Market Assessment - Singapore Management...

Market Assessment

In this module, you will learn to evaluate the

potential and attractiveness of new business areas

and new markets in today’s complex and dynamic

environment.

SPRING Singapore & Marketing Institute of Singapore Copyright © 2010 All Rights Reserved

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Market Assessment PEST & SWOT Analysis Quantitative Analysis Template

Contents

1 Why do I need to do market assessment? 3

What is market assessment? Why is market assessment important?

2 How do I conduct market assessment? 6

PEST analysis Key players analysis SWOT analysis Quantitative analysis Market assessment template guide


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1> Why do I need to do market assessment?


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Market assessment is a detailed and objective evaluation of the potential of a new product, new business idea or new investment. It is a comprehensive analysis of environment forces, market trends, entry barriers, competition, risks, opportunities and the company’s resources and constraints. Whether you are thinking of venturing into a new market or launching a new product, conducting a marketing assessment is the crucial first step in determining if there is a need or a potential customer base for your product.

A well executed market assessment will enable your company to decide where to use limited resources and to go after markets and opportunities that will provide the best returns on investments. Failure to conduct proper market assessment could result in wastage of resources, missed opportunities, poor returns on investments and even substantial financial losses which could be detrimental to the future of your company.

Case Study

Remember New Coke? In 1985, Coca-Cola replaced the original Coke with New Coke. This was done in an attempt to challenge the increasingly popular Pepsi. After just 79 days of public outcry, Coca-Cola had to bring back the original formula and New Coke was eventually phased out. Coca-Cola spent two years and millions of dollars on research before the launch. They focused on the physical aspects of the product, overlooking the strong brand that loyal customers had come to associate and identify with. They failed to ask the right questions during the research and as a result, collected irrelevant information. You need to remember that it is not enough just to conduct market assessment. You need to make sure that you are doing it right.


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How is market assessment done? It should be done systematically in order to

identify areas of weakness and strength

Do you know the market conditions that you will have to operate in?

Use the PEST analysis

Who are the key players who can affect the success of your business?

Who can you collaborate with? Who do you need to communicate with?

Will your company do well in this business opportunity?

Use the SWOT analysis

Do the facts and figures support your decision?

Use quantitative analysis

What is your expected market share, revenue and profits?

Use a template to run some estimates

Have you missed out anything?

Use the checklist


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2> How do I conduct market assessment?


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An assessment of the market should be done in a systematic manner. The process can be broken down into the following steps.

First, understand market conditions.

Gather basic information about your intended market - size, competition, potential customers and income levels. You will also need information about the business environment – political, economic, social and technological.

Next, identify market risks and opportunities.

Gather more targeted information about potential risks or opportunities in the potential market. Other information required includes data on market growth, trends, opportunities, risks and key players in the market.

Finally, you need to analyse the overall picture.

You need to put together all the information you have collected and determine if your business venture is still viable. Once you are confident that you should proceed with the venture, you can start developing your marketing plan. See “Marketing Plan” guide.

Act on It

Red and Green Flags As you analyze market conditions, environment forces and key players in your target market, you should identify negative issues (red flag items) that are areas of weakness, which generate risks. You should also identify positive issues (green flag items) that are areas of strengths, competitive advantages or even good timing, which favours entry into the market. Make an objective assessment of all risks and opportunities before making a decision to venture into prospective markets.


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PEST analysis is an important step in understanding market conditions. In a PEST analysis, you need to look at political and legal, economic, social, technological (and natural) factors. These may shape opportunities or create threats and can affect your company’s ability to build customer relationships. With proper external analysis, you will gain an overview of the different macro environmental factors that you need to take into consideration before venturing into a new business area or new market. In analysing key players in the market, you will gain a better understanding of suppliers, intermediaries, customers, competitors and the public and how they may work with or against your company. A detailed assessment of all these forces will help you determine the potential of prospective markets. With this information on hand, you are now a step closer to making more informed decisions about your business ventures. A brief summary of all these factors are shown in the tables overleaf. See “Marketing Plan” for detailed information on the PEST analysis.

Act on It

Sources for Market Data Free resources: 1> Visit IE Singapore’s portal,

library and panel of advisors, which is available to Singapore registered companies.

www.iesingapore.gov.sg 2> Visit EnterpriseOne Business

Information Services (EBIS) portal for free and customised competitor and industry reports, expert advisory services and access to >160 international databases.

www.ebis.sg/Home/tabid/36/Default.aspx

3> Personal visit to Trade Missions of various countries.

