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Market attractiveness considers factors beyond growth potential, such as risk, competition, demand variability, and barriers to entry. Companies must differentiate themselves and consider competitive intensity, distribution structure, and barriers to entry before entering a market.
The concept of market attractiveness offers a way to examine and measure the possibilities of a market in terms of potential profitability. The concept looks at a much broader range of characteristics than simply observing whether the market can grow. In addition to considering market size and growth rate, the concept looks at characteristics such as market risk, level of competition, segmentation, demand variability, bargaining power and barriers to entry. Before developing a product and marketing plan for a particular market, a firm must examine all these characteristics and determine the attractiveness of the market.
The measurement of market attractiveness would take into consideration price trends and the effect of trends on current and new market players. The attractiveness of the market could be increased if the company had the opportunity to differentiate its products and services within the market and therefore to distinguish itself from the competition. There may however be a threat from substitute products and services which can make the market potentially risky. Factors such as the distribution structure required in the market may be more suitable for some companies than others, depending on the level of resources and skills in a company.
The competitive intensity within the market must also be considered. A market could be dominated by a few large companies or include a large number of small competing companies, and this could affect the ability of a new entrant to position itself in the market and carve out its market share. Large firms’ strategy towards new entrants to the market may be aggressive, and where some existing firms have strong brand recognition and marketing capabilities, it may be difficult for new entrants to advertise or gain product recognition. The market may already be saturated and offer little profit potential to new entrants.
Barriers to market entry may be relatively low, allowing new entrants to emerge quickly and take advantage of any changes in technology, consumer demand or logistics. On the other hand, products sold on the market may require high production costs and investment in expensive equipment, making market entry unattractive due to a significant risk of failure. The main barrier to market entry could be regulatory in nature and this could change with the stroke of a pen by the legislator. The technology used in the industry may be on the verge of a significant development or breakthrough that could favor new entrants. All these factors influence the level of attractiveness of the market.
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