A market is a place where goods, services, information, and experiences are being bought and sold. The market environment consists of actors and forces close to the company that affects its ability to build profitable customer relationships.
These actors are divided, broadly, into two categories; macro-environment and micro-environment forces. Macro-environment includes political, economic, social, technological, and legal factors that greatly influence the businesses whereas the micro factors are close to the business that influence a firm’s ability to provide better product and services, customers, suppliers, markets, competitors, and public.
For an Entrepreneur, it is pertinent to evaluate the market in order to achieve the business objectives. An Entrepreneur can use the following techniques to evaluate a market.
PORTER GENERIC MARKET FORCES MODEL
In the 1970s a researcher Michael porter developed a model to ascertain the attractiveness of an industry. It provides an opportunity for the investors to assess and analyzes the potential of a market. The first variable of this model, threats of new entrants in the industry indicates that low entry barriers in a market signal low profitability of an industry. The businesses have less influence in the market and earning a very meager profit.
Conversely, the markets with strong entry barriers have the potential for huge profits. However, the markets with few suppliers have strong bargaining power and they can set prices as they wish to. But the suppliers have low bargaining power when there is intense competition among many competitors chasing for few customers.
The market further becomes unattractive if the substitute product is available in the market as customers can easily switch to the alternative. Resultantly, the industry becomes more competitive and less profitable. Hence, an entrepreneur can use this model to evaluate a market.
Selling is an old concept in which a company makes a product and then tries to persuade customers to buy it, that’s Selling. While in modern times the earlier concept has successfully been replaced by marketing in which Company first determines customers’ wants and then figures out how to make and delivers a product to satisfy those wants.
This is only possible when markets are divided into smaller groups of customers that are known as market segmentation. Market segmentation is dividing the larger markets into smaller units of target customers to whom a firm going to choose as their potential customers.
This division can be done in several ways as:
- Demographic Segmentation split the market between the basis of age, gender, race, education, sex, color, family size, and religion. Whereas
- The markets could also be segregated on the basis of geography which includes region, country, city, or population density.
- Moreover, psychographic segmentation can also be done on the basis of social class, lifestyle, and personality.
In short, marketing segmentation is another evaluation tool for entrepreneurs to measure the potential of a market.
CUSTOMER BUYING BEHAVIOR ANALYSIS
Customer buying behavior analysis is another tool to evaluate the market. Customer is the king of a market. Any business can fail without assessing the underlying needs and wants of the targeted population. In order to be successful, one should investigate the buying behavior of the customers.
The buying behavior itself is influenced by the culture that is the most basic cause of a person’s want and behavior. Growing up child learns basic values, perceptions, wants, and behavior from family and other important institutions. This all greatly affects the buying pattern of a customer that needs to be analyzed for a successful venture.
To sum up this discussion, it can easily be inferred that none of the businesses is successful without evaluating the market. Therefore, it is necessary for an entrepreneur to analyze the market thoroughly by using various tools such as Porter's generic model, market segmentation, and most important analysis of customer buying behavior. Hence, efficacious businesses come after knowing the strength of the bench.