Lecture 3 PDF - AgEntrep Project Feasibility Study PDF

Project Feasibility Study Market Feasibility Study J.E. Cubelo, Ph.D. AgEntrep 43 – Course Facilitator  G. H. MANAGEME PROJ. NTSTUDY...

Project Feasibility Study Market Feasibility Study J.E. Cubelo, Ph.D. AgEntrep 43 – Course Facilitator  G. H. MANAGEME PROJ. NTSTUDY FEASI BILTY STUDY QUALIFICATIONS B. C. D. E. F. PRE- MARKET TECHNICAL FINANCIAL SOCIO- FEASIBILITY STUDY STUDY STUDY ECONOMIC STUDY STUDY PRODUCT UNSATISFIE IDENTIFICATI ON PROJ. COST PROFITA D DEMAND ESTIMATE BILITY SOCIAL BENEFITS PROCESS A. SPECIFICATI RESEARCH MARKET ON SHARE INCOME STATEMEN T LIQUIDITY ECONOMIC PRODUCTIO OBJECTIVES N VOLUME VALUE ADDED PRICES PRCASH- FLOW MATERIALS STATEMEN AND T SUPPLIES SOLVENCY BALANCE SALES MACHINERY SHEET FORECAST AND EQUIPMENT GROWTH PHYSICAL PLANT MARKET STRATEGY MANPOWER FUNDS BREAK FLOW EVEN ANALYSIS ANALYSIS Market Feasibility Study — A market feasibility study for an agricultural enterprise involves assessing the viability and potential success of introducing a new agricultural product, service, or business in a specific market. — It focuses on understanding market dynamics, demand, competition, and potential challenges to determine if the venture is economically viable  Market Study — Lifeblood of every PFS — Profitability is generally focal point of PFS — But, the question of DEMAND is the most basic issue  Objectives of Market Feasibility Study 1. Market Assessment: Evaluate the target market's size, trends, growth potential, and characteristics. 2. Demand Analysis: Understand the demand for the agricultural product or service, including factors influencing customer preferences. 3. Competition Analysis: Identify existing and potential competitors, their offerings, market share, and strengths and weaknesses. 4. Customer Analysis: Profile the target customers, their needs, preferences, and behaviors. Objectives of Market Feasibility Study 5. Distribution Channels: Evaluate the most suitable distribution methods to reach the target market effectively. 6. Pricing Strategy: Determine optimal pricing that balances affordability for customers and profitability for the enterprise. 7. Market Entry Points: Identify potential entry points or niches within the market. 8. Market Trends: Analyze current and future trends that could impact the demand for the agricultural product Key Components of MFS 1. Market Segmentation: Divide the market into segments based on demographics, psychographics, behavior, and preferences. 2. Market Size and Growth: Estimate the current and projected market size and growth rate. 3. Competitor Analysis: Study direct and indirect competitors, their strengths, weaknesses, and market positioning. 4. Customer Behavior: Understand consumer preferences, buying patterns, and factors influencing purchasing decisions. Key Components of MFS 5. Demand Analysis: Determine the demand for the agricultural product, potential fluctuations, and factors affecting demand. 6. Distribution Channels: Assess various distribution methods such as direct selling, wholesalers, retailers, and e-commerce. 7. Pricing Strategy: Develop a pricing model that covers costs while remaining competitive in the market. 8. Market Trends: Identify trends such as organic farming, sustainable practices, and changing dietary preferences. Market Study Seeks to determine the ff: — Size, nature, and growth of total demand for the product — Description and price of the product to be sold — Supply situation and the nature of the competition — Different factors affecting the market of the product — Appropriate marketing program for the product Product Description should include: — Name of the product — Properties of the product — Uses of the product — Major users of the product — Geographical areas of dispersion  Demand An analysis of the demand is part of the important task of identifying the needs of consumers and determining whether they are willing and have the capability to pay for the products In forecasting demand, one takes into account not only production and importation figures of the past but also such other factors as: — credit availability — income distribution — population growth — price variations — age composition — the degree of urbanization, — tastes and preferences, — money supply, — GNP, etc. Demand analysis involves analyzing — Macroeconomic variables (economic data on the activities of consumers, firms, government and import-export sectors, e.g. GNP), and — Microeconomic variables (data on individual firm, or an industry) Demand On the micro level, the demand for a firm’s product is a function of many variables e.i. : — price of the product — price of a substitute product — income, and — population Income Distribution as a factor to consider: — An analysis of income distribution could give idea on what types of products can consumers afford. Important concepts in Demand Analysis: Price Elasticity and Income Elasticity — Price elasticity - measures the response of quantity demanded of a particular product to variations in its price — Income elasticity – measures the response of quantity demanded of a particular product to variations in income — Income elasticity figures can reflect priorities of consumers by showing which products and services they spend more on as their income improves. The size, nature, and growth of total demand for the product must be determined in the following manner: 1. Who and where is the market? — Segment the market according to type, manner of use, income classification, location, age, etc. — Manner of segmentation depends on the type of product being considered The size, nature, and growth..(cont’d) 2. What is the total domestic demand from the historical point of view? 3. Is there a foreign market? If so, determine the historical demand? 