Three Questions to Ask When Evaluating Market Dynamics

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Organic growth remains one of the most difficult engines for companies to sustain. Companies have a number of options for driving organic growth, from launching new products to targeting new customers. However, the critical decision companies must first make is which market they should pursue: the market they are currently in, an adjacent market, or a wholly new market. So how does a company decide which market growth path to take?

Market growth tests offer a way to evaluate growth options through a variety of lenses including customer needs, industry trends, and the competitor and regulatory environment. One valuable test companies can conduct is a market dynamics test—evaluating overarching market dynamics to determine which growth opportunities are available. Market dynamics tests are essential to determine which factors affect the supply and demand of products in a market. Companies can use this intelligence to position their offerings for success. When conducting the test, companies should ask three key questions:

Is Customer and End User Demand Growing?

An important factor in market expansion is determining if there is a need for the offering in that market, and if that need is growing. Companies should reference market research reports on their chosen industry to determine how the marketplace is expected to grow. Companies can also look for market signs indicating growth. For example, an increase in recent acquisitions of smaller companies that offer the product can be a promising indication of a movement towards scaling investments and expanding capacity.

Companies should also seek customer data specific to their offering from market research reports; for example, a commercial air conditioner business can evaluate the residential market to look for new home figures or buying trends. In addition, companies can collect feedback directly from customers by administering online focus groups and surveys. Focus groups are a valuable method for initially determining customer enthusiasm and need for the offering and to explore factors previously not considered that could affect market positioning. Surveys can reach a wide range of participants and ask a variety of questions to evaluate the offering’s projected popularity, customers’ purchase intent, and any features to include that would make it more attractive to end users.

What is Driving Current Demand?

Price, customer experiences, and other factors forecast the demand for an offering. Customer and end user tastes and preferences rule demand; if customers show a strong preference for a type of offering, it will likely perform better than those that inspire negative or ambivalent customer reactions. The average end user’s income is also influential, determining if an offering’s price will be too exorbitant. The prices of related goods, advertisement expenditures, and the number of buyers in the market also predict how the offering will perform and how it can best be positioned.

Conducting a market demand review is a valuable way for companies to understand what drives buyer and end user demand. In the review, gather the trends that are or could potentially shape buyer demand and whether the cumulative effect will be to grow, shrink, or leave demand flat. Companies should also focus on the drivers and limiters of demand, including relevant macroeconomic indicators discussed in the next paragraph.

What Forces Make This Market Attractive/Unattractive?

Supply and demand, government influence, international transactions, and speculation and expectation constitute the dynamics that affect a market. An oil firm, for example, will be affected by the supply of oil available, tariffs imposed by governments, and the willingness of customers to purchase oil over other energy sources. These factors play a vital role in the success of an offering, making it vital for businesses to consider these when building their business plan to anticipate how they may be affected.

To determine the macroeconomic forces impacting this market, study current fiscal and monetary policies to see how the government affects interest rates and prices in the market. Research how international transactions are stimulating or leaving the market and their economic effect on the countries involved. Investigate how customers, investors, and politicians react to projections about the market’s future by promoting the market, investing in companies, and spending their money on offerings within the market. Finally, evaluate supply and demand in the market to see if your offering is needed and has the potential to stand out amid competitors.

Market Dynamics: Market Entry Evaluation

Market Dynamics: Market Entry Evaluation

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