It is quite a grueling process to choose the right market from the perspective of many companies, those that expand or start a business – for example startups. It requires both analysis of data, recognition of market conditions and rules that prevail on it.
A good way to determine the potential of a chosen market is to verify it with five basic steps. They allow to determine strengths and weaknesses, develop prospects and possible entry barriers. Let’s take a careful look at them.
Step 1. Verify market size
The basis for determining the market potential is to examine its size, which can be done in two ways – with respect to the volume or overall value of the market. Volume means the total number of potential consumers, who can make transactions on a given market. In turn, the overall value of the market should be interpreted as the total financial value that consumers are able to pay for market products.
This information is the starting point for further analysis. They allow to determine the basic values characterizing a given market. After verification, you can proceed to the next steps.
Step 2. Market growth
The market size does not give full information about its potential. Therefore, the development trends should be carefully analyzed. In this case, factors such as short and long-term forecasts, number of companies, risk of stunted development and current market trends are taken into account.
It is worth tracking the financial analysis from a few years back and then determining its growth dynamics and factors that stimulate the market. In the event of any growth disturbance, situation needs to be assessed and verified whether they may have an impact on your business in the future.
Step 3. Competition
When analyzing the possibility of entering a new market you cannot forget about competition. A large number of competing companies does not necessarily mean less potential. Why? Let’s start with the fact that the value of competition needs to be verified. If there are many companies operating on the market, but they are on a moderate stage of development, there is a good chance that their domination will be achievable. First, their weaknesses and strengths should be analyzed, after which possible solutions should be defined. This will allow to effectively compete on the market with the other companies.
Analyzing competition also directly links barriers to entry. In some industries, the position of competitive companies is so strong that it becomes a really difficult barrier for any new companies to overcome. This fact should be also taken into consideration.
Step 4. Consumers
The profile of potential consumers, their preferences and behavior give another piece of important information that should be examined at the stage of assessing market potential. Each industry is characterized by its specificity. It is, among others, about the way of communication with the client or possible ways to reach them. Therefore, the target group, in this exact case – consumers, is another important element of the analysis. Currently, there are many tools available on the web that allow you to automate such research. They can also be made on the basis of generally available statistical data.
Step 5. Profitability
What is most interesting for everyone, who is thinking about starting a business on a given market, is a potential chance of profit from investment. Finding a balance between the size of the financial outlay, the amount of work and the potential profit will also give an answer about its potential. Using the available statistical data, this analysis can be carried out without any problems.
In connection with previous steps, the entire implemented diagram should give the answer to the assessment of the analyzed market potential.