Chapter Three

Market Analysis

Feasibility study
Introduction
• Feasibility literally means whether some idea will work or
not.
Synonym: Achievability, possibility, viability, likelihood,
practicability

Feasibility refers to the reasonable likelihood that constraints

on time and other resources will not prevent a project from
meeting its key objectives.

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 Project Feasibility study
• Feasibility study is a detailed analysis of initial examination of
promising/most viable project ideas.

• A feasibility study looks at the viability of an idea with an emphasis on

identifying potential problems and attempts to answer one main question:
Will the idea work and should you proceed with it?

• A feasibility study is created in order to minimize risk and to ascertain

the viability of a project.

• As soon as it is certain that a specific project could be carried out

profitably, it is only then, that it could be implemented.

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 Cont’d

• It is not merely an investigation but at the same time a plan or a

framework on how the operation of a project shall be accomplished.

• It involves an examination of the operations, financial, HR and

marketing aspects of a business before investments phase of a
project.

• It provides commercial, technical, environmental, financial, economic

and social information needed for investment decision making.
• Each dimension must be analyzed both separately and in relation to all
the others.

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 Cont’d
• The purpose of a Feasibility Study is to identify
the likelihood of one or more solutions
meeting the stated business requirements.
• In other words, if you are unsure whether your
solution will deliver the outcome you want, then a
Project Feasibility Study will help gain that clarity.
• During the Feasibility Study, a variety of
'assessment' methods are undertaken.
• The outcome of the Feasibility Study is a
confirmed solution for implementation.
• A feasibility study is conducted to assist decision-
makers in determining whether or not to
implement a particular project or program.
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• The overall idea of feasibility study is to ensure that there is a
reasonable understanding of what will be required to create the
new product and also successfully market the finished goods at a
profit.

• In general feasibility studies contain comprehensive, detailed

information about
a. Your business structure,
b. Your products and services,
c. Sources of finance,
d. The market,
e. Logistics of how you will actually deliver a product or service,
f. The resources you need to make the business run efficiently,
g. As well as other information about the business.

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 Project Feasibility study

Feasibility Process
Define scope,
Identify Initiate identify
problem or Feasibility constraints
opportunity study and objectives

Make Evaluate Carry out

recommendati alternativ Feasibility
on es study
Accept project
Reject project
Delay project
Refocus project
Outsource
project
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 Components of feasibility study

A feasibility study contains six major components

namely:
1. Market and Demand Analysis
2. Technical Analysis
3. Financial Analysis
4. Economic Analysis
5. Social and political
6. Environmental Impact Assessment Analysis
7. Risk Analysis

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• Many projects are linked to the ongoing work of the performing
organization.

• Some organizations formally approve projects only after completion

of a feasibility study, a preliminary plan, or some other
equivalent form of analysis; in these cases, the preliminary
planning or analysis takes the form of a separate project.

• For example, additional phases could come from developing and

testing a prototype prior to initiating the project for the
development of the final product.

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• Some types of projects, especially internal service or new product
development projects, can be initiated informally for a limited
amount of time to secure formal approval for additional phases or
activities.

• The driving forces that create the stimuli for a project are typically
referred to as problems, opportunities, or business requirements.

• The effects of these pressures is that management generally must

prioritize this request with respect to the needs and resource
demands of the other potential projects.

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• In pre-feasibility study (preliminary analysis/planning) the
project enters the next stage for more and sophisticated
analysis supported by accurate information in the study.

• Project Preparation necessitates a team work.

• The better a project is prepared, the easier and faster

its implementation and lowers the probability of cost
over runs.

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• Project analysis refers to analyzing a project from
various perspectives so as to determine its viability
and sustainability.

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 1. MARKET/DEMAND ANALYSIS
• Market aims to estimate the potential size of the
market for the product proposed to be manufactured
(or service planned to be offered) and to get an idea
about the market share that is likely to be captured.

• Hence, the two broad issues raised are:

• What is the likely aggregate demand for the
product/ service?
• What will be the share of the market for the
proposed product/service?

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 Cont’d...
Market analysis is not limited to the study of
future demand for a product but extended to
various aspects such as:

 Market share of the competitors,

 Composition of the market,
 Available substitutes,
 Distribution channels,
 Consumption pattern,
 Consumption growth,
 Price of the product,
 Income and price elasticity of demand,
 Nature of competition .
 13
 STRATEGIC DIMENSIONS OF MARKETING

• One of the major tasks of a project market-analysis is to develop a

marketing concept in connection with the project strategy.
• The marketing concept developed should be suitable for the project
strategy.
• Project strategy is set of objectives and principles defined for a project
with a view to determining the allocation of resources over a period of
time.
• Marketing concept involves two dimensions the marketing strategy and
the operative measures.
• It should be noted that the final marketing concept of the project can be
developed only when the market data are assessed and scrutinized.

