PRMG 050: Project Feasibility Studies

Dr. Tarek Sakr

Market Study

PRMG 050 Project Feasibility Studies

Topic: Market Study
Dr. Tarek Sakr
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PRMG 050: Project Feasibility Studies

Dr. Tarek Sakr
Market Study

Introduction
The market study/analysis is a section in the feasibility study that presents information about the
market in which the business/industry operates in. The goal of a market analysis is to determine the
attractiveness of a market, both now and in the future. Organizations evaluate the future attractiveness
of a market by gaining an understanding of evolving opportunities and threats as they relate to that
organization's own strengths and weaknesses.
Organizations use the finding to guide the investment decisions they make to advance their success.
The findings of a market analysis may motivate an organization to change various aspects of its
investment strategy.
The goal of a market analysis is to determine the attractiveness of a market and to understand its
evolving opportunities and threats as they relate to the strengths and weaknesses of the firm. The
dimensions of a market analysis:
Market Size: The size of the market can be evaluated based on present and potential sales.
Market trends: Market trends are the upward or downward movement of a market, during a
period of time. A few techniques that are used to estimate market trend are:
o Customer analysis
o Competitor analysis
o Risk analysis
o Product research
o Advertising the research
o Simulated Test Marketing
Market Growth Rate: extrapolate historical data into the future.
Market opportunity: A market opportunity product or a service, based on either one
technology or several, fulfills the need(s) of a (preferably increasing) market better than the
competition and better than substitution-technologies within the given environmental frame
(e.g. society, politics, legislation, etc.).
Market Profitability: While different firms in a market will have different levels of
profitability, the average profit potential for a market can be used as a guideline for knowing
how difficult it is to make money in the market.

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PRMG 050: Project Feasibility Studies

Dr. Tarek Sakr
Market Study

Supply and Demand

Supply and demand is perhaps one of the most fundamental concepts of economics and it is the
backbone of a market economy. Demand refers to how much (quantity) of a product or service is
desired by buyers. The quantity demanded is the amount of a product people are willing to buy at a
certain price. Supply represents how much the market can offer. The quantity supplied refers to the
amount of a certain good producers are willing to supply when receiving a certain price.

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PRMG 050: Project Feasibility Studies

Dr. Tarek Sakr
Market Study

Concept of Market Study

Before any detailed study of a project is undertaken it is essential to have at least a rough idea of the
size of the market in question. Only if the anticipated volume of demand (locally and possibly for
exports) can be assumed to be above a certain minimum level is it possible to begin exploring the
technical feasibility of the project. Experience shows that a great many projects have had to be
abandoned (even in industrialized countries), because the market did not come up to forecasts, or
simply because no forecasts had been made.
The concept of a market should be interpreted vary widely. It should include the whole environment in
which the enterprise is to live and to which it must adapt itself: consumers, suppliers, competitors and
all kinds of technical, material, political, legal and administrative restrictions. An enterprise cannot
operate unless it has been created for a specific market, and, once created, it cannot continue working
unless it constantly adapts itself to the changing market. In both cases this presupposes knowledge of
the market.
Purpose of Market Study
Market research or market study, as it is called, is nothing more than a set of techniques for gaining
information about the environment of the enterprise and for forecasting future trends so that the
enterprise may react most efficiently to change.
Knowledge of the market for the purpose of analysis of an industrial project in developing countries
means being in a position to answer the following questions:
1. What is the size of the market and its growth rate?
2. What volume of output can the enterprise in question hope to sell in the years to come, bearing
in mind potential customers, the reactions of existing competitors, the possible arrival of new
competitors, the pattern of costs and prices, and their past and expected future trends ?
3. On what geographical or sectoral market(s) does the enterprise expect to compete and,
depending on this, what is the basis of its distribution and marketing policy?
In this section we will be study the general procedures to be followed for executing a market study. It
will consist of four parts:
1. Analysis of past and present demand.
2. Consideration of different methods of estimating future demand.
3. The problem of uncertainties in demand estimates and how to take them into account.
4. Choice of a production target.

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PRMG 050: Project Feasibility Studies