Paid resources: 1> Purchase market reports from

research companies, which are useful for mass market products. However they may be costly.

2> Visit the libraries of local universities. They contain the latest journals and provide access to useful databases but usually require some nominal membership fee.

Networking: 1> Visit Action Community for

Entrepreneurship portal and participate in the events, where established business people share their experience with new entrepreneurs.

www.ace.org.sg

http://www.iesingapore.gov.sg/

http://www.ebis.sg/

http://www.ebis.sg/

http://www.ace.org.sg/

http://www.ace.org.sg/


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Type of Factors Why is this important? Examples

Political / Legal

Exerts direct and indirect influence on your business operations.

Electronic components manufacturer setting up manufacturing facilities in Indonesia can take advantage of incentives & concessions under the ASEAN FTA agreement.

Economic

Affects consumer purchasing power and spending patterns. Markets vary greatly in their levels and distribution of income.

Explosive growth in fast food, leisure products and services in Vietnam due to rising income in the young population due to the booming economy

Social Identify potential customers in prospective markets and their spending patterns.

Declining sales of children’s color pencils in Japan due to low birth rate, but increasing sales of artist grade pencils bought by retirees

Technological

Evaluate opportunities or risks due to obsolescence and good timing for market entry (Profit optimization is often the result of first mover initiatives)

Substantial growth in prepaid phones in Indonesia as a result of expensive data plans offered by telecommunication service providers

Natural

Identify availability of natural resources and whether the business is feasible due to impact on environment

Local Rosewood furniture manufacturer identifies availability of alternative raw material in Laos



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Key Players Why is this important? Examples

The Company

Understand management’s knowledge, business acumen and expertise (inherited or learned). You can consider entering markets which you are familiar with, rather than those which you have poor knowledge of.

Farmers venturing into agribusiness on a larger scale would have the requisite knowledge.

Suppliers

Continuous supply is crucial. Supply shortages, delays, labor strikes and other events can cost you potential sales in the short run and damage relationships with customers in the long run. You need to factor in risks of supply shortages and price increases if your suppliers are limited or influential.

Local notebook manufacturer went bust due to tight supply and high cost of LCD panels from key suppliers in Taiwan.

Intermediaries

Marketing intermediaries, such as resellers, wholesalers and distributors, help you promote, distribute and sell your products. If you are unable to engage intermediaries, you may have to build and develop your own network, which may be time consuming and costly, or tap on distribution networks of related industries.

European stationery manufacturer appointing industrial paint distributor to distribute their products.

Customers

Different markets have different characteristics. You need to analyze the type of market you are targeting. Are you going after the:

Consumer market (B2C) Business market (B2B) Resellers market or Government market?

Hard disk manufacturer choosing to sell to government agency in India instead of going through the usual sales channel.

Competitors

You need to analyze the strengths and weaknesses of existing and potential competitors. You also need to consider your size and industry position relative to competition. Large companies in dominant positions can use strategies that small companies cannot afford. Small firms can develop an edge with personalized service, quick response time, flexible processes and variety.

The owner of a small enterprise is able to build strong relationships with their customers directly and therefore has a strong and loyal customer base.

Publics

Public opinion and sentiment can shape the business environment. A public is any group that has an actual or potential interest in or impact on your company’s ability to achieve its business objectives. There are about seven types of publics.

Financial public Media public Government public Citizen action public Local public General public Internal public

A social enterprise gaining a lot of support from the general public due to increasing sense of social responsibility and initiative to contribute to the welfare of the society.



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SWOT analysis seeks to provide information that is helpful in matching your company’s resources and capabilities to the competitive environment in which you operate.

It involves defining the objective of your venture and identifying both internal and external factors that are favourable and unfavourable in your journey to achieve that objective. A SWOT analysis is instrumental in helping you assess the potential of prospective markets. First, define the objective of your venture. An example would be “to open a branch in Vietnam by 2011 and to achieve sales revenue of $1 million by 2013.” Next, understand the 4 main classifications of internal and external factors. Then identify the SWOTs based on your intended venture. Internal factors are classified as:

External factors are classified as:

Finally, evaluate the SWOTs and determine if your objective is attainable. If your objective appears no longer attainable, then you must identify a different objective or venture and repeat the SWOT analysis.

Strengths

Your company’s resources, competencies and

capabilities that can be used as a basis for developing competitive advantage.

Weaknesses

Characteristics that place your company at a

disadvantage relative to your competitors.

Opportunities

External circumstances which may bring your

company greater growthand returns.