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• A major task in the strategic dimension of marketing is the selection of a strategy
which is suitable to achieve the marketing targets within the conditions defined by
the project strategy.

• The components of the market strategy are the following:

A) Determination of the Product Target Groups:

• The price level, product requirements, consumer needs, criteria for purchasing
decisions, etc. should be identified for each target group.

B) Determination of Competition Policies

• Competition policy aims at gaining market shares from competitors. It is necessary to
decide whether a low priced strategy or a product differentiation strategy should be
pursued to defeat competitors. A differentiation strategy (profile strategy) focuses not
on price competition but on quality and extra performance.
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 OPERATIVE DIMENSIONS OF MARKETING
• Operative dimensions of marketing represent the marketing tools that must
be determined with regard to the customers.
• These tools have to be combined in an optimal way to achieve marketing
objectives. These tools can be classified into four groups: Product, Price,
Promotion and Place. They are also called the Four Ps. A combination of
the four Ps is known as Marketing Mix. Marketing Planning is the process
of planning the four Ps.

• The components of the four marketing tools are discussed below:

Product Price Promotion Place

Quality Price Positioning Advertising Channel of
distribution
Design Price Positioning Public relations Stock
Packaging Condition of Sales Promotion Transport
Paymne t
Warranty services Brand Policy
Scope of product

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Market analysis for new/improved products development has
objectives of the following questions:

1. Who are the buyers?

2. What is the total current demand for the product?
3. How is demand distributed geographically?
4. What is the demand for the product segmented in different sizes?
5. What price will the customers be willing to pay for the improved
product?
6. How can potential customers be convinced about the superiority
of the new product?
7. What price and warranty will ensure its acceptance?
8. What channels of distribution are most suited for the product?
9. What trade margins will induce distributors to carry it?

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 Market Analysis Processes
The market analysis processes are:

1. Situational analysis

2. Collection of secondary information

3. Conduct market survey

4. Characterization of the market

5. Demand forecasting

6. Market planning

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 1. Situation analysis
 In order to get an understanding of the relationship
between the product and its market, the project
analyst may informally talk to
 Customers,
 Competitors,
 Middlemen,
 And others in the industry.
 Wherever possible, s/he may look at the experience of the
company to learn about
 The preferences and purchasing power of
customers,
 Actions and strategies of competitors, and
 Practices of the middlemen.

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 2. Collection of secondary
information
• Gathering information help to better understand the market
situation.
• information may be obtained from secondary and/ or primary
sources.
• Secondary information is information that has been gathered in some
other context and is already available.
• Primary information, on the other hand, represents information that
is collected for the first time to meet the specific purpose on hand.
• Secondary information provides the base and the starting point for
market analysis.
• It indicates what is known and often provides leads and indicates
for gathering primary information required for further
analysis.

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 Evaluation of Secondary Information

While secondary information is available

economically and readily provided, the
market analyst is able to locate

• its reliability,
• accuracy, and
• relevance for the purpose under
consideration.

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The market analyst should seek to know:
• Who gathered the information and for what objective?
• When was the information gathered? When was it
published?
• How representative was the period for which the
information was gathered?
• What was the target population?
• How was the sample chosen?
• How representative was the sample?
• How satisfactory was the process of information
gathering?
• How accurately was the information edited, tabulated,
and analyzed?
• Was statistical analysis properly applied?
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 3. Conduct Market Survey
• Secondary information, though useful, often does
not provide a comprehensive basis for market
analysis.

• It needs to be supplemented with primary

information gathered through a market survey,
specific to the project being appraised.

• The market survey may be

• A census survey or
• A sample survey.

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 Cont’d....
The information sought in a market survey may
relate to one or more of the following:

• Total demand and rate of growth of demand

• Demand in different segments of the market
• Income and price elasticity of demand
• Motives for buying
• Purchasing plans and intentions
• Satisfaction with existing products
• Unsatisfied needs
• Attitudes toward various products
• Distributive trade practices and preferences
• Socio-economic characteristics of buyers
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Steps in market survey

1. Define the Target Population

2.Select the Sampling frame and Sample Size
3.Develop the Questionnaire
4.Recruit and Train the Field Investigators
5.Obtain Information as per the Questionnaire
from the Sample of Respondents
6.Scrutinize the Information Gathered
7.Analyze and Interpret the Information

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 Demand Forecasting
• After the market research, an attempt should be
made to estimate future demand.

• Different forecasting techniques are employed

for forecasting demand.

