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Market Analysis and Feasibility Studies Alison Davis Rural Economic Development Extension Specialist University of Kentucky.

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Presentation on theme: "Market Analysis and Feasibility Studies Alison Davis Rural Economic Development Extension Specialist University of Kentucky."— Presentation transcript:

1 Market Analysis and Feasibility Studies Alison Davis Rural Economic Development Extension Specialist University of Kentucky

2 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?

3 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?

4 Questions continued… What is the size of the market? Is it growing? Is it stable, volatile, trendy? How can you reach this market? How are competitors currently reaching the market? What do customers expect from this type of product or service?

5 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?

6 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 dont have to continue on with the feasibility study. If opportunities are found, the market assessment can give focus and direction to the big idea.

7 Overview of a feasibility study Description of the project Market feasibility Technical feasibility Financial/Economic feasibility Organizational/Managerial Feasibility Results/Next Steps/Conclusion

8 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.

9 Why do 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

10 Description of the project Identification and exploration of project scenarios Identify alternative scenarios Eliminate scenarios that dont make sense Flesh-out scenarios that appear to have potential for future exploration

11 Description of the Project Definition of the project and alternative scenarios and models List type and quality of service to be marketed Outline the general business model Include the technical processes, size, location, and kind of inputs Specify the time horizon from the time the project is initiated until it is up and running at capacity.

12 Description of the project Relationship to the surrounding geographical area Identify economic and social impact on local communities List environmental impact on the surrounding area

13 Market Feasibility Industry Description Describe the size and scope of the market Estimate the future direction of the market Describe the nature of the market Identify the life-cycle of the market

14 Market Feasibility Industry Competitiveness Investigate industry concentration Analyze major competitors Explore barriers of entry into market Determine concentration and competitiveness of input suppliers Identify price competitiveness of service

15 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

16 Market Feasibility Access to market outlets Identify the potential buyers of the service and the associated marketing costs Investigate the distribution system and the costs involved

17 Technical Feasibility Determine facility needs Estimate the size and type of production facilities Investigate the need for related building and equipment Investigate and compare technology providers Identify limitations or constraints of technology

18 Technical Feasibility Availability and suitability of site Access to markets Access to transportation Access to a qualified labor pool Access to production inputs Explore economic development incentives Explore community receptiveness to have service located there.

19 Program Evaluation: A Primer

20 The Evaluation Process Focusing the evaluation Collecting the information Using the information

21 Focusing the evaluation What do you intend to evaluate? The whole program? A portion of it? What time frame? Immediate impact? Long-term result? Behavioral impact or impacts which require a more comprehensive evaluation and level of effort? Who are the clientele? Whose impacts are we measuring?

22 What is the purpose of evaluation? Help others understand the program and its results? Improve the program? Did the program make a difference in someones life? Answer questions posed by funders and influential members of the community?

23 Who will use the evaluation? How? People affected in some way by the program County board members, elected officials Community leaders Current funders Potential future funders

24 Examples of Who, What, and How Who might use evaluation? What do they want to know? How will they use the results? YouIs the program meeting clientele needs? To make decisions about modifying the program County boardWho does the program serve? Is the program cost- effective? To make decisions about budget allocations? Potential funderIs there a net benefit from this program? To make funding decisions

25 What questions will the evaluation seek to answer? About outcomes/impacts What do people do differently as a result of the program? Who benefits and how? Are the programs accomplishments worth the resources invested? What are the strengths and weaknesses of the program? What, if any, are unintended secondary consequences? How well does the program respond to the initiating need?

26 What questions will the evaluation seek to answer? About program context How well does the program fit in the local setting? What in the socio-economic-political environment inhibits or contributes to program success? Who else works on similar concerns? Is there duplication?

27 Collecting the Information Indicators Numerical and narrative Will your audience be impressed with numbers and statistics? Will your audience by impressed with human interest stories and examples of real situations? Will a combination of numbers and narrative information be valuable?

