Market Analysis and Feasibility Studies

Alison DavisRural Economic Development

Extension Specialist

University of Kentucky

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?

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?

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?

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?

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 don’t have to continue on with the feasibility study.

If opportunities are found, the market assessment can give focus and direction to the “big idea”.

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

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.

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

Description of the project Identification and exploration of project

scenarios Identify alternative scenarios Eliminate scenarios that don’t make sense Flesh-out scenarios that appear to have potential

for future exploration

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.

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

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

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

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

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

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

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.

Program Evaluation:A Primer

The Evaluation Process Focusing the evaluation Collecting the information Using the information

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?

What is the purpose of evaluation? Help others understand the program and its

results? Improve the program? Did the program make a difference in

someone’s life? Answer questions posed by funders and

influential members of the community?

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

Examples of Who, What, and HowWho 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

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 program’s 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?

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?

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?

What sources of information will you use? Existing information

Previous reports, census data, other agency records

People Program’s participants, proponents and critics,

legislators, funders, and policy makers Observations

Direct observation of program events, activities and results

What data collection method will you use? Survey Interview Observation Case Study Testimonials Expert review

When will data be collected? Before and after the program? At one time? At various times during the course of the

program? Over time?

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?

How will evaluation be shared? Written report Film or video Media releases Internet postings

Economic Impact Analysis A quantitative tool often used to evaluate

community projects

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

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

Choices made prior to analysisCommunicating with the community is essential when setting up the model. Dialogue within the community will determine1) 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

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

Input-Output Analysis

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

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

Households

Industry

Basic

ServicesGoods &

$

Inputs

Products

Inputs

$ $

$

$

Services

$ $

Labor

Overview of Community Economic

System

Input-Output Models

An input/output table quantifies the transactions between sectors in an economy.

It’s 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.

Example: Transactions Table

Selling S

ectors ($ m

illion)

Purchasing Sectors ($ million)

Agriculture Health Services Final TotalDemands Output

Agriculture 10 6 2 18 36

Health 4 4 3 26 37

Services 6 2 1 35 44

Final 16 25 38 0 79Payments

Total Input 36 37 44 79 196

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

Multipliers

What are Multipliers?

Multipliers measure total change

throughout the economy

from a one unit change

for a given sector.

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

Multipliers Continued Three multipliers are used to describe the

economic impact: Employment Income (Value-Added) Output (Receipts)

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

Multipliers ContinuedExample 2

Type II Income Multiplier (Ag) = 1.78When 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

Multiplier Cautions (Very Important) Multipliers are NOT interchangeable

(i.e. employment and value added multipliers are very different, thus you can’t 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

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

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

Local Examples The Economic Impact of Various Health

Related Services on the Local Economy Impact of Health Sector Impact of a Rural Physician

Economic Impact of Health Care Sector

Estill County Health Care Sector Impact on County Employment

Direct Impact of Health care Employment

Indirect Impact of Health Care Employment

Induced Impact of Health Care Employment

Employment Multiplier

Total Impact Of Health Care Employment.

432 Jobs 25.5 Jobs 64 Jobs 1.21 521.4 Jobs

Source: 2000 IMPLAN Data Base

Estill County Health Care Sector Impact on County Revenue (Sales) Direct Impact of Health care Sector Output

Indirect Impact of Health Care Sector Output

Induced Impact of Health Care Sector Output

Output (Sales)

Multiplier

Total Impact Of Health Care

Sector Output (Sales) $20,172,564 $1,530,139 $2,961,219 1.22 $24,663,922

Source: 2000 IMPLAN Data Base

Interpretation 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.

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

The Economic Impact of a Rural Physician in Kentucky

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

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 ImpactsTHIS IS WHY COMMUNITY INVOLVEMENT IS VITAL