Threats

External disruptiveelements in the market

environment that may cause trouble for your company.


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Figure 1 Examples of SWOTs


[Strengths]

What are your strengths?

What do you do better than your competitors?

What can you improve given the current situation?

What do others perceive as your strengths?

[Weaknesses]

What are your weaknesses?

What do your competitors do better than you?

What can you improve given the current situation?

What do others perceive as your weaknesses?

[Opportunities]

What trends or conditions may positively impact you?

What opportunities are available to you?

[Threats]

What trends or conditions may negatively impact you?

What are your competitors doing that may impact you?

Do you have solid financial support?

What impact do your weaknesses have on the threats to you?

Objective of Venture

STRENGTHS A strong brand name Patents Cost advantage arising from

proprietary technologies Extensive knowledge about

target market Exclusive access to natural

resources Strong business connections

OPPORTUNITIES Removal of trade barriers Identification of unmet need Positive changes in legislations Emergence of new technologies First mover advantage

WEAKNESSES Weak brand name Poor reputation Weak intellectual property

protection High operating costs, lack of

critical mass Lack of access to best natural

resources Lack of access to distribution

network THREATS Establishment of new

trade barriers Shift in consumer preference

and taste Emergence of substitute

products


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Besides doing qualitative assessment of prospective markets using PEST and SWOT analysis, it is also important to take a look at quantitative analysis.

1> Market size Number of potential customers Percentage of potential customers with

purchasing power 2> Market share projection

Estimated share of the market Competitors’ share of the market Number of customers you can potentially

convert 3> Channel mix

Number of direct customers i.e. those serviced by your own sales force

Number of indirect customers i.e. those serviced by your agents or dealers

4> Revenue projection

Direct revenue: Sales generated by your own sales force

Indirect revenue: Sales generated by your agents or dealers

5> Gross profit and gross profit margin projection Direct gross profit derived from sales generated by your own sales force Indirect gross profit derived from sales generated by your agents/dealers

See the next section for a guide on working out some of the above figures. After you have completed both the qualitative (PEST, SWOT Analysis) and quantitative aspects of the market assessment, you will then need to make a decision as to whether the potential of the prospective market appears attractive enough for you to commit resources and venture further.


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Download a market assessment template from the following website. http://office.microsoft.com/en-us/templates/market-analysis-TC001187366.aspx This template is available to you at no cost. Read through the following before using the template. It will help you understand the information required so that you can input the figures to the best of your knowledge. This will in turn help you generate a more accurate analysis of your business venture.

Tip

Managing your risks Remember that there will always be risks. Risk free investments are hard to come by. You will need to learn to work within your constraints and limitations. Uncertainties and lack of information will always be a challenge that needs to be managed. Wherever possible seek advice and guidance from those who have experience operating in the prospective market. First mover and learning curve experience from such firms is always valuable. You will have to learn to take calculated risks. Such experiences will help to build business acumen. Do not be afraid to make mistake but make sure you only make new mistakes each time.

Which pricing strategy fits you best? Cost-plus pricing is used mainly by manufacturers. This method ensures that all costs are covered and desired profit percentage is attained. Demand pricing is used by companies that sell their product through various sources. You can price your products differently according to demand. Competitive pricing is used by companies offering products with little differentiation entering a market with established prices. Markup pricing is used mainly by retailers. This method determines pricing by adding your desired profit to the cost of the product.

Market share Make an objective estimate of the number of potential customers in the market and the proportion with sufficient funds to purchase your products. You may consider utilizing secondary sources in a quantitative process to establish this estimate. Some possible secondary sources include market reports and census data. The total aggregate sales of your competitors may also provide you with a fairly accurate estimate of the total potential market. Market share projections Arriving at an estimate of your expected market share as well as your competitors’ market shares can be highly subjective. You need to consider how your distribution, pricing and promotional strategies will fare relative to your competitors. Then factor in the likely conversion of your competitors’ customers into your own. Channel mix This refers to the intended proportion of direct customers to indirect customers. Revenue projection Work out your projected revenue based on the estimated number of direct and indirect customers and your intended pricing. How you price your product is important because it will have a direct effect on the success of your business. As a basic rule of thumb, you need to make sure that you take in all considerations such as costs, demand, market demands and competitor’s pricing. You should always monitor product utility, longevity, maintenance and demand to adjust prices accordingly. Gross profit and profit margin Work out the gross margins both in percentage and absolute dollars generated by your direct and indirect customers.

http://office.microsoft.com/en-us/templates/market-analysis-TC001187366.aspx

http://office.microsoft.com/en-us/templates/market-analysis-TC001187366.aspx


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Table 1 Sample Market Assessment Template

[Company Name]

[Date of analysis]

[Name of Marketing Manager]

Enter your estimates in the white cells. Figures in gray cells are calculated for you.

