Market attractiveness is a metric that quantifies the market's capacity to generate increased sales and profits. It is crucial to emphasise that data from outside the company should be used to conduct an unbiased evaluation of the market's attractiveness. Naturally, the organisation doing the exercise will choose the criteria, which should be related to the goals the organisation is attempting to accomplish but unaffected by the organization's standing in its respective markets.
Why is market attractiveness important for businesses
Determining the attractiveness of a market is a crucial first step, whether one is reviewing business strategy and performance, contemplating entry into a new market, or assessing an acquisition or investment. An investigation of the underlying market characteristics yields a view of prospective profit based on market attractiveness. Market attractiveness places limits on a business's potential for profitability, even though operational performance may ultimately decide a business's actual level of profitability. Even the most successful business in an unattractive market can only make a passable profit. When a business operates in a highly desirable market, it can achieve substantial profits with the right plan and execution.
Knowing the market's attractiveness is crucial to the scenario analysis phase of strategic planning, which looks at the company's position and the business environment as the basis for the business strategy. Attractiveness of the market is a major factor in company decision-making. The value of an established business also heavily depends on how appealing the market is. Investors frequently make the mistake of assuming that past financial performance is the only reliable indicator of future performance, never considering the underlying attractiveness of the market.
Market attractiveness factors
Even though market size and growth are frequently the first factors people examine when determining how desirable a market is, there are other, more crucial factors to take into account. Each organisation will have a distinct relative importance of different aspects depending on its vision, goals, and objectives. Three overlapping categories can be used to broadly classify the characteristics that contribute to market attractiveness: differentiation potential, price potential, and growth potential. There are numerous variables in each of these three categories. Some of the elements that could influence market attractiveness include the following.
• Differentiation potential: The key to a business's potential profitability is its ability to differentiate, or to offer a distinctive value to clients. A few aspects of market attractiveness influence the prospective return and, thus, the capacity to stand out.
• Pricing potential: The capacity to stand out influences pricing potential to some extent, but the level of competition and pricing pressure are governed by the competitive landscape and industry structure.
• Growth potential: Although market size and growth are vital, knowing the precise market segments that need to be addressed is even more crucial.
Tools to analyse market attractiveness
A variety of methodologies and frameworks, including the Porter's Five Forces, the PESTEL analysis, the BCG matrix, and the GE-McKinsey matrix, can be used to gauge market attractiveness. With the use of these tools, you may evaluate the internal and external elements influencing your market and contrast it with other options.
1. Porter’s Five Force
The competitive forces within an industry are identified and analysed using Porter's five forces. The ability of customers to locate alternatives to the sector's products, supplier bargaining power, customer bargaining power, competition, and the threat of new entrants into the market are the five drivers. Businesses can better understand power dynamics in their industry by using the model to guide them in assessing the level of competition and possible profitability in their market.
2. PESTEL Analysis
Organisations can use PESTEL analysis as a method to identify and assess potential future and current business impact variables. Political, Economic, Social, Technological, Legal, and Environmental is referred to as PESTEL. These four external factors are evaluated in this unit of analysis in relation to the company condition. The examination looks at the opportunities and challenges that these four factors present. It is feasible to have a positive perspective when conducting market research, formulating marketing strategies, producing products, and making better decisions for the company with the help of the PESTEL analysis results.
3. BCG Matrix
The product portfolio matrix, commonly known as the Boston Consulting Group Matrix (BCG Matrix), is a business planning tool used to assess the strategic position of a company's brand portfolio. Among the most often used techniques for portfolio analysis is the BCG Matrix. It arranges the goods and/or services provided by a company into a two-by-two matrix. A quadrant's performance is categorised as either low or high based on its relative market share and rate of growth.
The product's strength and market share in a given market are represented by the horizontal axis of the BCG Matrix. Relative market share is used to gauge how competitive a business is. The growth rate of a product and its potential for growth in a certain market are represented by the vertical axis of the BCG Matrix.
4. GE Matrix
A strategic framework called the GE Matrix assists multi-business companies in managing their portfolios and allocating resources among various products and SBUs (Strategic Business Units). The competitive strength of an SBU and the allure of the market in which it operates are the two elements that the GE Matrix examines. Following are some strategic questions that can be addressed based on the SBU's placement within the 3x3 GE Matrix:
• How to distribute funds across the organization's portfolio
• Which goods do they need to add to their portfolio, or which SBUs?
• Which SBUs ought to be sold off?
Author's Detail:
Anushka Gore /
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Anushka is a highly motivated and detail-oriented research analyst with a passion for uncovering valuable insights from data. Her expertise in Market Research and business intelligence has equipped her with the skills necessary to analyze complex information and provide strategic recommendations. She thrives in dynamic environments where her analytical abilities and research expertise can contribute to informed decision-making for businesses
I played a pivotal role in conducting market research and competitive analysis. I have a demonstrated ability to synthesize diverse data sources, identify trends, and translate findings into actionable recommendations. My collaborative approach facilitated effective communication of insights, fostering a data-driven culture within the organization. I am committed to maintaining excellence through continuous learning and staying ahead of industry trends. Regular participation in conferences and professional development opportunities keeps my skills sharp and relevant.
