MARKET STUDY

MARKET STUDY
THE MARKET STUDY is the lifeblood of virtually every project feasibility study. While
profitability is generally the focal point of a project study, the question of demand is the most basic
issue. Obviously, there can be no discussion pf profitability or of the other aspects of the feasibility
evaluation if there is no demand for the product. It is therefore imperative that the market study be
given the first consideration.

The market study seeks to determine the following:

1. The size, the nature, and growth of total demand for the product;
2. The description and price of the product to be sold
3. The supsituation and the ply nature of competition;
4. The different factors affecting the market of the product; and
5. The appropriate marketing program for the product.
A. PRODUCT DESCRIPTION
In describing the product to be marketed, the following are taken into consideration:
1. Name of the product
2. Features of the product – its physical, chemical, and agronomic properties
3. Uses of the product – as a finished commodity, as input to other production
activities
4. Major users of the product – individuals and/or firms
5. Geographical areas of dispersion – where product is mostly found or to
distributed, in the case of new commodity
B. DEMAND
As analysis of demand is part of the important task of identifying the needs of
consumers and determining whether they are willing and have the capacity to pay
for the products and business intends to produce. In forecasting demand, one takes
into consideration not only production and importation figures of the past but also
such other factors as credit availability, income distribution, population growth,
price variations, age composition, degree of urbanization, taste and preferences,
money supply, Gross National Product or GNP, and so on.
Thus, demand analysis involves analyzing macroeconomic variables, i.e., data on
the level of the individual firm or at least on the level of an industry grouping ( an
industry being defined as the conglomeration of all firms producing a more or less
homogenous output). An example of “macro” analysis would be to study the Gross
National Product (GNP) and its components. If GNP is expected to rise rapidly,
businessmen would ordinarily expect good times for their businesses.
In selling a product for mass consumption, the prospective investor might give more attention to
the growth rate of a GNP component like Personal Consumption Expenditures, or a producer of
equipment would be more interested in the Gross National Capital Formation component. An
exporter would, of course, be interested in the export figures of goods and services.
On the “micro” level, the demand for a firm’s product is a function of many variables such as the
price of a product, the price of a substitute product, income, population, etc.
An analysis of income distribution, for example, could give us an idea of what types of products
consumers can afford.
Two other important concepts in demand analysis are 1.price elasticity, which measures the
response of quantity demanded of a particular product to variations in its price, and 2. income
elasticity, which measures the response of quantity demanded of a particular product to variations in
income.
The size, the nature and the growth of total demand for the product must be
determined in the following manner:

