Each Wednesday we feature a Wikipedia page relevant to the current topics from procurement discussions and then feature a post on our blog helping you see how we made the connection. Buyer Meeting Point is a NO JUDGEMENT ZONE; we intentionally cover basic topics because as time goes on the topics that are considered ‘fundamentals’ have a way of being taken for granted. This week we are looking on the Market Analysis article – and here is why…
On Thursday, we are going to test run one of our ideas for 2012. Our strategic planning is underway to make sure we have an opportunity to continue the tremendous growth we saw in our numbers and traffic in 2011. One of the things we have long wanted to do is start putting more effort into information on categories and industries rather than just the process and skills focus we have had in the past. This week we will put out a market overview for you to take a look at and provide us feedback on. We fully expect this to be an evolving idea, so chime in and let us know what you think would make it more useful.
Below is an excerpt of the Wikipedia article on Market analysis, but you can read the full article at its source here.
A market analysis studies the attractiveness and the dynamics of a special market within a special industry. It is part of the industry analysis and this in turn of the global environmental analysis. Through all these analyses the chances, strengths, weaknesses and risks of a company can be identified. Finally, with the help of a SWOT analysis, adequate business strategies of a company will be defined. The market analysis is also known as a documented investigation of a market that is used to inform a firm's planning activities, particularly around decisions of inventory, purchase, work force expansion/contraction, facility expansion, purchases of capital equipment, promotional activities, and many other aspects of a company.
Market segmentation is the basis for a differentiated market analysis. Differentiation is important. One main reason is the saturation of consumption, which exists due to the increasing competition in offered products. Consumers ask for more individual products and services and are better informed about the range of products than before. As a consequence, market segmentation is indispensable. Segmentation includes a lot of market research, since a lot of market knowledge is required to segment the market. Market research about market structures and processes must be done to define the “relevant market”. The relevant market is a part of the whole market, on which the company focuses its activities. To identify and classify the relevant market, a market classification or segmentation has to be done.
Dimensions of Market Analysis
- Market size (current and future)
- Market growth rate
- Market profitability
- Industry cost structure
- Distribution channels
- Market trends
- Key success factors
The goal of a market analysis is to determine the attractiveness of a market, both now and in the future. Organizations evaluate the future attractiveness of a market by gaining an understanding of evolving opportunities and threats as they relate to that organization's own strengths and weaknesses.
Organizations use the findings to guide the investment decisions they make to advance their success. The findings of a market analysis may motivate an organization to change various aspects of its investment strategy. Affected areas may include inventory levels,a work force expansion/contraction, facility expansion, purchases of capital equipment, and promotional activities.
The market size is defined through the market volume and the market potential. The market volume exhibits the totality of all realized sales volume of a special market. The volume is therefore dependant on the quantity of consumers and their ordinary demand. Furthermore, the market volume is either measured in quantities or qualities. The quantities can be given in technical terms, like GW for power capacities, or in numbers of items. Qualitative measuring mostly uses the sales turnover as an indicator. That means that the market price and the quantity are taken into account. Besides the market volume, the market potential is of equal importance. It defines the upper limit of the total demand and takes potential clients into consideration. Although the market potential is rather fictitious, it offers good values of orientation. The relation of market volume to market potential provides information about the chances of market growth.  The following are examples of information sources for determining market size:
- Government data
- Trade association data
- Financial data from major players
- Customer surveys
Changes in the market are important because they often are the source of new opportunities and threats. Moreover, they have the potential to dramatically affect the market size.
Examples include changes in economic, social, regulatory, legal, and political conditions and in available technology, price sensitivity, demand for variety, and level of emphasis on service and support.
Market growth rate
A simple means of forecasting the market growth rate is to extrapolate historical data into the future. While this method may provide a first-order estimate, it does not predict important turning points. A better method is to study market trends and sales growth in complementary products. Such drivers serve as leading indicators that are more accurate than simply extrapolating historical data.
Important inflection points in the market growth rate sometimes can be predicted by constructing a product diffusion curve. The shape of the curve can be estimated by studying the characteristics of the adoption rate of a similar product in the past.
Ultimately, many markets mature and decline. Some leading indicators of a market's decline include market saturation, the emergence of substitute products, and/or the absence of growth drivers.
A market opportunity product or a service, based on either one technology or several, fulfills the need(s) of a (preferably increasing) market better than the competition and better than substitution-technologies within the given environmental frame (e.g. society, politics, legislation, etc.).
While different organizations in a market will have different levels of profitability, they are all similar to different market conditions. Michael Porter devised a useful framework for evaluating the attractiveness of an industry or market. This framework, known as Porter's five forces, identifies five factors that influence the market profitability:
- Buyer power
- Supplier power
- Barriers to entry
- Threat of substitute products
- Rivalry among firms in the industry
Industry cost structure
The cost structure is important for identifying key factors for success. To this end, Porter's value chain model is useful for determining where value is added and for isolating the costs.
The cost structure also is helpful for formulating strategies to develop a competitive advantage. For example, in some environments the experience curve effect can be used to develop a cost advantage over competitors.
Examining the following aspects of the distribution system may help with a market analysis:
- Existing distribution channels - can be described by how direct they are to the customer.
- Trends and emerging channels - new channels can offer the opportunity to develop a competitive advantage.
- Channel power structure - for example, in the case of a product having little brand equity, retailers have negotiating power over manufacturers and can capture more margin.
The key success factors are those elements that are necessary in order for the firm to achieve its marketing objectives. A few examples of such factors include:
- Access to essential unique resources
- Ability to achieve economies of scale
- Access to distribution channels
- Technological progress
It is important to consider that key success factors may change over time, especially as the product progresses through its life cycle.
The literature defines several areas in which market analysis is important. These include: sales forecasting, market research, and marketing strategy. Not all managers will need to conduct a market analysis. Nevertheless, it would be important for managers that use market analysis data to know how analysts derive their conclusions and what techniques they use to do so.