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Market Analysis and Feasibility Studies

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Title: Market Analysis and Feasibility Studies


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 EvaluationA 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?
You Is the program meeting clientele needs? To make decisions about modifying the program
County board Who does the program serve? Is the program cost-effective? To make decisions about budget allocations?
Potential funder Is 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
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
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
  • 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
  • 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.

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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