity in industrial markets has already been commented upon. Often a Lorenz distribution situation exists (i.e. by far the greater part of purchases is usually accounted for by a relatively small number of companies). In these circumstances a high proportion of the market can be identified in comparatively few interviews. The industrial market researcher, as a matter of routine, will take full advantage of this situation.

In this way a definite minimum size of market can be clearly identified. This may very well prove adequate for the business decision to be made.

For example, in a decision to build a new factory, it is rare for market size to be the only constraint. If availability of finance limits the factory to a certain, maximum size, and therefore output, there is no real point in spending money on market research beyond the point at which it has located a size of market adequate to allow every chance that the full output will be sold.

It can be unwise to rely too heavily, however, on the Lorenz approach. Not only are the results obviously biased to big-company practices, but smaller companies may prove easier to penetrate, quality demands may not be so exacting, price levels may prove more remunerative, and purchasing policies less strict. It may prove unwise to entrust all the industrial eggs to too few industrial baskets. For these reasons, even if the Lorenz approach locates an adequate market, the industrial researcher will also approach a number of smaller companies, 'as a general rule.

But what if the Lorenz approach fails to locate anything like an adequate size of market? And what about situations where Lorenz does not apply? There are, for instance, many thousands of laboratories in this country, but for certain products only the Department of Health and Social Security purchases in really significant quantities. In other cases, the survey may be directed specifically at smaller companies.

It may be thought, after a discussion of so many alternative approaches, that such situations are rare, but this is not the case. The industrial researcher is not infrequently faced with a situation in which the most he can hope for is a broad approximation, though usually this is supported by safeguards in the form of correlation tests, broad market assessments using an alternative base.

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