Market attractiveness must be evaluated based on the economic and technological setting in which it exists. This category can be broken down into 6 factors.
Barriers to Entry
This factor can make a market very attractive to organisations that already operate within the market as they have a protective barrier to the threat of new entrants. It is, however, a strong deterrent for new organisations who aspire to enter the market segment as it will mean a very difficult or expensive entry before seeing any return on investment.
Barriers to Exit
Markets that are hard for companies to exit become unattractive as they have a similar effect to a lock-in contract. In most situations, an exit strategy should be planned but if this exit is made to be a difficult process, it becomes an unattractive aspect of entering that market.
Power of Suppliers
A market where there are many suppliers of goods such as raw material becomes very attractive as their bargaining power is immediately reduced. If a supplier has control over the entirety of a resource, this monopoly can negatively impact the potential profit margins that you can produce when operating in the market segment.
Technology in the Market
Seemingly logical, for organisations that utilise technological advances and that would allow them to operate using existing technologies they have developed a market can become very attractive. If the market has a high technological demand and the organisation lacks this asset, it becomes a deterrent and somewhat of a barrier to entry.
Investment
Greater initial investment increases the risk of entering the market, for a segment that may have high initial outlay, it can become an unattractive market segment aspect for smaller organisations especially.
Profit Margins
For markets with a greater profit margin potential, it becomes increasingly attractive. This can be negatively impacted due to the suppliers bargaining power and saturation of competitors in the market to impact the profit margin potential and make the segment unattractive.
References:
Hooley, G, Piercy, N, Nicoulaud, B & Rudd, J 2017, Marketing Strategy & Competitive Positioning, 6th Ed., Pearson, Harlow, UK.
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