Market analysis and feasibility studies

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Market Analysis and Feasibility Studies Alison Davis Rural Economic Development Extension Specialist University of Kentucky Conducting a Feasibility Study   Too often, we launch new ideas without thinking through what our market is Preparing a feasibility study will help you determine if there is sufficient demand for the product or service AND can the product or service be provided on a profitable OR sustainable basis? Before you begin we should think about the following questions…   What defined market am I trying to reach? What specific companies/organizations are servicing this market?     Are they successful? Something similar? What is their market share? Is the market saturated or wide open? Questions continued…  What is the size of the market?    How can you reach this market?   Is it growing? Is it stable, volatile, trendy? How are competitors currently reaching the market? What customers expect from this type of product or service? Questions continued…     What are the business models of competitors? What core competencies must the product or service have? What are “customers” willing to pay for this service or product? What is your competitive advantage? Market Assessment     A market assessment may be conducted to help determine the viability of a proposed product in the marketplace The assessment will help you identify opportunities in the market or market segment If no opportunities are found, then you don’t have to continue on with the feasibility study If opportunities are found, the market assessment can give focus and direction to the “big idea” Overview of a feasibility study       Description of the project Market feasibility Technical feasibility Financial/Economic feasibility Organizational/Managerial Feasibility Results/Next Steps/Conclusion Difference between feasibility study and business plan      A feasibility study is NOT a business plan Feasibility study provides an investigating function – “is this viable?” Business plan provides a planning function The business plan outlines the actions needed to take the proposal from “idea” to “reality” Often feasibility studies identify more than once alternative to the proposed idea The feasibility study is prepared before the business plan Why a feasibility study?        Gives focus to the project Narrows alternatives Surfaces new opportunities Enhances the probability of success by addressing factors early that could affect the project Provides quality information for decision making Helps in securing funding Helps to increase investment in idea Description of the project  Identification and exploration of project scenarios    Identify alternative scenarios Eliminate scenarios that don’t make sense Flesh-out scenarios that appear to have potential for future exploration Multipliers What are Multipliers? Multipliers measure total change throughout the economy from a one unit change for a given sector Multipliers  Direct effects represent direct or initial spending  Type I - Direct and indirect effects include the direct spending plus the indirect spending or businesses buying and selling to each other  Type II - Direct, indirect and induced effects include direct and indirect plus household spending earned from direct and indirect effects Multipliers Continued  Three multipliers are used to describe the economic impact:    Employment Income (Value-Added) Output (Receipts) Interpretation of Multipliers You will often see values for multipliers in the media, the interpretation of these numbers typically causes confusion Example   Type II employment multiplier (Ag) = 2.25  When the Agricultural Sector realizes a employee change, total employment in the study area changes by 2.25 jobs from direct, indirect and induced effects Multipliers Continued Example Type II Income Multiplier (Ag) = 1.78 When the Agricultural Sector realizes a $1.00 change in income, total income in the study area changes by $1.78 from direct and indirect linkages Multiplier Cautions (Very Important)  Multipliers are NOT interchangeable (i.e employment and value added multipliers are very different, thus you can’t use one for the other)      Not transferable to other study areas or across different time periods No differentiation between full-time and part-time jobs Results less certain for new types of economic activity They tend to overstate the impact of change Take caution for multipliers larger than IMPLAN Software     A talented person could probably figure out relationships for a sector economy An economy with more than 500 sectors is another story IMPLAN software does the work for us and calculates multipliers IMPLAN is relatively expensive, hence the need for a partnership with the University Pushing the local initiative    “Kentucky Proud” “Buy Local” When we keep our money local, the multipliers are larger allowing more money to flow in the local economy, resulting in higher incomes for local residents Local Examples  The Economic Impact of Various Health Related Services on the Local Economy   Impact of Health Sector Impact of a Rural Physician Economic Impact of Health Care Sector Interpretation  Employment Multiplier: 1.21 For every employee hired in the health sector there are an additional 0.21individuals employed because of indirect and induced effects  Output Multiplier: 1.22 For every $1 of sales in the health sector there is an additional $0.22 of revenue generated due to indirect and induced effects The Economic Impact of a Rural Physician in Kentucky Other Interesting Potential Economic Impact Studies     The Economic Impact of the new sports complex in Knott County The Economic Impact of Eco-tourism in Eastern Kentucky The Economic Impact of Agriculture in Kentucky The Economic Impact of a manufacturing firm leaving a rural town Model Limitations   Based on a set of assumptions that might restrict the model Other modeling techniques can be used to provide a range of impacts, not one single number Economic impacts should only be part of the discussion We should not ignore the following: Quality of Life  Environmental Impacts  Social and Cultural History  Equity Impacts THIS IS WHY COMMUNITY INVOLVEMENT IS VITAL  ... service Market potential    Identify the demand and usage trends of the market or market segment Examine the potential for emerging market opportunities Assess estimated market usage and potential... share of the market Market Feasibility  Access to market outlets   Identify the potential “buyers” of the service and the associated marketing costs Investigate the distribution system and the... idea” Overview of a feasibility study       Description of the project Market feasibility Technical feasibility Financial/Economic feasibility Organizational/Managerial Feasibility Results/Next