Product Market Analysis Year 1 Year 2 Year 3 Year 4 Number of potential new customers 100,000 150,000 200,000 250,000 Percentage of potential customers with adequate funds to purchase 25.0% 27.5% 30.0% 35.0% Number of available customers with budget 25,000 41,250 60,000 87,500 Market share projections

Estimated share of annual market 25.00% 25.00% 30.00% 30.00% Competitor #1 share 20.00% 20.00% 20.00% 20.00% Competitor #2 share 15.00% 15.00% 15.00% 10.00% Competitor #3 share 0.00% 5.00% 5.00% 5.00% No-buy decision 40.00% 35.00% 30.00% 35.00%

Total 100.00% 100.00% 100.00% 100.00% Number of converted customers

[Company Name] 6,250 10,313 18,000 26,250 Competitors 8,750 16,500 24,000 30,625

Total active customers 15,000 26,813 42,000 56,875 Estimated number of remaining customers 10,000 14,438 18,000 30,625

Financial Projections Year 1 Year 2 Year 3 Year 4 Channel mix

Direct 80% 75% 75% 70% Indirect 20% 25% 25% 30% Average sale per direct customer $200 $205 $215 $220 Average sale per indirect customer $225 $233 $240 $243 Direct annual revenue $1,000,000 $1,585,547 $2,902,500 $4,042,500 Indirect annual revenue $281,250 $600,703 $1,080,000 $1,913,625 Direct gross margin % 25% 28% 32% 36% Indirect gross margin % 28% 30% 35% 39% Direct gross margin $ $250,000 $443,953 $928,800 $1,455,300 Indirect gross margin $ $78,750 $180,211 $378,000 $746,314



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Run through the following checklist to make sure that you have not left out information that may be crucial in helping you make your decision.

Market Assessment Checklist INDUSTRY ANALYSIS

Is the industry seasonal? Does the majority of business operations take place during only part of the year?

Is the industry subject to certain regulations? What are they? Is the industry sensitive to economic fluctuations? Is the industry growing? What are the technological changes ongoing in the industry? What are the financial characteristics of the industry? What are the current trends within the industry? Who are the leaders within the industry? Why are they successful? What types of marketing strategies are prevalent within the industry?

Which are the successful ones? MARKET ANALYSIS

Can you define your market clearly? Who are your potential customers in the market? What is the size of the market in terms of number of potential customers

and revenue? How fast is the market growing? What are the marketing and communication methods you need in order to

reach out to this market? What is the appeal of your product or service largely built on, and is it

sustainable? COMPETITIVE ANALYSIS

Can the market support another player? Can you become one of the key players?

Who are your competitors? Are they successful and why? What do existing or potential customers like about your competitors’

products and services? How do your competitors reach out to the market? How are your competitor's pricing, operations and marketing activities

structured? Are your competitors making any major changes in their product offering,

marketing strategy or business model? CUSTOMER ANALYSIS

What are consumers currently paying for comparable products and services?

What factors are most important to consumers when selecting this product or service? Is it price, quality, delivery time or other factors?

Is there customer loyalty? What makes your product or service unique compared to the current

offerings in the industry?


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Acknowledgements

www.biztree.com - Market analysis templates database

www.businessballs.com - a free ethical learning and development resource for people and organizations run by Alan Chapman

International Market Assessment IMA Asia - www.imaasia.com

www.marketresearch.com - Market analysis reports database

Microsoft

office.microsoft.com/en-us/templates/market-analysis-TC001187366.aspx

Quick MBA reference site - www.quickmba.com

Singapore Business federation - www.sbf.org.sg

US Small Business Administration - www.sba.gov

Wordpress - New Coke : A “Classic” Marketing Research Blunder? imcetys.files.wordpress.com/2006/12/caso-newcoke.pdf

Websites mentioned in the guide In order of appearance:

IE Singapore’s Market guide - www.iesingapore.gov.sg

EnterpriseOne Business Information Services (EBIS)

www.ebis.sg/Home/tabid/36/Default.aspx

Action Community for Entrepreneurship www.ace.org.sg

Microsoft



imcetys.files.wordpress.com/2006/12/caso-newcoke.pdf

http://www.ebis.sg/


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