28 What sources of information will you use? Existing information Previous reports, census data, other agency records People Programs participants, proponents and critics, legislators, funders, and policy makers Observations Direct observation of program events, activities and results

29 What data collection method will you use? Survey Interview Observation Case Study Testimonials Expert review

30 When will data be collected? Before and after the program? At one time? At various times during the course of the program? Over time?

31 Using the information How will data be analyzed? How will responses be organized/tabulated? Do you need separate tabulations from different locations or groups? What, if any, statistical techniques will be used? Who will organize and analyze the information?

32 How will evaluation be shared? Written report Film or video Media releases Internet postings

33 Economic Impact Analysis A quantitative tool often used to evaluate community projects

34 What is Economic Impact Analysis? Economic Impact Analysis (EIA) models focus on how elements of the local economy are interrelated and how a change in one element may affect the others. These relationships can help predict important aspects of economic change such as: Employment and unemployment Commuting and migration trends Changes in government spending

35 Why do we compute EIA models? In smaller communities, elected officials often lack the technical skills for economic analysis Communities need information to help anticipate and respond to economic changes Local leaders and citizens face difficult questions about the impacts of changes such as business growth, decline of traditional industrial and evolving land uses When seeking funding, having a dollar value impact of a program might make the proposal more attractive

36 Choices made prior to analysis Communicating with the community is essential when setting up the model. Dialogue within the community will determine 1) The nature and scope of the study (i.e. deciding where to measure: county-wide or regional impacts) 2) The required data 3) The research methods

37 What are the general results? Direct answers to direct questions Changes in employment Changes in community income Changes in tax revenue Changes in related industries The process, if done correctly, should result in a stronger sense of community; the process should involve input from diverse groups across the community

38 Input-Output Analysis

39 Input-Output analysis creates a picture of a regional economy describing flows to and from industries and institutions

40 Examples of Interrelationships Between Sectors: Sectors purchase from other sectors Sectors sell to other sectors Sectors sell outside the local economy Sectors buy outside the local economy Sectors pay their employees Sectors pay taxes

41 Households Industry Basic Services Goods & $ Inputs Products Inputs $$ $ $ Services $$ Labor Overview of Community Economic System

42 Input-Output Models An input/output table quantifies the transactions between sectors in an economy. Its a snap-shot of the economy for a one- year period. By understanding these linkages, we are able to predict how a change in one sector will affect the other sectors. Multipliers can be estimated.

43 Example: Transactions Table Selling Sectors ($ million) Purchasing Sectors ($ million) AgricultureHealthServicesFinal Total DemandsOutput Agriculture Health Services Final Payments Total Input

44 Predictive Use of Input-Output Analysis Impacts are tracked throughout the economy Multipliers are derived from regional economic accounts Only local transactions are used to create the multiplier effect

45 Multipliers

46 What are Multipliers? Multipliers measure total change throughout the economy from a one unit change for a given sector.

47 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

48 Multipliers Continued Three multipliers are used to describe the economic impact: Employment Income (Value-Added) Output (Receipts)

49 Interpretation of Multipliers You will often see values for multipliers in the media, the interpretation of these numbers typically causes confusion Example 1 Type II employment multiplier (Ag) = 2.25 When the Agricultural Sector realizes a 1 employee change, total employment in the study area changes by 2.25 jobs from direct, indirect and induced effects

50 Multipliers Continued Example 2 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

51 Multiplier Cautions (Very Important) Multipliers are NOT interchangeable (i.e. employment and value added multipliers are very different, thus you cant 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 do tend to overstate the impact of change Take caution for multipliers larger than 3

52 IMPLAN Software A talented person could probably figure out relationships for a 6 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

53 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

54 Local Examples The Economic Impact of Various Health Related Services on the Local Economy Impact of Health Sector Impact of a Rural Physician

55 Economic Impact of Health Care Sector

56 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

57 The Economic Impact of a Rural Physician in Kentucky

58 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

59 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


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