Market attractiveness
Market attractiveness is a measure of the potential of the marketplace to yield growth in sales and profits. It is important to stress that this should be an objective assessment of market attractiveness using data external to the organization. The criteria themselves will, of course, be determined by the organization carrying out the exercise and will be relevant to the objectives the organization is trying to achieve, but it should be independent of the organization's position in its markets[1].
Once agreed, under no circumstances should market attractiveness factors be changed, otherwise the attractiveness of our markets is not being evaluated against common criteria and the matrix becomes meaningless, Scores, however, will be specific to each market.
The matrix shows the current level of attractiveness at the present time. This implies carrying out one set of calculations for the present time according to market attractiveness factors, in order to locate markets on the vertical axis, then carrying out another set of calculations for a future period (say, in three years' time), based on our forecasts according to the same factors. In practice, it is easier to carry out only the latter calculation, in which case the circles can only move horizontally[2].
Classification of market attractiveness
Dominant factors which determine market attractiveness can be generally classified as[3]:
- stability of technology (whether process technology is well established or not with its impact on product performance);
- size of the market (larger markets are generally more attractive than smaller markets)
- market growth rate (growing markets are more attractive than zero growth markets, mature markets or markets in decline)
- intensity of competition (markets with low competitive intensity are attractive)
- customer product sensitivity (how quality conscious is the customer)
- customer price sensitivity (whether price, and not quality, is the most important consideration).
How to innovate when the Market is mature
Five vectors must be in place to undertake type of innovation to yield bolder and more imaginative development projects. First, develop a bold innovation strategy that focuses your business on the right strategic arenas that promise to be engines of real growth. Most businesses focus their efforts in the wrong areas—on flat markets, mature technologies, and tired product categories. Next, foster a climate and culture that promotes bolder innovation. Leadership is vital to success. If senior management does not have the appetite for these big concepts, then all your efforts and systems will fail. Next, create “big ideas” for integrated product-service solutions. Then drive these “big concepts” to market quickly via a systematic and disciplined idea-to-launch system designed for major innovation initiatives. Finally build a solid business case and focus on the winners[4].
Examples of Market attractiveness
- Market Size: The total number of potential customers, buyers, and users in a given market.
- Market Growth: The rate at which the market is growing.
- Market Profitability: The profitability of the market, taking into account the costs of doing business in the market.
- Market Concentration: The degree to which the market is dominated by a few large players.
- Market Accessibility: The ease of entering the market and establishing a presence.
- Market Trends: The direction the market is heading in terms of technology, consumer behavior, and other factors.
- Market Regulations: The regulations and laws that govern the market and the products and services sold in it.
- Market Share: The portion of the market that a company can capture with its products and services.
- Customer Loyalty: The degree to which customers are loyal to specific brands and products.
- Product Differentiation: The degree to which a company's products stand out from its competitors.
- Competitive Environment: The level of competition in the market and the tactics used by competitors.
Advantages of Market attractiveness
- Market attractiveness is a key factor in determining which products and services to focus on, as it helps organizations assess how profitable a given market might be.
- It provides valuable insight into the size and potential of a market, allowing for decisions to be made about where to allocate resources.
- It helps organizations identify emerging markets that may have high potential for growth and profitability.
- It can provide useful information about the competitive landscape, allowing organizations to identify areas where they can gain a competitive edge.
- It can help organizations better understand the needs and wants of their target audiences, allowing them to tailor their products and services to meet those needs.
- It can be used to forecast potential sales and profits over the long term, helping organizations plan more effectively for the future.
Limitations of Market attractiveness
- Market attractiveness analysis is subjective and relies heavily on the data and assumptions of the analyst.
- It is difficult to accurately assess the potential of a market as there may be hidden factors or unknown variables that could affect the market's attractiveness.
- Market attractiveness may be affected by external factors such as competition, government regulations, economic conditions, technology, etc., which are outside of the control of the organization.
- Market attractiveness is based on past performance and may not accurately predict future performance.
- It is difficult to compare different markets as they may have different dynamics and may not be comparable.
- Market attractiveness is a one-time analysis, and any changes in the market over time may not be taken into account.
- SWOT Analysis: This is a tool used to assess the Strengths, Weaknesses, Opportunities, and Threats of a given market or industry. It is used to evaluate the potential of a market or industry to yield growth in sales and profits.
- PEST Analysis: This is a tool used to analyze the Political, Economic, Social, and Technological factors in a given market or industry. It is used to evaluate the potential of a given market or industry to yield growth in sales and profits.
- Five Forces Analysis: This is a tool used to analyze the level of competition in a given market or industry. It is used to evaluate the potential of a market or industry to yield growth in sales and profits.
- Competitive Intelligence: This is the process of gathering and analyzing information about competitors in a given market or industry. It is used to evaluate the potential of a market or industry to yield growth in sales and profits.
In summary, other approaches to analyzing market attractiveness include SWOT Analysis, PEST Analysis, Five Forces Analysis, and Competitive Intelligence. By assessing the strengths, weaknesses, opportunities, threats, political, economic, social, and technological factors, as well as the level of competition, organizations can gain an in-depth understanding of a given market or industry and its potential for growth.
Footnotes
| Market attractiveness — recommended articles |
| SPACE method — Evaluation of sector's attractiveness — Hofer matrix — Market potential — Key success factors — Potential market — Business segment — Macro environment analysis — ADL matrix |
References
- Cooper R.G., (2011), Innovation Dilemma: How to Innovate When the Market Is Mature, nr 3, p.2
- McDonald M., (2010), Marketing Plans, Butterworth-Heinemann, Amsterdam.
- McDonald M., (2000), Marketing Plans, Butterworth-Heinemann, Boston.
- Naga A., (2011), Strategic Management, Vikas Publishing House, New Delhi.
Author: Sylwia Jurkowska