4. Evaluate demand growth patterns in the past and project future demand by applying appropriate projection methods. SUPPLY: The supply situation maybe determined as follows: 1. Who and where are the direct competitors? — Classify them according to size, product quality, location, performance, and market segment performance — Determine the type of competition existing. Few big firms? Many small firms with no single firm controlling the market? Is it an industry of big and small firms? — The type of competition in existence would influence the decisions on production capacity and marketing strategies. Supply..(cont’d) 2. Determine historical domestic supply as comprised by local production and importations 3. If there is a foreign market, determine the historical supply patterns in the targeted countries as comprised by their production and importations 4. Evaluate supply growth patterns and project future supply by applying appropriate projection methods Demand-Supply Analysis 1. Compare the demand and supply trends 2. Determine the amount of demand unsatisfied, especially in the projections. If demand appears to be fairly satisfied by supply, consider the ff: a. whether the factors affecting the market may disrupt the equilibrium so as to cause demand to grow faster than supply. b. whether the quality of the product is such that it may create additional demand or redirect part of existing demand in its favor. Demand-Supply Analysis: Market Share 3. Determine the share of the market by establishing the proposed production volume (determined in the technical study) as against the total market size.  Price Study — In economic theory, price is determined mainly by the demand-supply situation. — An increase in demand with supply constant will hike prices. The reverse would result in the lowering of prices. Other factors influencing price: — Without any change in demand or supply, prices may go up if raw material costs rise — Prices may decline if the government decides to subsidize production — Prices may also be determined by the simple cost-plus method of accountants Price Study may be best conducted as follows: 1. Determine the selling prices of all similar and substitute products 2. Look into the history of these prices (including the range of fluctuations) and establish the factors that mostly influence their fluctuations over time Price Study may be best conducted.. (cont’d) 3. Determine the responsiveness of demand to price changes. Will there be a tremendous, slight, or negligible increase or decrease in demand if prices are lowered or raised? 4. Establish the products’ selling price, taking into consideration all of the above, the market segment targeted, and the operating costs and expenses (determined in the technical and financial studies). Estimate the increases foreseen in subsequent years. FACTORS AFFECTING THE MARKET 1.Demand maybe significantly affected by — Population growth — Income changes — Tastes — Rural/urban developments — Prices of substitute and complimentary products — Marketing tools as advertising, promotions, credit policies, etc.. FACTORS AFFECTING..(cont’d) 2. Supply maybe influenced by: — Development of substitute products — Entry or exit of firms — sources and cost of production factors — Government policies — Improved technology, etc. 3. Prices may be affected by — Production costs — Price controls — Inflation, etc.. Marketing Program — The end product of a market study — After defining the target market and price targets, the marketing program comes in as the implementing arm. Market Feasibility — Industry Description — Industry Competitiveness — Market Potential — Access to Market Outlets — Sales Projection  Market Feasibility Industry description ◦ Describe the size and scope of the industry, market and/or market segment(s). ◦ Estimate the future direction of the industry, market and/or market segment(s). ◦ Describe the nature of the industry, market and/or market segment(s). Is it stable or going through rapid change and restructuring? ◦ Identify the life-cycle of the industry, market and/or market segment(s). Is it emerging, growing, mature, declining?  Industry Competitiveness ◦ Describe the industry concentration. Are there just a few large producers or many small producers? ◦ Describe the major competitors. Will you compete directly against them? ◦ Analyze the barriers to entry of new competitors into the market or industry. Can new competitors enter easily? ◦ Analyze the concentration and competitiveness of input suppliers and product/service buyer. ◦ Describe the price competitiveness of your product/service.  Market Potential ◦ Identify whether the product be sold into a commodity market or a differentiated product/service market. ◦ Identify the demand and usage trends of the market or market segment in which product or service will participate. ◦ Examine the potential for emerging, niche or segmented market opportunities. ◦ Explore the opportunity and potential for a branded product. ◦ Assess market usage and your potential share of the market or market segment.  Access to Market Outlets ◦ Identify the potential buyers of the product/service and the associated marketing costs. ◦ Investigate the product/service distribution system and the costs involved.  Sales Projection ◦ Estimate sales or usage. ◦ Carefully identify and assess the accuracy of the underlying assumptions in the sales projection. ◦ Project sales under various assumptions (ie. selling prices, services provided, etc.).  References — Bellemare, M. F., Çakir, M., Peterson, H. H., & Novak, L. (2019). On the measurement of willingness to pay for food safety. American Journal of Agricultural Economics, 101(2), 459-474. — Coughlan, A. T., Anderson, E., Stern, L. W., & El-Ansary, A. I. (2017). Marketing channels. Routledge. — Grewal, D., & Levy, M. (2019). Marketing. McGraw-Hill Education. — Kotler, P., & Armstrong, G. (2017). Principles of marketing. Pearson — Onyango, B., & Nair, S. (2015). Marketing of agricultural products. CABI. — Walters, T. O., & Charlebois, S. (2016). Consumer attitudes toward and willingness to pay for hypothetical certified transitional and organic foods. Food Quality and Preference, 53, 57-64.