Presentation on theme: "Market Analysis and Feasibility Studies"— Presentation transcript:
1 Market Analysis and Feasibility Studies Alison DavisRural Economic DevelopmentExtension SpecialistUniversity of Kentucky
2 Conducting a Feasibility Study Too often, we launch new ideas without thinking through what our market isPreparing 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 AssessmentA 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 segmentIf 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”.
7 Overview of a feasibility study Description of the projectMarket feasibilityTechnical feasibilityFinancial/Economic feasibilityOrganizational/Managerial FeasibilityResults/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 ideaThe feasibility study is prepared before the business plan.
9 Why do a feasibility study? Gives focus to the projectNarrows alternativesSurfaces new opportunitiesEnhances the probability of success by addressing factors early that could affect the projectProvides quality information for decision makingHelps in securing fundingHelps to increase investment in idea
10 Description of the project Identification and exploration of project scenariosIdentify alternative scenariosEliminate scenarios that don’t make senseFlesh-out scenarios that appear to have potential for future exploration
11 Description of the Project Definition of the project and alternative scenarios and modelsList type and quality of service to be marketedOutline the general business modelInclude the technical processes, size, location, and kind of inputsSpecify 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 areaIdentify economic and social impact on local communitiesList environmental impact on the surrounding area
13 Market Feasibility Industry Description Describe the size and scope of the marketEstimate the future direction of the marketDescribe the nature of the marketIdentify the life-cycle of the market
14 Market Feasibility “Industry” Competitiveness Investigate industry concentrationAnalyze major competitorsExplore barriers of entry into marketDetermine concentration and competitiveness of input suppliersIdentify price competitiveness of service
15 Market potentialIdentify the demand and usage trends of the market or market segmentExamine the potential for emerging market opportunitiesAssess 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 costsInvestigate the distribution system and the costs involved
17 Technical Feasibility Determine facility needsEstimate the size and type of production facilitiesInvestigate the need for related building and equipmentInvestigate and compare technology providersIdentify limitations or constraints of technology
18 Technical Feasibility Availability and suitability of siteAccess to marketsAccess to transportationAccess to a qualified labor poolAccess to production inputsExplore economic development incentivesExplore community receptiveness to have service located there.
20 The Evaluation Process Focusing the evaluationCollecting the informationUsing 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 someone’s 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 programCounty board members, elected officialsCommunity leadersCurrent fundersPotential 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 programCounty 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/impactsWhat do people do differently as a result of the program?Who benefits and how?Are the program’s 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 contextHow 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 IndicatorsNumerical and narrativeWill 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 informationPrevious reports, census data, other agency recordsPeopleProgram’s participants, proponents and critics, legislators, funders, and policy makersObservationsDirect observation of program events, activities and results
29 What data collection method will you use? SurveyInterviewObservationCase StudyTestimonialsExpert 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 reportFilm or videoMedia releasesInternet 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 unemploymentCommuting and migration trendsChanges in government spending
35 Why do we compute EIA models? In smaller communities, elected officials often lack the technical skills for economic analysisCommunities need information to help anticipate and respond to economic changesLocal leaders and citizens face difficult questions about the impacts of changes such as business growth, decline of traditional industrial and evolving land usesWhen 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 determine1) The nature and scope of the study(i.e. deciding where to measure: county-wide or regional impacts)2) The required data3) The research methods
37 What are the general results? Direct answers to direct questionsChanges in employmentChanges in community incomeChanges in tax revenueChanges in related industriesThe process, if done correctly, should result in a stronger sense of community; the process should involve input from diverse groups across the community
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 sectorsSectors sell to other sectorsSectors sell outside the local economySectors buy outside the local economySectors pay their employeesSectors pay taxes
41 Overview of Community Economic System HouseholdsIndustryBasicServicesGoods &$InputsProductsLaborOverview of Community Economic System
42 Input-Output ModelsAn input/output table quantifies the transactions between sectors in an economy.It’s a “snap-shot” of the economy for a one-year period.By understanding these linkages, we are able to predict how a change in one sector will affect the other sectors.Multipliers can be estimated.
43 Example: Transactions Table Selling Sectors($ million)Purchasing Sectors ($ million)Agriculture Health Services Final TotalDemands OutputAgricultureHealthServicesFinalPaymentsTotal Input
44 Predictive Use of Input-Output Analysis Impacts are tracked throughout the economyMultipliers are derived from regional economic accountsOnly local transactions are used to create the multiplier effect
46 Multipliers measure total change throughout the economy What are Multipliers?Multipliers measure total changethroughout the economyfrom a one unit changefor 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 otherType 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:EmploymentIncome (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 confusionExample 1Type II employment multiplier (Ag) = 2.25When 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 2Type II Income Multiplier (Ag) = 1.78When 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 can’t use one for the other)Not transferable to other study areas or across different time periodsNo differentiation between full-time and part-time jobsResults less certain for new types of economic activityThey do tend to overstate the impact of changeTake caution for multipliers larger than 3
52 IMPLAN SoftwareA talented person could probably figure out relationships for a 6 sector economyAn economy with more than 500 sectors is another storyIMPLAN software does the work for us and calculates multipliersIMPLAN 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 ExamplesThe Economic Impact of Various Health Related Services on the Local EconomyImpact of Health SectorImpact of a Rural Physician
56 Interpretation Output Multiplier: Employment Multiplier: 1.22 1.21 For every $1 of sales in the health sector there is an additional $0.22 of revenue generated due to indirect and induced effectsEmployment Multiplier:1.21For every employee hired in the health sector there are an additional 0.21individuals employed because of 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 CountyThe Economic Impact of Eco-tourism in Eastern KentuckyThe Economic Impact of Agriculture in KentuckyThe Economic Impact of a manufacturing firm leaving a rural town
59 Model LimitationsBased 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 numberEconomic impacts should only be part of the discussion. We should not ignore the following:Quality of LifeEnvironmental ImpactsSocial and Cultural HistoryEquity ImpactsTHIS IS WHY COMMUNITY INVOLVEMENT IS VITAL