How we change what others think, feel, believe and do
Market attractiveness is a measure of the potential value of a particular market.
Ways in which attractiveness may be measured include:
A market researcher is examining a new market in a nearby country with the thought of selling existing products there. They start with a review of the possible customers, whether they may like the product and if they can afford it. They also do a strong analysis of competitors there, considering their products and ability to compete. The general infrastructure, culture and political climate is also reviewed. After much analysis and presentation, it is concluded that the market is unattractive as local companies have too much of an advantage. Although there was cost in doing this analysis, it probably saved much more in terms of potential sunk costs and market losses.
Market attractiveness is important both when selecting a single market to enter and also when building a business portfolio which considers multiple markets. In a portfolio, a combination of different type of attractiveness may be used, for example a balance of short-term and long-term profitability.
As well as measuring attractiveness when considering entering a market it can be useful to review this when you are already in a market, with the thought that if attractiveness has decreased sufficiently then it may be a valid choice to exit the market. This can happen, for example, if demand is declining or competitor activity is so high it is difficult to make a profit.
As well as profit, other factors that lead to profit need to be considered, in particular:
The probability of success is easily forgotten yet is highly important. Many factors can act against market entry, including competitor activity, government action, and consumer openness.
A lot of the costs of entering a new market are those involved in establishing the brand and marketing the products or services. This includes finding distributors and persuading retailers to take the product, as well as traditional advertising and promotion. There may also be physical costs, such as setting up of premises and logistics arrangements.
In foreign markets local competition is easy to underestimate. Local competitors may seem unsophisticated, but they may already have a deep understanding of the market and market context. Local customers may have a strong loyalty to local brands. Governments also may also be more helpful towards local businesses, offering support from grants to preferential treatment in public-sector procurements. It is also easy to assume an adequate local infrastructure, from roads to business services. If services are not available, then you will have to arrange your own, which can add unexpected cost.