The term market attractiveness is used to refer to the various opportunities that are offered to any firm or any organization by the market, by acknowledging multiple factors that are present within the market itself.
These may include things like the market size, the growth rate of the market, outside factors affecting the market like access to the raw material, capacity of the industry and the competition.
Understanding the concept of the market attractiveness
Market attractiveness is used to describe the various possibilities of the profitability that any firm or organization can obtain a competitive market place. Now it is generally preferred to have a better market attractiveness, because the better the market attractiveness is, the more are the chances of obtaining potential profitability from that market by making investments in it.
Thus a better market attractiveness means that it can attract more investors to make investments in one particular market because it has higher chances of giving back profitability. Thus the market attractiveness is generally the measurement of the opportunities that a specific market promises.
Now, whenever a new startup is being launched, that is a new company is being started, the companies try to enter the new market after firth analyzing the market potential. This way they can determine whether the market is beneficial for them or not, whether it will be generating profit, what kind of seller and buyer relations persist.
Thus, in general, they try to find out whether the new market they will be entering in, will be beneficial to their company or not and what obstacles can the company face as they go ahead with that particular market. In this way, several factors can end up influencing the marketing and its potential to attract investors to make investments in them.
Now the market attractiveness is in general a concept which evaluates many different factors to determine whether a particular kind of market will be able to give back profit on investment or not.
It is a measure of the opportunities a market offers to an organization, with an acknowledgment of various factors within the market, including growth rate and market size, as well as outside factors such as access to raw materials, competition, and industry capacity.
Example of market attractiveness
Now since it depends on the fact that various factors would determine the extent of the market attractiveness one must consider these factors on a serious note. For example, the size of the market plays a significant role in increasing market attractiveness.
Other examples are the depth of the market; the numbers of potential customers that are associated with a particular market are a few among many of the other factors that affect the market attractiveness to a much greater extent.
Now all of the factors mentioned above are used to determine the market attractiveness. The more is the market attractiveness, the more investors will want to invest in such a market. The most well-known example in which the market attractiveness was used is the McKinsey/General Electric Matrix, in which the companies were helped in assessing their products and their business portfolios according to the strength of the market.
The more the market is attractive, the more are the chances of generating profitability.
What are the various factors that can affect the market attractiveness?
Now there are so many factors that can affect the market attractive and it depend on what factors are essential to the company and which elements are not. But still, there are a few factors that affect the market attractiveness which is common to all.
The can be market growth rate, current market margin, the market size at present, the number of competitors that are there in the market and various other factors which are specific to companies individually.
Now here are a few factors that can affect the market attractiveness and are common to all the companies-
1) The size of the market
The size of the market is an essential parameter to analyze the height of the market attractiveness. If the market is large, the producer will have more opportunities to sell the product in the market.
This will increase the potential of that particular market which in turn will increase the profitability of it. This means that the market will have a higher potential of the profit margin is at a lower value.
Also if there is a particular market which is not growing, then this would mean that this specific market has got a constant amount of revenue or those they have limited revenue potential.
2) The growth rate
Now after the size of the market, the second important factor which can affect the market attractiveness is the growth rate. If there is a market that is not growing as expected, this would mean that its revenue potential is finite or constant.
If there is a market that has a low rate of growth, this means that this type of market is most probably a saturated one, if there are a lot of competitors who are fighting against each other in the same space and that too for the same sales.
This then may lead to a lower share in the market for all the competitors and thus will lead to lower profit margins.
3) Margins and pricing trends
Now since the revenues are determined by analyzing the volume and the margin, these two factors play an essential role when it comes to the determination of the profitability and the extent of the market attractiveness. Now suppose that there are two different markets but are having the same market size, and are having profit margins which are completely different from each other, in cases like these their different marginal points will be having the potential of being able to generate the different revenues.
Also if the pricing trends are different as well, then in cases like these, if the prices are decreasing, then it is highly likely that they might continue to do the same, thus eroding the profit margins. And if there is a case in the prices are increasing, then here they can be seen an increase in the revenue opportunity in that particular market.
Now the completion in the market is an inevitable fact. One cannot expect to exist in a fair market where there is no competition. So it is necessary to have competition in a particular market, and it is equally important to understand who your real competitors are.
Now there are a few things that should be considered by the companies when they are trying to evaluate the competition in a particular market. They need to understand the strengths and the weakness of their competitors, the size of them, how aggressive are they towards the other competitors that they have.
Also, they must know what the several advantages that the competitors have over your company are, what is the number of the competitors in the market space that you are jumping in, and how much of the market share do they have already. Now a market is considered to be unattractive when there is a monopoly in it, which means that it is dominated by one single big company or organization.
This is also because that particular company that is ruling the market is likely to get aggressive towards a newly launched company and they may even try to dominate the various suppliers, contract and the distributors.
But if there is a market space which has many small companies competing against each is likely to be more attractive in terms of marketing.
5) Other additional factors
Now other than the factors mentioned above, there are also some other factors which may affect the market attractiveness. For example, if there is a company which is planning to expand their business overseas, they will have to assess the transportation infrastructure depending upon the geographical location, as these will play a key role in delivering their products.
Also, another critical aspect of the market attractiveness is that it should be highly flexible to any new kind of situation or challenges that may arise in the market.
What is the importance of market attractiveness?
The market attractiveness is quite essential when the companies are being launched newly in the market. By knowing the extent to which the market attractiveness of a particular market is, it becomes easy for them to know whether investing in such a market will prove to be profitable for them or not.
Also, the market attractiveness reflects several other factors which can determine how successful a particular which newly launched in that particular market will be successful in the long run. With the help of market attractiveness, they can determine the extent to which they can gain profit, the cost that will be involved and also the timescale.
Thus market attractiveness becomes quite important in the business field.
Thus the market attractiveness is an essential factor which comes handy to the companies that are planning to launch themselves in a new kind of market.