Market analysis helps us to determine the market situation in terms of its attractiveness or otherwise. Organizations weigh their strengths and weaknesses relating it to the opportunities and threats, to understand their capability to respond to the market changes, based on such analysis.
Systematic market analysis benefits an organization in terms of new product development, tracking changing demand pattern of customers. Also this helps in demand forecasting and accordingly scaling up and down the activities of the organizations.
David A. Aaker outlined the following dimensions of a market analysis:
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i. Market size (current and future)
ii. Market growth rate
iii. Market profitability
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iv. Industry cost structure
v. Distribution channels
vi. Market trends
vii. Key success factors
i. Market Size:
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Market size is determined based on the current and future sales potentiality of an organization. It is determined by browsing through the information from various sources. A tentative list of such sources can be enumerated as follows:
i. Government data
ii. Trade associations
iii. Financial data from major players
iv. Customer surveys
ii. Market Growth Rate:
Extrapolating the past data into the future, market growth rate can be ascertained in an organization. This is, however, very crude form of estimation of market growth rate, as it cannot account for the fluctuations or any variation in the growth pattern that may occur in future time period for change in any factor or factors, which may influence the market growth.
There are many market growth drivers, like, demographic pattern, growth of sales in complementary products, income level, changing lifestyle of users of products and services, changing customers’ taste and preferences, etc.
For a better estimation of market growth pattern, often it is recommended to use the product diffusion curve. Product diffusion curve is developed based on the study of characteristics of adoption rate of similar products or services in the past. This information ultimately helps us to reach the level of maturity.
We have already indicated the growth drivers. Some of the indicators of decline phase in a product diffusion curve are price competition, decline in brand loyalty, availability of new substitutes, market saturation, etc.
iii. Market Profitability:
Profitability levels in any organization, to a great extent, are market dependent. Organizations may have different levels of profitability in different market situation, which depends on number of factors. Michael Porter, through his five competitive forces, explained the way to measure the market situation. This framework of competitive forces, to a large extent influences the market profitability. Let us now understand such competitive forces.
i. Bargaining power of buyers
ii. Bargaining power of suppliers
iii. Entry barriers
iv. Availability of substitutes
v. Rivalry
Such competitive forces exert pressure on market profitability. To take an example, with a high degree of rivalry, i.e., availability of more competitors in the market, price competition increases and market profitability declines. In the reverse case, however, market profitability increases.
iv. Industry Cost Structure:
Industry cost structure is an important determinant of organizational success or failure. Here, again we can refer Porter’s value-chain concept, which helps an organization to add value to products and services, without, however altering the cost. At times, it can even reduce the costs while increasing the customers’ satisfaction.
v. Distribution Channels:
Distribution channels facilitate in reaching the products to the end-users on real time basis. Some of the distributions systems, which organizations need to consider while doing market analysis are as under:
i. Understanding of the Existing Distribution Channels: This helps us to understand how direct the products reach to the customers.
ii. Trends and Emerging Channels: This helps us to asses to what extent new channels can enhance the competitive advantage for .the organization.
iii. Power Structure of Channels: Understanding the power structure of channels is very important aspect of market analysis. Organizations with high brand equity can weaken the channels power, as they dictate their terms. Similarly in the reverse case, the channel partners enjoy the higher power.
vi. Market Trends:
Fluctuations in the market trends could be both an opportunity and threat for an organization. Market trends may be industry specific or general. Industry-specific market trends influence those organizations that falls under the same industry category. General market trends, however, affect all organizations, irrespective of their industry group. Such trends may be in terms of price sensitivity, nature of demand or even regional trends.
vii. Key Success Factors:
Key success factors are those which help an organization to achieve its market objectives. It also forms an important part of market analysis. Some of the key success factors can be listed as under:
i. Accessibility to essential and unique resources
ii. Competence to reach economies of scale
iii. Accessibility to channels of distribution
iv. Accessibility to the state-of-the-art technology
It is important to understand that for any organization, key success factors change over time.