Market structure analysis assesses the difficulty of entry or expansion into a specific market area, including competitors’ capabilities, weaknesses, and strengths, potential for access to supplies, level of product or service substitution, and expected sales. Factors are dynamic and affect the cost of entering or expanding the market.
A market structure analysis is a systematic review of factors that determine the level of difficulty of entry or expansion into a specific market area. The term market structure describes the economic environment in which a company operates. Also referred to as a go-to-market analysis, this review assesses competitors’ capabilities, weaknesses, and strengths, as well as measuring potential for access to supplies. Other factors often considered in a market structure analysis are the level of product or service substitution that may come into play and the expected sales that may materialize from entry into a new market.
The prospects for a successful entry into a new market often depend on a company’s internal decisions as well as the overall competitive playing field. Market structure analysis focuses research on the latter area, in an attempt to measure the statistical probability of success or failure. The data gathered in the analysis typically looks at sales potential and the difficulty and level of investment required for successful entry into the niche market. The level of access to those supplies needed for business activity is also frequently assessed.
Quantitatively measuring existing competitors active in the niche market is an essential aspect of a market structure analysis. This may require some detective-style work, such as digging through public data on key competitors. Transcripts of earnings calls and data consisting of a competitor’s sales figures can often yield insights into key aspects of a market’s structure.
Reliability and access to supply chains are an essential component of a market structure analysis. A specific competitive arena may offer a high level of access to a new entrant into a niche market. However, if critical supplies are controlled by a cartel or a limited number of companies, these factors could seriously impede the prospects for successful market entry.
Another factor often considered in an analysis is consumers’ willingness to substitute one similar product offering for another. If product loyalty is high among major players in a particular niche market, price wars can break out when new competitors enter the market. There are several examples of how product loyalty or lack thereof can affect a company’s success in entering the market. As a factor in a market structure analysis, brand loyalty is generally considered a critically important factor for a new market entrant to evaluate.
Factors in a market structure analysis are dynamic as various market participants expand or contract or enter or exit the arena. These factors continually affect the cost of entering or expanding the market. As a result, these analyzes are sometimes performed at regular intervals.
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