Market attractiveness analysis.
The result of the segmentation analysis is a segmentation grid reflecting different segments or commodity markets that are part of the basic sales. The purpose of the next stage is to obtain an assessment of the attractiveness of economic opportunities for business in each of the segments in order to clarify the decision on the choice of the target segment.
The object of such analysis is to measure and forecast sales volume, life cycle and profit potential for each segment or commodity market. These forecasts and measurements of market potential are key information for management decisions on investment and capacity.
Demand analysis.
Market demand is the total sales volume in relation to the sales of a product in a given place and period for a set of brands or competing firms.
Demand for a firm's products is the part of demand that corresponds to the market share held by the firm or the brand on the basic sale of the product.
The potential corresponds to the upper limit of demand in a certain period of time. The maximum level of primary demand corresponds to the notion of the current market potential. The level of global demand is influenced not only by the pressure of existing firms, but also by socio-economic factors of the environment. The firm is virtually powerless in the face of environmental uncertainty; all it can do is try to anticipate the future by creating a reliable system for monitoring key factors. The aim is to create protection against uncertainty through anticipatory action and the ability to quickly rebuild.
The gap between the minimum level of primary demand and its maximum level characterizes the scale of market opportunities. Absolute potential should be understood as the limit to which demand aspires. The usefulness of this concept is that it allows us to evaluate the order of magnitude of the economic opportunity that the market opens up. Three assumptions are made when calculating the absolute potential.
- Each potential user of a commodity is a real user.
- Each user uses the product at each possibility of its application.
- At each application the commodity is used in optimal volume.
Evolution of demand can be caused by two groups of factors: uncontrolled, or external, and controlled, or internal, factors of the firm.
Controlled factors are essentially the operational marketing tools that a firm can use to influence demand. As for the non-controlling factors, they represent the restrictions that the firm faces in its sales.
Product life cycle.
Market potential determines the scale of the economic opportunity that the commodity market provides. This first, inherently quantitative, measure of attractiveness should be complemented by a dynamic assessment of its duration, the evolution of potential demand over time.
Usually, in order to describe this evolution, a model of the life cycle of a commodity, borrowed from biology and representing a logistic curve, is used. This cycle distinguishes between four main phases: the market introduction phase, the exponential phase, the maturity phase and the decline phase.
The aim of the implementation phase is to create a market for the new product. Sales growth rate is usually relatively low, their volume is insignificant, trade is not seldom unprofitable, marketing expenses are insignificant and competition is usually limited. However, if the demand for this group of goods is stable and its modification is insignificant, the introduction phase may be practically absent. The product is either not sold at all or it replaces the goods with high demand from the first sales.
The growth phase is the recognition of goods by buyers and a rapid increase in demand for them. Sales volume grows, followed by profitability. Moreover, the growth is going faster than the average indicators in this industry.
Maturity phase - increasing the degree of saturation of the market, reducing the growth rate of sales. The new product is becoming a traditional one. At the same time, it reaches the maximum of sales, and the growth rate of profit in the industry as a whole is significantly reduced. The product is purchased by a mass consumer with an average income level. Promotion of the goods acquires an acutely competitive character.
The saturation phase is the cessation of sales growth with some growth in profitability, if a significant reduction in production costs is achieved. In points of sale there is usually a complete assortment of goods with different price levels.
Decline phase - the manufacturer has a steady decrease in demand, sales and profit. The consumer is not particularly interested in the goods, the bulk of buyers are conservatives with low solvency.
Continuation follows.