Market Analysis and It’s Dimensions

Introduction
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 thus in turn of the
global environmental analysis. Through all of these analyses, the strengths,
weaknesses, opportunities and threats (SWOT) 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 necessary.
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 an
integral 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. Market segmentation is an important way to find competitive
advantage with its differentiation in market analysis. Market segmentation
concentrates on market energy and power to gain competitive advantage. In other
words, market segmentation is the concept tool to get the force (Thomas, 2007). In
market analysis, market knowledge is required to analyze market structure and
process. Since segmentation requires a lot of market research, various information
can be extracted from it. Market segmentation can identify customer needs and
wants and develop products to their satisfaction. Market segmentation can identify
different products for different groups, better match customer wants and product
benefits, maximize the use of available resources and focus marketing expenditures
and competitive advantages (Karlsson,2012) There is no specific way to segment
market. However, businesses can follow generalized rules like geographic,
demographic, psychographic, and behavioral. A good market segmentation should
be sustainable, accessible, actionable, measurable, and differentiable (Karlsson,
201

Dimensions of market analysis

David A. Aaker outlined the following dimensions of a market analysis:

 Market size (current and future)

 Market trends
 Market growth rate
 Market profitability
 Industry cost structure
 Distribution channels
 Key success factors
 Key success details

Market analysis strives to determine the attractiveness of a market, currently and in

the future. Organizations evaluate future attractiveness of a market by
understanding evolving opportunities and threats as they relate to that
organization's own strengths and weaknesses. Organizations use these 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.2).

Elements
Market size

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 dependent 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

Market trends
Market trends are the upward or downward movement of a market, during a
period of time. The market size is more difficult to estimate if one is starting
with something completely new. In this case, you will have to derive the figures
from the number of potential customers, or customer segments. Besides
information about the target market, one also needs information about one's
competitors, customers, products, etc. Lastly, you need to measure marketing
effectiveness. A few techniques are:

 Customer analysis
 Choice modeling
 Competitor analysis
 Risk analysis
 Product research
 Advertising the research
 Marketing mix modeling
 Simulated Test Marketing

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. 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

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.
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.

Market opportunity
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.).

Market profitability
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 five forces analysis, 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 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
 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.

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.
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.

Distribution channels
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. 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.

Success factors
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.

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.
 Group No.4
Suyash Saini
Ganesh Sutar
Azmat
Akshay Yadev