Market Analysis is an important tool to study the degree of attractiveness of a market that a company wants enter in the near future. This tool is used to study the current pattern of the market and evaluate future opportunities or threats and then decide whether or not it will be fruitful to enter into that particular market. The results of this analysis, assists an organization in making investment decisions.
Let’s discuss the dimensions of market analysis as outlined by David Aaker:
1. Market Size:
Market size refers to the current and potential volume of the selected market. The organization studies the growth potential of a particular market and decides to enter into the market only if the results match their expectation.
For example, the rise in demand of Smartphone has given a boost to several product development companies in the electronic industry. Some of the key parameters used by the organizations to gauge the potential of the industry are number of smart phone users and the purchasing power of the customers from different locations. The result obtained from this data can form an important basis for the organization to measure the market size and decide whether or not to enter into the market.
2. Market Trends:
It is very important for an organization to be updated with the market trends of the industry. They should keenly observe the behaviour of the customers and the steps taken by the competitors. Before entering a market, it is very important for an organization to analyze the direction of the market, whether it is expanding or contracting.
3. Market Growth Rate and Profitability:
Growth projection and profitability is another dimension of market analysis. Companies make use of tools like Product Diffusion Curves to forecast inflection points in growth projections. On the other hand, market profitability can be predicted by using Porter’s Five Forces model, i.e., the analysis of market trend by taking into account threat of new entrants, a threat of substitutes, bargaining power of customers, bargaining power of suppliers, and the competitive rivalry.
4. Industry Cost Structure:
This dimension is about reducing costs by identifying and eliminating non value adding activities. Non-value adding activities can be identified by using value chain analysis. When the organization focuses and invests only on the activities that are critical for value creation, it can develop a competitive edge over the competitors in the market.
5. Distribution Channels:
Selecting effective distribution channels and identifying emerging channel partners helps an organization better understand new and easy ways to reach the customers and gain a competitive edge.
6. Key Success Factors:
Patents, technological superiority, channel partners, accessibility to resources may be some of the strengths of an organization. These success factors must be identified to utilize opportunities and remain competitive.
Proper analysis prior to entering a new market prevents an organization from wasting resources. It also helps an organization to understand what they need to accomplish before entering a new market.