1. Who and where is the market? Segment the market according to type, manner
of use, income classification, location, age, etc. the manner of segmenting the
market would depend on the type of product being considered. For instance, the
market for automobiles could best be segmented by using income as a
yardstick. On the other hand, the market for heavy equipment could be tetter
understood by pinpointing industry classification.
2. What is the total domestic demand from the historical point of view?
3. Is there a foreign market? If so, determine the historical demand.
4. Evaluate demand growth patterns in the past and project future demand by
applying appropriate methods.
C. SUPPLY
The supply situation may be determined as follows:
1. Who and where are the direct competitors? Classify them according to size, product
quality, location, performance, and market segment performance. It is important to
determine the type of competition existing. Are there only a few big firms producing
the product being considered? Are there many small firms with no single firm
controlling the market? Or is it an ordinary industry or big and small firms? The type
of competition in existence would influence the decisions on production capacity and
the marketing strategies.
2. Determine the historical domestic supply based on local production and importations.
3. If there is foreign market, determine the historical supply patters in the targeted
countries based on local production and importations.
4. Evaluate supply growth patterns and project future supply by applying appropriate
projection methods.
D. DEMAND-SUPPLY ANALYSIS
it is now essential to combine the findings on the demand and supply
situation. The analysis may be conducted in the following manner:
1. Compare the demand and supply trends.
2. Determine the amount of demand unsatisfied, especially in the projections. If
demand appears to be fairly satisfied by supply, it is useful to consider either
or both of the following;
a. whether factors affecting the market may disrupt the equilibrium so as to
cause demand to grow faster than supply.
b. whether the quantity of the product is such that it may create additional
demand or cause a shift of a portion of existing demand in its favor.
3. Determine the share of the market by establishing the proposed production
volume ( determined in the technical study) as against the total market size.
E. PRICE STUDY
In economic theory, price is determined mainly by the demand-supply situation. An
increase in demand with constant supply will hike prices. The opposite (i.e., high supply,
low demand) would likely result in the lowering of prices. There are, however, other factors
which exert some influence on the price. Without any change in demand or supply, prices
may go up if raw material costs rise; or prices may decline if the government decides to
subsidize production. Prices may also be determined by the simple cost-plus method used
by accountants.
keeping all these in mind, the price study may best be conducted as follows:
1. Determine the selling prices of all similar and substitute products.
2. Look into history of these prices (including the range of fluctuations) and establish the
factors that mostly influence their fluctuations over time.
3. Determine the responsiveness of demand to price changes. Will there be a tremendous ,
slight or negligible increase or decrease in demand if prices are lowered or raised?
4. Establish the product’s selling price, taking into consideration all of the above, the
market segment targeted, and the operating costs and expenses ( determined in the technical
and financial studies). Likewise, estimate the increases foreseen in subsequent years.
F. FACTORS AFFECTING THE MARKET
There are certain factors affecting the market that may or may not be difficult to quantify
and/or predict. This section takes into consideration the following:
1. Demand may be significantly affected by population growth, income changes, tastes,
rural/urban developments, prices od substitute and complementary products, and such
marketing tools as advertising, promotions, credit policies, etc.
2. Supply may be influenced by the development of substitute products, the entry or exit
of firms, sources and cost of production factors, government policies, improved
technology, etc.
3. Prices may be affected by production costs, price controls, inflation, etc.
G. ANALYSIS OF RESEARCH DATA
Data analysis and interpretation is one of the most critical phases of market research. It
answers such questions as ’What does this information mean?’ and ’Is the information relevant
to establish a marketing plan?’
Following are the different types of Data Analysis
1. Descriptive Analysis – describes the data gathered using mean, media, mode, frequency
distribution, range, and standard deviation.
2. Inferential Analysis– tests the validity of the hypothesis and identifies standard errors.
3. Difference Analysis – determines if the differences exist between groups of respondents, e.g.,
evaluate statistical significance of difference in the means of two groups in a sample using t-
test of differences and analysis of variance.
4. Associative Analysis – determines associations or relationships of variables in the survey
using cross tabulation and correlation.
5. Predictive Analysis – forecasts based on the results of the survey.
H. MARKETING PROGRAM
The marketing program should be the end product of a market study. After defining
the market and price targets, the marketing program comes in as the implementing
arm. It consists of the following procedures:
1. Determine the types of marketing programs prevalent in the industry and gauge
their respective effectiveness.
2. Draw up a marketing plan that identifies and defines the target market, the
selling price, the packaging of the product, the distribution network, the sales
management mechanism, and the advertising and promotions program. The
important components of the marketing program may best be summarized by
the four P’s: product, price, place, and promotions.
3. Design the marketing organization which will implement the plan and determine the costs
involved. The organization would again depend greatly on the type of product being
marketed. In general, a consumer product would require a sizable organization that
concentrates on distribution channels and promotions. Non consumers items would probably
require a distribution network or a small-sized sales force. In any case, the most ideal
organization is one that allows maximum efficiency at the lowest workforce level possible.
Parts of Marketing Plan
I. Introduction
II. General Business Condition
III. Competitive Conditions
IV. Market Research Results
V. Sales and Distributions Plan
VI. Advertising and Sales Promotions
VII.Other Related Aspects (product
formulation, packaging, legal clearance,
raw materials procurement, etc.)
VIII.Budget Summary
IX. Profitability (net income targets)