The next section of the feasibility analysis is the market analysis. This portion may be the most important in determining whether an idea is a valid business opportunity. It focuses on determining whether there is a potential market for the product. Every market analysis should contain the following five sections:
- Customers (Segmentation) – Identifying the customer segment will allow you to understand who wants or needs your product and is qualified as a potential customer.
- Price (determined for each customer segment) – You need to know how much a potential customer in a given customer segment would be willing to pay for your product or service (i.e., how much revenue you can expect from each customer segment).
- Market Size – The market size (made up of all of the identified customer segments) will tell you how many of those people who want your product(s) are in the market.
- Market Size = the number of potential customers x the quantity purchased by an average buyer x the price of the unit.
- Priority – Priority shows the willingness of customers to purchase at a given level of information about the product (i.e., sales and marketing effort by the business).
- In summary, the number of potential customers, market size, price, and customer priority, taken together, will allow you to make projections of how many sales you will make at a given price. For example, grabbing 1% of the market value yields a specific amount of potential revenue.
- Important Strategic Information About Market:
- If you are unable to serve all segments, then you will choose the customer segment and corresponding price point that maximizes your value.
- Customer trends give rise to increased demand for your product, higher prices at the level of demand, and new customer segments within the market.