I] QUALITATIVE METHODS
• Depends on the judgment of experts to
translate qualitative information in to the
quantitative estimates

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 Examples

1. Expert Opinion Method (Jury of Executive Opinion Method)

– Pooling of views of group of experts/executives on
expected future sales and combining them in to sales
estimate.

– This method involves soliciting the opinions of a

group of managers on expected future sales and
combining them into a sales estimate.

– This method permits consideration of a variety of factors

like economic climate, consumer preferences,
competitive environment, etc.

– However, the bases underlying subjective estimates

cannot be unearthed(determined) easily. 27
• This method is also called the hunch method
since the experts give their opinions after weighing
pros and cons of all factors affecting the product
demand and arrive at an estimate, which is nothing
but hunch; the hunch of course is backed by
knowledge and experience of the experts.

• If the views of more number of experts are

obtained, and if their views differ significantly, then
a forecast can be safely arrived at by taking the
average of the expert’s predications.

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 2. Delphi Method
• Converting the views of a group of experts who do not
interact face to face, with the help of a mail survey in to
a forecast.

• This method is used for soliciting the opinions of a group

of experts with the help of a mail survey.
• This is a group decision by experts in which the individual
experts act separately.
• Their views are pooled together and an attempt is made
to arrive at consensus.
• If the views of the experts differ significantly, the
individual experts are fed with the views of other experts
in areas where there is distinct difference and they are
asked to further analyze the problem and to
revise/improve upon their views in the lights of the view
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of the other experts in the group.
The steps involved in this method are:

1. A group of experts is sent a questionnaire by mail and asked

to express their views
2. The response received from the experts are summarized
without disclosing the identity of the experts, and sent back to
the experts, along with a questionnaire meant to probe further
the reasons for the extreme views expressed in the first round
3. The process may be continued for one or more rounds till a
reasonable agreement emerges in the view of the experts.

•Delphi method appeals to many organization for the following

reasons:
i. It is understandable to users
ii. It seems to be more accurate and less expensive than
traditional face-to-face group meetings.

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 II] QUANTITATIVE METHODS

• It employs formal mathematical methods to forecast

future demand.
Examples
1. Trend Projection Method (Time Series Analysis)
• Helps to forecast about the future based on what happened
in the past.
• The trend projection method involves:
1. Determine the trend of consumption by analyzing past
consumption statistics and
2. Projecting future consumption based on the past trend.

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• When the trend projection method is used, the
most commonly employed relationships is the
linear relationship.

Yt = a + bT

Where Yt = demand for year

T = time variable
a = intercept of the relationship
b = Slope of the relationship
To estimate the parameters a and b of the linear
relationship, the least squares method is used.

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To illustrate the use of this method, the following data for a
product will be used as
show
Year below: Demand
0 10
1 13
2 14
3 17
4 18
5 18
6 19
7 20
8 22
9 24
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• According to the least square method, the linear
relationship is chosen in such a manner that the
sum of the squared deviations of the
observations from the line is minimized.

• The parameters, a and b, of the linear

Y =relationship
a + bx are estimated with the help of the
following equations. Where:
Yt = Demand for the year T
b = xy-nxy
x2 - nx 2 a = Intercept of the relationship
b = Slope of the relationship
a = y - b x n = Number of the observations
 x = Mean of “x”

 y = Mean of “Y”
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X Y XY X2
0 10 0 0
1 13 13 1
2 14 28 4
3 17 51 9
4 18 72 16
5 18 90 25
6 19 114 36
7 20 140 49
8 22 176 64
9 24 216 81
X average = Y average = 900 285
45/10=4.5 175/10= 17.5.

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Y = a + bx Where:
Yt = Demand for the year T

b = xy-nxy a = Intercept of the relationship

x2 - nx 2 b = Slope of the relationship
a = y - b x n = Number of the observations
 x = Mean of “x”

 y = Mean of “Y”

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b = xy-nxy
x2 - nx 2
= 900 – 10.4.5.17.5
= 285 – 10. (4.5)2
= 112.5/82.5=1.36

a = y average – b. xaverage
= 17.5- 1.36.4.5
= 11.38

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 Example 2
 
• By using the following data (of 1980-1992), determine the demand for the
years of 1993, 1996 & 2000
 
Year Deman Year Demand Year Demand
d
1980 26 1985 38 1989 44
1981 38 1986 40 1990 48
1982 35 1987 44 1991 48
1983 36 1988 46 1992 50

