UNIT 3: ACTIVITIES

ACTIVITY 1
Select suitable research methods for your business Idea

Selected methods you used to research your potential business idea/opportunities

identified in Unit 1

ACTIVITY 2

Discuss the feasibility of your BUSINESS IDEA in terms of the

following

• Market/Industry feasibility
• Product/Service feasibility
• Entrepreneurial feasibility
• Financial feasibility

ACTIVITY 3

A market share if 65% in organic foodstuffs, characterizes Mr Roy Smith’s

Exclusively Organic Offerings a market leader in the distribution of pure organic food
in South Africa. Following this success, Mr Smith now plans to expand his business
to Nigeria and has approached you for advise.

With reference to Porter’s five forces model, discuss how Mr Smith could test the
feasibility of his idea of selling organic food in Nigeria. (ENT401B Paper A, 2018)

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 ADDITIONAL NOTES

FEASIBILITY, MARKETING & MARKET RESEARCH

GUIDELINES: MARKET FEASIBILITY ANALYSIS (PORTER’S MODEL)

The question regarding feasibility analysis is to establish is if this idea has the
potential for a profitable business.

Elements of a Feasibility Analysis

A feasibility analysis consists of four interrelated components:

A). An industry and market feasibility analysis,

B). A product or service feasibility analysis, and

C). A financial feasibility analysis

D). Entrepreneurship feasibility

A) Industry and Market Feasibility Analysis

When evaluating the feasibility of a business idea, entrepreneurs find a basic
analysis of the industry and targeted market segments a good starting point.
The focus in this phase is two-fold:

1. Determine the industry setting in which companies compete

2. To determine how attractive an industry is overall as a “home” for a new
business, and
3. To identify possible niches a small business can occupy profitably.

Feasibility studies are particularly useful when entrepreneurs have generated

multiple ideas for business concepts and must winnow their options down to the
“best choice.”

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- Five Forces Model:
Porter’s Five Forces model evaluates five key forces that determine the industry
setting in which companies compete. The Five Forces model assesses industry
attractiveness by analyzing these five considerations:
1. The level of rivalry among the companies competing within the industry,
2. The bargaining power of suppliers,
3. The bargaining power of buyers,
4. The threat of new entrants, and
5. The threat of substitute products or services.

Rivalry Among Companies

Rivalry among companies competing in the industry is the strongest of the five
forces. In most industries, this assesses the rivalry that exists among the businesses
competing in a particular market. This force can create markets that are dynamic
and highly competitive. An industry is generally more attractive and holds greater
promise for profitability when these conditions exist:
 The number of competitors is large, or, at the other extreme, fewer than
five.
 Competitors are not similar in size or capability.
 The industry is growing at a fast pace.
 The opportunity to sell a differentiated product or service is present.

Bargaining Power of Suppliers

The greater the influences of suppliers of key raw materials or components have,
the less attractive is the industry. An industry is generally more attractive when:
 Many suppliers sell a commodity product to the companies in it.
 Substitute products are available for the items suppliers provide.
 Companies find it easy to switch suppliers or to substitute products
 When the items suppliers provide the industry account for a relatively
small portion of the cost of the industry’s finished products.

Bargaining Power of Buyers

Buyers have the potential to exert significant power over businesses. When the
number of customers is small and the cost of switching to competitors product is
low, buyers have a high level of influence. An industry is generally more attractive
when these conditions exist:
 Industry customers “switching costs” are high
 The number of buyers is large
 Customers demand differentiated products

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  Customer find it difficult to gain access to information about buyers
 The products companies sell account for a small portion of the cost of
their customers’ finished goods.

 FORMS OF BUSINESS OWNERSHIPS:

• Sole proprietor / sole trader:
• owned by one person
• no formal registration
• trading licence needed
• owner contributes all capital, makes all decisions
• all profit belongs to owner
• owner taxed according to profit
• debt paid before owner gets profit if business fails
• if owner dies, business does not exist

• Partnership:
• partnership agreement
• 2-20 partners
• all contribute capital, skills
• decisions made jointly
• all are liable for debt, share risk
• if one dies, partnership does not exist
• if new partner joins, new agreement required
• be wary
•
• Close corporation / CC: no longer registerable

• Company:
• legal person, own identity
• owned by shareholders
• strict accounting, reporting requirements
• holds own assets
• trades in own name
• may enter into contracts
• is sued separately from owners
• survives death of owners
• exists until de-registered
• taxed separately from owners
•
• CIPC (Companies and Intellectual Property Comission:
• Registers companies, Co-ops, intellectual property rights
• Detailed information at www.cipc.co.za

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5
Threat of New Entrants
The larger the pool of potential new entrants to an industry, the greater is the threat
to existing companies in it. This is particularly true in industries where the barriers to
entry, such as capital requirements, specialized knowledge, access to distribution
channels, and others are low. An industry is generally more attractive to new
entrants when these conditions exist:

 Absence of economies of scale

 Capital requirement to enter are low
 Cost advantages are not related to company size
 Buyers are not brand-loyal
 Governments do not restrict new companies from entering the industry

Threat of Substitutes
Substitute products or services can turn an entire industry on its head. An industry is
generally more attractive when these conditions exist:

 Quality substitutes are not readily available

 Prices of substitute products are not significantly lower than those of the
industry’s products
 Buyer’s switching costs are high

MARKETING & RESEARCH

4P’s of marketing:
• Product / service: people must want it
• Price: people must be able to afford it
• Place: place must support business operations
• Promotion: how you inform people about product / service
 Video: Four Ps of Marketing

• Determining a market for your business: future sales forecast

 Video: How to identify my target market

Different methods of market research are identified and listed:

 Starting a business – market research
• Five basic methods: surveys, focus groups, personal
interviews, observation, field trials
• Include: opening question; closed questions; open-ended
questions

• Surveys:

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 - Common method to gather opinions, motives
- Ask for: facts, opinions, motives
- The larger the sample, the more reliable the results
- Options: one-one-one interviews; telephone
surveys; mail surveys; online surveys
• Personal interviews:
- At shopping malls; going door-to-door
- Possible to note reactions
- Time consuming; 1 hour; recorded
- Can include unstructured and open-ended
questions
- More subjective than surveys
- Results: don’t represent a large segment; provide
valuable insight
• Observation:
- Observe actual buying behavior
- Record
- More accurate picture of habits, shopping patterns
• Field Trials:
- Place new product in store to test customer
response
 Appropriate research methods are evaluated and selected: