Market attractiveness is used to describe the various possibilities of the profitability that any firm or organization can obtain a competitive market place. Now it is generally preferred to have a better market attractiveness, because the better the market attractiveness is, the more are the chances of obtaining potential profitability from that market by making investments in it.
Thus, a better market attractiveness means that it can attract more investors to make investments in one particular market because it has higher chances of giving back profitability. Thus, the market attractiveness is generally the measurement of the opportunities that a specific market promises.
1) The size of the market
The size of the market is an essential parameter to analyze the height of the market attractiveness. If the market is large, the producer will have more opportunities to sell the product in the market.
This will increase the potential of that particular market which in turn will increase the profitability of it. This means that the market will have a higher potential of the profit margin is at a lower value.
Also, if there is a particular market which is not growing, then this would mean that this specific market has got a constant amount of revenue or those they have limited revenue potential.
2) The growth rate
Now after the size of the market, the second important factor which can affect the market attractiveness is the growth rate. If there is a market that is not growing as expected, this would mean that its revenue potential is finite or constant.
If there is a market that has a low rate of growth, this means that this type of market is most probably a saturated one, if there are a lot of competitors who are fighting against each other in the same space and that too for the same sales.
This then may lead to a lower share in the market for all the competitors and thus will lead to lower profit margins.
3) Margins and pricing trends
Now since the revenues are determined by analyzing the volume and the margin, these two factors play an essential role when it comes to the determination of the profitability and the extent of the market attractiveness. Now suppose that there are two different markets but are having the same market size, and are having profit margins which are completely different from each other, in cases like these their different marginal points will be having the potential of being able to generate the different revenues.
Also, if the pricing trends are different as well, then in cases like these, if the prices are decreasing, then it is highly likely that they might continue to do the same, thus eroding the profit margins. And if there is a case in the prices are increasing, then here they can be seen an increase in the revenue opportunity in that particular market.
Now the completion in the market is an inevitable fact. One cannot expect to exist in a fair market where there is no competition. So it is necessary to have competition in a particular market, and it is equally important to understand who your real competitors are.
Now there are a few things that should be considered by the companies when they are trying to evaluate the competition in a particular market. They need to understand the strengths and the weakness of their competitors, the size of them, how aggressive are they towards the other competitors that they have.
Also, they must know what the several advantages that the competitors have over your company are, what is the number of the competitors in the market space that you are jumping in, and how much of the market share do they have already. Now a market is considered to be unattractive when there is a monopoly in it, which means that it is dominated by one single big company or organization.
This is also because that particular company that is ruling the market is likely to get aggressive towards a newly launched company and they may even try to dominate the various suppliers, contract and the distributors.
But if there is a market space which has many small companies competing against each is likely to be more attractive in terms of marketing.
5) Other additional factors
Now other than the factors mentioned above, there are also some other factors which may affect the market attractiveness. For example, if there is a company which is planning to expand their business overseas, they will have to assess the transportation infrastructure depending upon the geographical location, as these will play a key role in delivering their products.
Factors that affect business strength
A key business strength is product or service profitability. The more profitable a business is, the stronger its product or service is. But profitability isn’t everything. Consider these other factors as you plot your products and services on the framework:
- Product or service uniqueness
- Brand recognition
- Market share growth or decline
- Customer loyalty
- Relative cost position (cost structure compared with competitors)
- Production capacity
- Distribution strength
- Record of innovations