1984 36

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 computation
Year(X) Demand(Y) XY X2
1. 26 26 1
2. 28 56 4
3. 35 105 9
4. 36144 16
5. 36180 25
6. 38 228 36
7. 40280 49
8. 44 352 64
9. 46 414 81
10. 44 440 100
11. 48 528 121
12. 48 576 144
13. 50 650 169
ΣX=91 ΣY=519 ΣXY=3979ΣX2=819

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 Mean of Independent Variable(x) ={X/n= 91/13 = 7
Mean of Dependent Variable(y) ={Y/n= 519/13 = 39.923

Slop(b) = (ΣXY- n . mean of X . mean of Y)

(ΣX2 – n . mean of X2 )
= ( 3979 – (13. 7. 39.923))
(819 – (13 . 72 )
b = 1.9
 
Intercept(a) = Mean of Y – b . Mean of X
= 39.923 – (1.9 * 7)
a = 26.623
Yt = a + bt

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1. Demand for year 1993 (14th year)
Y14 = 26.62 + 1.9(14)
= 53.223
2. Demand for year 1996 (17th year)
Y17 = 26.62 + 1.9(17)
= 58.92
3. Demand for year 2000 (21st year)
Y21 = 26.62 + 1.9(21)
= 66.52
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 2. Moving Average
• As per the moving average method of sales
forecasting, the forecast for the next period is
equal to the average of the sales for several
preceding periods.

• Ft+1= st + st -1+ ...st -2 + .... St-n-1

n
• Where Ft+1=forecast for the next period
St=sales for the current period
n= period over which averaging is done

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 Illustration
Consider the following time series:
Year Sales
1 28
2 29
3 31
4 34.2
5 34.2
6 32.7
7 33.5
8 31.8
9 31.9
10 34.3
11 35.2
12 36.0

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• If n is set equal to 4(n has to be specified by the
forecaster), the forecast for period 5 will be equal
to

• 28.0+29+28.5+31)/4= 29.1

• Note: if n is equal to 4,the first forecast can be

made only for period 5.

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F6= (29.0+28.5+31.0+34.2)/4=30.7
F7= (28.5+31.0+34.2+32.7)/4=31.6
F8= (31.0+34.2+32.7+33.5)/4=32.9
F9= (34.2+32.7+33.5+31.8)/4=33.1
F10= (32.7+33.5+31.8+31.9)/4=32.5
F11= (33.5+31.8+31.9+34.3)/4=32.9
F12= (31.8+31.9+34.3+35.2)/4=33.3

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 Uncertainties in Demand Forecasting
• Demand forecasts are subject to error and uncertainty
which arise from three principal sources:
1. Data about past and present market: The
analysis of past and present markets, which serves
as the springboard for the projection exercise, may
be vitiated by the following inadequacies of data:

o Lack of Standardization: Data pertaining to market

futures like product price, quantity, cost,
income, etc. may not reflect uniform concept and
measures.
o Few Observations: Observations available to
conduct meaningful analysis may not be enough.
o Influence of Abnormal Factors: Some of the
observations may be influenced by
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abnormal factors like war or natural calamity.
 2. Methods of
Forecasting
Methods used for demand forecasting are
characterized by the following limitations
• Inability to Handle Unquantifiable Factors: most of
the forecasting methods, being quantitative in
nature, cannot handle unquantifiable factors
which sometimes can be of immense significance.
• Unrealistic Assumptions: Each forecasting
methods is based on certain assumptions.
• Excessive Data Requirement: In general, the
more advanced a method, the greater the
requirement. For example, to use an econometric
model one has forecast the future value of
explanatory variables in order to project the
explained variable. Clearly, predicting the future
value of explanatory variables is a difficult and 47
 3. Environmental Changes:

The environment in which a business functions is characterized by

numerous uncertainties. The important sources of uncertainty are
mentioned below:
• Technological Change: This is a very important but hard-to-predict
factor which influences business prospects. A technological
advancement may create a new product which performs the same
function more effectively and economically, thereby cutting into the
market for the existing product.
• Shift in Governmental Policy: Changes in governmental policy,
which may be difficult to anticipate, could have a telling effect on the
business environment: granting of licenses to new companies,
particularly foreign companies may alter the market situation
significantly; relaxation of price and distribution controls may widen
the market considerably.
• Developments on the international prospect: Developments on
the international prospect may have a profound effect on industries.
• Discovery of New Sources of Raw Material: Discovery of new
sources of raw materials can have a significant impact on the market
situation of several products.

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 Project Work (Group)

1. Identify a Project an conduct a feasibility

analysis and Developing a Project Plan with
Presentation(30 %)

2. Describe and Evaluate Project Finance Appraisal

Process of a specific type of credit of Banks in
Ethiopia: ( A case study of X Bank) with
presentation(30 %)

Submission Date : May 10, 2018

End of the chapter

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