Market Analysis and Feasibility Studies

Alison Davis
Rural 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 are competitors currently reaching the market?

How can you reach this 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 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.

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 dont 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 someones 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 How

Who might use evaluation? You What do they want to know? Is the program meeting clientele needs? How will they use the results? To make decisions about modifying the program

County board

Who does the program serve?

Is the program costeffective?

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 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?

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 Programs participants, proponents and critics, legislators, funders, and policy makers Direct observation of program events, activities and results

People

Observations

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 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

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

Inputs $ Basic Industry

Products

Overview of Community Economic System

Labor

Inputs

Goods & Services

Households

Services

Input-Output Models

An input/output table quantifies the transactions between sectors in an economy. Its a snap-shot of the economy for a oneyear 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

Purchasing Sectors ($ million) Agriculture Health Selling Sectors ($ million) Services Final Total Demands Output 18 26 36 37

Agriculture Health

10 4

6 4

2 3

Services
Final Payments

6
16

2
25

1
38

35
0

44
79

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 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

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

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 432 Jobs Indirect Impact of Health Care Employment 25.5 Jobs Induced Impact of Health Care Employment 64 Jobs Employment Multiplier 1.21 Total Impact Of Health Care Employment. 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 $20,172,564 Indirect Impact of Health Care Sector Output $1,530,139 Induced Impact of Health Care Sector Output $2,961,219 Output (Sales) Multiplier 1.22 Total Impact Of Health Care Sector Output (Sales) $24,663,922

Source: 2000 IMPLAN Data Base

Interpretation

Employment Multiplier: 1.21

Output Multiplier: 1.22

For every employee hired in the health sector there are an additional 0.21individuals employed because of indirect and induced effects.

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 Impacts THIS IS WHY COMMUNITY INVOLVEMENT IS VITAL