Market Analysis and Feasibility Studies

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Market Analysis and Feasibility Studies

• Alison Davis
• Rural Economic Development
• Extension Specialist
• University of Kentucky

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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?

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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?

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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?

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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?

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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.

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Overview of a feasibility study

• Description of the project
• Market feasibility
• Technical feasibility
• Financial/Economic feasibility
• Organizational/Managerial Feasibility
• Results/Next Steps/Conclusion

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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.

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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

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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

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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.

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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

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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

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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

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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

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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

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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

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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.

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Program EvaluationA Primer
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The Evaluation Process

• Focusing the evaluation
• Collecting the information
• Using the information

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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?

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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?

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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

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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
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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?

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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?

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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?

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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

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What data collection method will you use?

• Survey
• Interview
• Observation
• Case Study
• Testimonials
• Expert review

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When will data be collected?

• Before and after the program?
• At one time?
• At various times during the course of the
  program?
• Over time?

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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?

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How will evaluation be shared?

• Written report
• Film or video
• Media releases
• Internet postings

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Economic Impact Analysis

• A quantitative tool often used to evaluate
  community projects

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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

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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

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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

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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

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

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Overview of Community Economic System
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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.

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Example Transactions Table
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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

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

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Multipliers Continued

• Three multipliers are used to describe the
  economic impact
• Employment
• Income (Value-Added)
• Output (Receipts)

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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

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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

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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

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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

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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

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Local Examples

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

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Economic Impact of Health Care Sector
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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.

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The Economic Impact of a Rural Physician in
Kentucky
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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

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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