Dr. Tarek Sakr
Market Study

Analysis of Past and Present Demand

Analysis of past and present demand calls for the collection of quantitative and qualitative information
about the market for the goods considered.
Quantitative information
The information to be collected can be of many different kinds according to the nature of the
product. Broadly, however, it can be classified into two main categories: information on
physical quantities and information on prices. To this must be added other information of
various kinds capable of being expressed in figures. We shall briefly consider each category in
turn.
1. Information relating to physical quantities: Information relating to physical quantities
consists mainly of statistics concerning production, imports, exports and possibly variations
in stocks. Statistics covering several years constitute a time series.
2. Statistics relating to prices: To the time series for physical quantities must be added time
series of prices, which are often more difficult to collect.
Qualitative information
There are very different kinds of qualitative information. Such information can be obtained by
studying among others, the following three factors:
1. Methods of distribution and marketing of product
The methods of distribution used vary according to the nature of the goods or products.
Even for an individual product, methods of distribution may differ: exclusive agents or
wholesalers, distributors bound by contract, or sales points belonging to the enterprise,
sales by mail order or by mobile vehicles or in fixed shops, etc.
But it is necessary, in the early stages of research to note:
o The distribution method or methods already existing for the product it is proposed to
manufacture and/or for competing products. Examination of these distribution methods
can explain anomalies in consumption statistics.
o Difficulties there might be in creating such a distribution network for a product which is
new, at least for the country concerned.
2. Attitude of customers
Many studies of investment projects consider demand generally and from a purely economic
point of view. They do not analyze the sociological conditions underlying demand, and this
is a serious weakness. Such studies should therefore be supplemented by more detailed
research. On a consumer market, for example, attention should also be given to the
consumer, his behavior, intentions, motivations and attitudes. These can be the natural
outcome of differences in income, age, sex and social background, but also of religion,
beliefs, local customs, etc. Such research is particularly important when the aim is to market
a locally made product that will compete with imported products of a similar kind. Such
surveys may also reveal that the range of products offered by importers is not adapted to
the needs and habits of the local consumer.

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PRMG 050: Project Feasibility Studies

Dr. Tarek Sakr
Market Study

3. Government action
Government action in respect of a product may account for its past development and its
present position on the market, the government may be promoting the sale of certain
products which are considered useful for development like fertilizers, rich food products,
health products, etc.
Sources of information
1. Study of documentation; this will include, on the one hand, the analysis of regular statistics,
and, on the other hand, the study of the published results of previous surveys. Statistics;
demographic, economic, fiscal and commercial statistics can come from three separate
sources:
o Official sources: Customs statistics, various kinds of fiscal statistics, those of government
departments and bodies dealing with foreign and domestic trade, etc. Generally a central
body publishes or maintains all official statistics, but to obtain detailed data it may be
necessary to consult the departments which produced the statistics.
o Trade groups: These include both trade unions and trade associations. The statistics
published by the latter are not always complete or accurate but can nonetheless be most
useful.
o Certain enterprises: Certain national or private enterprises possess statistics compiled
for their own use which can be made available.
2. Special surveys provide a very effective method of investigating a market. Their purpose
will be either to obtain quantified data (existing equipment, consumption of products) or to
find out how people feel about a product: its qualities or defects, and the reasons prompting
them to buy it or not. Such surveys may prove costly, particularly in the developing
countries. The value of the information collected will depend very largely on how far the
sample chosen is representative, and on the quality of both the questionnaire and the
investigator. Such surveys also call for qualified investigators and carefully planned
questionnaires.

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PRMG 050: Project Feasibility Studies

Dr. Tarek Sakr
Market Study

Different Methods of Estimating Future Demand

There are many possible methods for estimating future demand for a product. In some cases a study of
import statistics, possibly backed up by a survey among local consumers, will give a fairly clear idea of
the size of the future market; in other cases it may be necessary to pursue the investigation further,
possibly using advanced econometric techniques.
Between these two extremes there exists a whole range of methods from which to choose, depending
first on the nature of the market studied and the quality and quantity of the data available, and
secondly on the degree of accuracy it is hoped to achieve. We shall examine a few of these methods in
the following order:
1. Projection of the trend
This method is certainly the simplest of all those examined below. It consists of establishing a
median line between quantities used over a certain number of years, and estimating future
demand according to the trend shown by this line.
2. Utilization of technical coefficients
This method is perfectly suitable for forecasting future demand for intermediate goods, i.e.
goods destined to undergo further processing in order to facilitate the production of final
consumer goods.
3. International comparisons
Provided that the countries for comparison are chosen with care, this method can produce
some worthwhile results. The trend of demand for some goods, whether final consumption,
intermediate or investment goods, is often the same for different countries, but with a time lag
due partly to differences between national per capita incomes and partly to other intrinsic
factors (climate, social habits, etc.). International comparisons of consumption levels and
trends make it possible to situate the various countries on a general trend curve and, in
particular, to show the person responsible for the analysis of investment projects, what the
demand will probably be in his country given appropriate conditions. All comparisons are
difficult since conclusions are accurate only insofar as the variables considered are truly
comparable. Difficulties may be grouped under four main heads:
o The qualitative factors associated with the recorded trend of demand for a given good, differ
in each country.
o The statistics do not cover the same categories of various products.
o The same terms are not defined identically. This is particularly true of the ways in which the
national product is estimated.
o Basic statistics usually give values in dollars on the basis of an official exchange rate.
However, this single exchange rate for all products is not always meaningful from an
economic standpoint.
4. Possibilities for export or for import substitution
It is useful to point out the special problems raised by foreign market studies and by projects
designed to replace an import by domestic production.

