Colleagues in our White Plains, New York office, spotted the following article in their local newspaper, the Westchester County Business Journal. In something of a ‘Business Agony Aunt’ column, advice is given to a company looking to expand into a new area – and which is basically asking about market assessment studies. We reproduce the article below:

We are expanding services into a new market, similar delivery, but to a different target. This will be the third service we offer. How can we get an idea of what our market share might be for each of the three services we sell?

Market share is defined as that portion of the goods or services provided by one or more companies to a target market. Expand your search to include market profits, growth rates, compensation and analysis of industry leaders to get a well-rounded picture of what your industry is up to. Knowing about your market can help you assess the challenges or opportunities of attempting to grow.

Get the facts
So where do you get market data? Lots of places – trade associations, marketing lists, researchers, indexing services, colleges and universities, and government databases often have facts. Trade shows, surveys, vendors and sales reps can provide anecdotal information.

When looking up industries, you’ll find classification codes are useful. Try an Internet search. Start with the SIC (Standard Industrial Classification) code, and its more recent cousin, the NAICS (North American Industry Classification System). NAICS is more reflective of our increasingly service-based, non-manufacturing economy.

The U.S. Census Bureau site provides information about taxable and exempt businesses by category, including numbers of companies, gross revenue, number of employees and annual payroll. Using this information, you can determine where your company sits versus the average firm in your industry.

Analyze the data
Once you find data about the size of a particular market, what do you do?

Use it to make some decisions. Here are some questions you might want to ask before deciding what to do next.

• Who are the top three competitors in my market?
• How much of the market do they hold?
• Is their market share increasing or decreasing?

If the big guns are increasing share, the market may be going to consolidation. Get out fast. If big players are getting out, or if they’re losing share because it’s not a core focus for them, there may be opportunity to jump in and take away a slice. Make sure it’s profitable enough to be worth the effort.

• Who are the three competitors just ahead of my company?
• Are they growing or declining?
• How does my company compare?

If the next closest competitors are growing faster than the market, watch out, they may be formidable. If they are declining faster than the market, you may be able to step in. Or, the market may be collapsing and it’s time to get out – find out why they’re declining. If any company is over 30 percent of market share, it may be time to look elsewhere for growth. If it’s your company that has 30 percent share, start another niche to become less dependent on one market.

Other considerations
Is the size of the target market growing or declining overall? How about profits? Are there any anomalies within the market that are bucking the trends? What niches exist close to what my company does, but different?

Look for markets with profits at or above what your company earns today. Look for industries with average size, salaries and marketing spend at or below your company’s average. Look through the SIC codes or NAICS for ideas on markets that could be underserved. Ask: How would niche-ing my company in a different way make my company more competitive, give my company more opportunity to grow?

How does my company compare to others in the industry in terms of compensation, annual revenue, marketing spend and year-over-year growth? Am I at, above or below industry performance standards?

Be careful if the compensation or marketing spend is unusually high, that may make it harder to compete and retain clients and employees. If your company is performing below industry standard, figure out how to improve or get out. Use comparative stats to help decide where to focus sales and marketing dollars and efforts. Set growth rates in line with the industry, or clearly and factually define how the company will buck industry trends to accomplish its goals.

Looking for a good book? Try, “How To Hire & Manage Market Research Agencies,” by Kathryn Korostoff.

Article written by Andi Gray of Strategy Leaders Inc.,Chappaqua, New York. www.StrategyLeaders.com

• To find out more about the research studies we can conduct on your behalf to help you assess a market’s potential, please click here.
• To get some hints on how to conduct your own initial desk research, read our white paper How To Get Information For Next To Nothing
• To read a Market Assessment Case Study, please click here.

In the final installment of this article, Julia Cupman concludes her list of points to consider when assessing new market opportunities, and reiterates that the economic downturn still presents myriad opportunities to many companies:

7. What is the market structure?  A key to a market entry strategy is getting the channel to market right.  To do this, the research should explain what the market looks like, who the main players are and what channels to market they are using.  For example, substantial sales may be generated through distributors, agents or other types of intermediaries; this is important information that will suggest possible routes to market.

8. What are the market’s perceptions of the current suppliers?  A company cannot enter a market without understanding who their potential competitors are and the market’s views on these.  Hence, the research findings should document which suppliers of the product/service are known and used, the perceived strengths and weaknesses of these suppliers, and the nature of the relationship between the buyers and suppliers.

