UNIT – 2

Marketing Analysis:-
1. Market definition

The first stage of a marketing appraisal is to define the market in which the project
will operate. To achieve this the analyst should:
- describe the market need that the project idea aims to satisfy
- define the relevant market of the project
- estimate market size

The market need

A project evaluation begins with an idea, which gets refined with every attempt to
formulate and evaluate it. It is an iterative process that continues until project
implementation. At the very core of this idea lies the market need that the products
of the project will aim to satisfy. The formulation of the project and its market
should stem from the definition of this underlying market need.

Needs are the building blocks from which markets are made. At a rather abstract
level, we may thus think of the markets for thirst, hunger, health, shelter, sex,
affection, entertainment, education, information and knowledge, professional
competence, adventure and excitement, leisure, or a combination of these and a
multitude of sub-needs that stem from these fundamental needs. Market needs vary
with people and situations. However, it should always be possible to define a
market in terms of consumer needs. Defining the market need of the project also
directs market research for assessing the competitiveness of the project and for
estimating market penetration forecasts.
In the above-mentioned project, a list of companies within the identified category
and advertising agencies without an in-house capability to produce low-cost
commercials was compiled. This list of potential customers and competitors was
then used as a sampling frame based on which a survey was executed to
estimate the likely market penetration and acceptability of the proposed project.
The relevant market

A market exists when potential buyers and sellers find a mutual interest in
exchanging wealth (such as money for products) whereby as a result of the
transaction both parties consider themselves better off. It refers to the persons,
places and conditions that facilitate the exchange of goods and services.

A market is made up of the actual and intended actions of suppliers and consumers.
It exists when consumers are willing to forego some money to satisfy a need
(effective demand) and suppliers are willing to respond by creating products that
aim, within the constraints of the consumer budget, to satisfy those needs in order
to realise a profit (effective supply).
Hence, where there is unsatisfied demand suppliers have an opportunity for profit.
Marketing is about what constitutes this potential demand and the ability of the
supplier to understand it and use available resources to satisfy it. From a marketing
perspective therefore, a market definition should accommodate the requirement of
the supplier to discern the consumer psychology and predict market behaviour.

2. Market analysis

Following the definition of the project's market the analyst should analyse the
relevant market in three inter-dependent phases as follows:
- understand and segment potential customers
- study the competitors
- assess project capabilities

The object of studying the market is to provide the understanding needed to

achieve a good match of the project's capabilities to the needs of potential
customers taking into consideration the competitive profile of existing and
potential suppliers. Hence, the three stages of analysing the market are strongly
inter-related. The best depth is achieved by following a circular flow of analysis
whereby research into one stage stimulates further research cues which when
pursued enhance the understanding of the other stages. This iterative process
should continue until a meaningful strategic appraisal for the project can be
attempted.
The customers

One of the biggest problems in the marketing analysis of project appraisal studies
stems from the fact that it is often assumed that the demand for the project's
products will be sufficient simply because the size and growth of a potential
market seems to be substantial in relation to the capacity of the project. In
retrospect, the analyst usually has difficulty in describing the customers of the
project. It is imperative, however, not only to describe but also to genuinely
understand the needs of potential customers in order to achieve the best possible
match of the project capabilities to current market needs.

In order to focus the project's resources on the needs of a particular set of

customers, which may be selected from a wider definition of the market according
to a particular industry or product type, the analyst must seek ways by which
to identify groups of customers with homogeneous characteristics and needs. This
process is known as market segmentation and can in practice be a very
sophisticated and expensive exercise.

In general, market segments may be defined by customer characteristics or

according to the purchase or consumption situation. Market segmentation criteria
may be any or a combination of variables from the following list:

Segmentation based on customer characteristics:

Demographic : Geographic location, sex, age.

Socio-economic : Income, marital status, family size, occupation, educational

background, religion.

Psychographic : Life-style, personality traits.

Segmentation based on situation characteristics:

Behavioural : perceived product benefits, user status and usage rate (volume
segmentation), brand or store loyalty, seasonality preference (time segmentation).
The competitors

Having defined the project's relevant market the next step is to list and briefly
analyse the major competitors and their products. The purpose of studying existing
suppliers at this stage is to derive market profiles of the key competitors in the
industry so as to identify potential capability gaps on which the project can develop
a competitive advantage. These competitor profiles will enhance and guide the
search for potential capability strengths that can positively differentiate the project
products within the relevant market.

2. Potential competitors from new entrants and substitute products.

There are many factors that can change the number and identity of competitors in a
market. The analyst should seek to identify potential new competitors and likely
changes in the relevant market by looking at the possibility of occurrence of any of
the following factors:
- changes in consumer tastes
- new uses for existing products (market extension)
- re-targeting of existing products to new markets (market repositioning)
- mergers and acquisitions
- government regulation or deregulation of the market
- changes in the importance of distribution channels
- relevant new technology applications
- changes in sources and types of raw materials
- national trade agreements

The project capabilities

At the same time that the analyst is studying the market environment, he should
also seek to identify the project's capabilities in relation to the relevant market.
This may take the form of a marketing audit into what special skills and
competencies the project is capable of using in order to pursue a competitive
advantage within the defined market. Such capabilities may be found in the
following areas:

Human resource - Labour skills, experience, motivation, knowledge areas, training

quality, creativity, culture.
Organisational - Efficient organisational structure, management quality and
expertise, quick decision-making, corporate synergies, access to capital, efficient
internal communication channels.

Technology - Advanced production technology, flexibility of supply, processing of

information.

Scale - Market leadership in related markets, purchasing economies (control of

suppliers), production economies.

Products and franchises - Patents, licences, joint-ventures, successful related

products.

Sales and distribution - Extensive distribution channel coverage, capacity

utilisation, good relations with agents, exclusive agencies, efficient distribution
channels, superior service.

Promotion - Access to promotional media, ability to produce effective promotional

campaigns.