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PRMG 050: Project Feasibility Studies

Dr. Tarek Sakr
Market Study

5. Econometric models
The methods described up to now call for only a few figures. Those we are about to consider,
however, call for a vast array of numerical data, a good knowledge of statistics on the part of the
person applying them, a firm grasp of economic theory and a certain familiarity with the
product being studied and the industry producing it. Given all this, econometric methods
constitute an extremely effective instrument for research and forecasts. The purpose of
econometric methods is to express in a precise formula the relationships between several
variables and to determine the degree of confidence that can be placed in these relationships.
When applying these methods the procedure adopted is as follows:
o Study of the variables which explain the past trend.
o Construction of an explanatory model showing the past relationships between the
phenomenons.
o Establishment of forecasts proper on the basis of the model so obtained, and qualitative
assessment.
6. Forecasting without statistical data
Sometimes, in developing countries, data are incomplete or nonexistent. What can be done in
this case? The economist will have to do his best to establish a few rough estimates of the future
market with whatever material is available.
Final assessment of the market
The final assessment of the future market will be made by comparing the figures obtained by the
different methods, and weighing up on the one hand the value of these methods, and on the other hand
the psycho-sociological factors and administrative or political decisions likely to modify future trends.

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PRMG 050: Project Feasibility Studies

Dr. Tarek Sakr
Market Study

The Problem of Uncertainties in Demand Estimates

All estimates are subject to errors and uncertainty. The problem is to determine whether the results of
market research can be invalidated by small modifications in the underlying assumptions. Errors and
uncertainties can appear at three levels:
1. In the estimates of present and past demand, i.e. in the statistics available
2. In the method used for forecasting future demand : each method has its limitations
3. In future demand it, owing to economic or extra-economic causes which are chance
occurrences and are difficult to predict political crisis, war, sociological factors, etc.).
Conclusion: The Choice of a Production Target
To find out what the trend in demand is at national and/or international level, market research must
be undertaken, that is to say quantitative and qualitative assessments need to be made of the present
volume of demand at various levels of price, for a well-defined product and the probable trend of that
demand in years to come. Market research can take a variety of forms according to the clientele
envisaged, the nature of the product being considered, the quality and quantity of the statistics
(numerical or otherwise) available.
The products concerned may fall into one or other of the following categories:
1. Products in widespread, everyday consumption (sugar, oil, toothbrushes, pencils, etc.) the
demand for which is renewed as fast as it is satisfied
2. Capital goods, which canbe divided into capital goods proper (machine tools for example),
and durable consumer goods (lorries or cars, for example)
3. Industrial or intermediate products entering into the manufacture of other products (paper
pulp, for example)
It is however important to note that market research may employ a number of methods, which can
moreover be used concurrently (described above):
1. Projection of the trend
2. Utilization of technical coefficients
3. International comparisons
4. Analysis of possibilities for export or for import substitution
5. Econometric models
All these methods call for an adequate supply of data, adequate at least in quality if not in quantity. In
fact, the hypotheses on which all forecasting is based must be checked both by reasoning and by
common sense.
Qualitative and quantitative studies of demand having made it possible to assess the present size of the
market and its probable trend under given market conditions (price, income, rate of investment, etc.),
the next step is to examine this demand from the point of view of any events which might influence
it, and so fix a reasonable production target for the enterprise being planned. This fundamental work
can only be successful if the following factors are taken into account:
1. The structure of supply, i.e. the nature and intensity of competition at home and abroad,
2. The quality of the product under study, and competing products,
3. The distribution and marketing policies it is intended to use,
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PRMG 050: Project Feasibility Studies

Dr. Tarek Sakr
Market Study

By making various assumptions about the selling prices it is intended to apply at each level of output.
However, when considering from the technical standpoint the production capacity to be installed, it
must be remembered that, as the initial market is frequently quite small, estimates of future demand
should be put fairly high in order to have a production unit which may, one day, be technically and
economically viable.
Once the production capacity justified by market research has been defined, the corresponding
investment and operating costs need to be examined and compared with potential earnings so as to
determine the profitability of the project.

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PRMG 050: Project Feasibility Studies

Dr. Tarek Sakr
Market Study

Statistical data (to facilitate research on investment projects)

1.
Population (urban and rural; by administrative area):
o Population at a given date showing:
Family situation, sex, age
Illiteracy rate by sex, by age
Level of education, type of education
Ethnical groups, by sex and by age
Type and size of dwelling
o Annual figures for infantile mortality showing:
Sex
Age of still-born baby
o Annual figures of deaths showing:
Sex
Age
Cause of death
o Number of emigrants and immigrants showing:
Sex
Age
2.

