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?

How can you reach this market?

Is it growing?
Is it stable, volatile, trendy?
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 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?

What time frame?

The whole program?

A portion of it?
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?

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?

To make decisions about

budget allocations?

Is the program costeffective?

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

People

Previous reports, census data, other agency

records
Programs 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 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
$

Overview of
Community
Economic
System

$
Products

Basi
c
Industr
y
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 Services
Selling Sectors
($ million)

Agriculture

Final
Total
Demands Output

10

18

36

Health

26

37

Services

35

44

Final
Payments

16

25

38

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

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 Impacts
THIS IS WHY COMMUNITY INVOLVEMENT IS VITAL