9. What is the competitive environment?  The degree of rivalry should be explored to provide an insight into the competitive environment.  Profiles of the major players should be included in the research, plus insights on how these players operate, how they position and promote themselves, and what their product/service looks like.

10. What are the incentives and barriers to entry?  The research should investigate how the incentives to entry can be maximized and how the barriers to entry can be overcome.

11. What is the market size?  No company should ever consider entering a market without a feel for market size.  It needs to know the current size of the market and the annual market growth rate in order to determine whether market expansion is feasible.

12. What is the opportunity for a new entrant?  The research should explain how a new entrant should enter the market and how it could steal market share, including an indication of potential market size.  It should also provide an overview of which market segments offer the most opportunities and what gaps there are in the market.

Market expansion may be a viable opportunity that offers a means for companies to sell more if their prospects domestically have been blackened by the economic downturn.  Market entry research can cost anything from $40,000 upwards, depending on the nature of the research.  This is a small cost to pay given the high return on investment.  Hence, companies that cut their marketing budgets during economically challenging times are potentially closing doors to new opportunities.

To find out about B2B International’s market assessment research, please click here.

Alaric Fairbanks this week makes our mouths water with the mention of some of his favorite local kebab stalls.  However, on a more serious note, Alaric is analyzing how street vendors of this relatively undifferentiated offering encounter many of the same problems faced by much bigger organizations in different markets around the world.

As almost anyone with a penchant for mutton and beer will tell you, one of the best things about living in Beijing, providing you don’t live right next to a stall (they can be quite smelly, and the lack of toilet facilities coupled with beer consumption of patrons can be problematic for neighbors), are chuanr, or kebabs.  Mutton, chicken hearts and tendons, washed down with a bottle or two of Yanjing beer are, for me at least, pretty much indispensable to life in China’s capital city.  But can this tell us anything about the business environment?  Interestingly, for me at least, this came up in a recent conversation I had whilst patronizing my favored stall.

This must be one of the toughest markets to be in, and in many ways can be seen as representative of the competitive environment in undifferentiated markets, especially in China.  Let us take, for example, a quick look at Porter’s Five Forces applied to this business model.

• The threat of new entrants: Obviously barriers to entry are low (an improvised barbeque is not a significant cost) and switching chuanr vendors is fairly easy. Similarly, adding to the product range, for example with ram’s penis, can be very easily copied by the competition.

• Supplier power: The raw material – mutton and other assorted parts – forms the substantial part of costs relative to total purchases, and there are almost no substitute inputs.  To make matters worse, these raw material costs have a huge impact on total cost.

• Threat of substitutes: Again a problem, as it’s not difficult for the customer to switch to ma la tang (numbing and spicy soup) or rou jiamo (a very distant cousin of the hamburger).

• Customer power: Price sensitivity of customers is pretty much a given in many markets in China, and chuanr are no exception.  Buyer information (in this case buyers know the going rate for the product as it is the same everywhere) leaves little room for incremental increases.  Backward integration by customers is, on the face of it, less of an issue as most of us will be pretty unwilling to invest in our own barbecuing equipment. Where there is a problem here, is when selling through a small restaurant, as there is little to prevent the ‘partner’ setting up their own stall.

• Rivalry or competitive intensity: Here we have a very fragmented market, almost entirely composed of sole traders.  Fixed costs are low, having a limited impact here on rivalry in some respects as they do not have a great role in the unit cost of chuanr; however, this does mean that entry barriers are low.  The nature of the raw material, mutton, does have an impact, as these perishable products must be sold immediately.  Fortunately, exit costs are low, as equipment is not highly specialized and no one is ‘forced’ to stay in the market.  This is also not a market that so far has lent itself to product differentiation or branding, thus almost commoditizing the market.

So what does this tell us?  Many of the markets we look at in China, and elsewhere, exhibit some of these characteristics, particularly in the areas of new entrants, substitutes, and low levels of differentiation.  There are, though, examples of companies growing or moving out of unattractive markets, and differentiating themselves from the competition in a seemingly commoditized market.  Equally, there are some examples of differentiated product and service, and expansion in the chuanr business: Xiao Li, arguably the best producer on Yong An Li East Street, has an embryonic brand, recently added a few plastic stools and a table to complement his offering, and has doubled his workforce with the addition of his charming sister.