Manpower (total, urban and rural, administrative area):

o Active population by:
Sex and age
Economic sector
Employment rate (full-time, half-time, unemployed)
o Wages in non-agricultural sectors by industry.
o Number of hours worked per employee and per period.

3.

Agriculture (by administrative area):

o Area cultivated by:
Number of farms and their size
Irrigated and non-irrigated areas
o Number of farms for which electricity is available
o Types of crop, and area under each crop
o Number of domestic animals, slaughter rates
o Yield per hectare for each type of crop
o Total production for each type of crop
o Average price for each agricultural product
o Average prices paid by farmers for factors used in agricultural productions
o Capital formation in agricultural equipment

4.

Forestry (by administrative area):

o Area showing:
Type of utilizable timber
Rate of yield
o Reafforestation
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PRMG 050: Project Feasibility Studies

Dr. Tarek Sakr
Market Study

5.

Fishing:
o Number of fishing boats by :
Size
Type of propulsion
o Tonnage of catch
o Average price received by fishermen by type of fish

6.

Extractive, manufacturing, energy industries:

o Number of firms by:
Number of employees (wage-earning, non-wage-earning),
Type of production
Legal status
o Productive capacity
o Type of equipment used by
Source of energy
Power (in steam horsepower for example)
o Quantities of raw materials, fuel and electricity consumed, and goods produced
o Value added per year by type of activity
o Quantity of energy and key products produced per year
o Indices of industrial production by economic activity

7.

Distribution (urban and rural, administrative area):

o Number of establishments engaged in distribution by:
Number of employees (wage-earning and non-wage-earning)
Type of distribution (wholesale or retail)
Type of product
Turnover and profits
Legal status
Sales area
o Retailing, selling points:
Number
Turnover
Type of merchandise distributed
o Values of stocks at end of year by type of trade
o Average retail price by product
o Index of retail prices by category of product

8.

Transport :
o By water:
Number of ships
Means of propulsion
Carrying capacity
Tonnage transported
Capital formation

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PRMG 050: Project Feasibility Studies

Dr. Tarek Sakr
Market Study

By rail (by administrative area):

Length of railways
Number of locomotives and their means of propulsion
Ton-kilometers carried
Passenger-kilometers carried
Gross tonnage of merchandise carried
Capital formation
By air:
Number of aircraft by types
Number of ton-kilometers, passenger-kilometers
Gross tonnage carried (internal and international lines)
Number of passengers
Capital formation
By road (by administrative area):
Total length by type
Number of vehicles by type (commercial or private)
Capital formation

9.

Education (by administrative area):

o Number of establishments classified by :
Level and type of instruction given
Number of teachers
o Number of students classified by :
Age and sex
Level of education
o Number of pupils in primary and secondary schools classified by :
Class
Age and sex

10.

Health (by administrative area):

o Number of doctors, nurses, dentists
o Number of hospitals showing number of beds and type of treatment provided
o Number of patients admitted on average per period, showing age and sex

11.

Foreign trade:
o Exports:
Quantity and value of merchandise exported during a given period, by country of
destination and by category of product
o Imports
quantity and value of merchandise imported during a given period, by country of origin
and by category of product

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PRMG 050: Project Feasibility Studies

Dr. Tarek Sakr
Market Study

12.

Money and banking:

o Bank balance sheets, paying special attention to :
The structure of bank loans (loans to the various sectors of the economy)
The structure of borrowing or deposits
o Loans and advances made, showing:
Type of industry to which loans and advances are made
How used
o Amount of deposits
o Discount or re-discount rates at given dates
o Reserves of foreign exchange and gold
o Exchange rates in force
o Balance of payments analyzed by type of transaction
o Indices of retail prices of products classified by the stage of production, etc., at which they
are sold

13.

Government and administration:

o Revenues and expenditures by economic sector
o Budget, showing items of expenditure

14.

Incomes and expenditures of individuals (urban and rural, administrative area):

o Budgets of households by income groups and economic class (farmers, wage-earner, etc.)
o Cost of living indices for various categories of households

15.

Housing (urban and rural, administrative area) :

o Number of dwellings classified by
Class of dwelling
Sanitary installations (water, electricity, etc.)
Number of rooms
Number of inhabitants per room
Number of dwellings vacant
o Number of dwellings under construction or planned at various dates

References:

http://www.netmba.com/marketing/market/analysis/
http://www.marketinganalysis.org/
http://www.wikihow.com/Write-a-Market-Analysis
http://www.inc.com/articles/1999/12/15964.html
http://en.wikipedia.org/wiki/Market_analysis
http://www.knowthis.com/knowthis-marketing-basics-2nd-ed

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