Market Analysis and PESTLE Analysis for Business Development

Posted on May 15, 2024 in Economy

1. Relevant Market

How Can a Company Evaluate the Potential of a Market?

From the perspective of the offering company, consider these factors:

  • Number of demanders.
  • Maximum sales potential (turnover) in the market.
  • Number of competitors.
  • Main competitors and their market shares.
  • Competitor and customer responses to changes in marketing instruments.
  • Potential consequences of anti-competition laws.

Identify the Relevant Market

  • Spatial: Delivery range for products.
  • Time: Desired delivery timeframe.
  • Factual: Identifying competitors based on:
    • Offer and product relation.
    • Buyer relation and product use.

Delimiters of the Relevant Market – Offer/Product Related

Which competitor products can be exchanged by my products?

Physical/Technical Similarity

  • RM = Same substances (i.e., wood furniture)
  • RM = Same processing (milling products)

Positive Cross-Price Elasticities

  • RM = all products with high cross-price elasticity: Price increase of good A causes a demand increase of good B (butter/margarine)

Economic Plans

  • RM = Competitors subjectively considered as such, with their potential reactions included in own sales planning (car models of the same category)

Functional Similarity

  • RM = Products for the same basic need (thirst: water, fruit juice, cola…)

Delimiters of the Relevant Market – Demand Point of View

Which products satisfy the needs of the buyer?

Subjectively Exchangeable

  • Video games on a PC or PlayStation

Exchangeable in its Use in Certain Situations

  • Listen to music over Handy or iPod

Real Purchase Behaviour Approaches to Identify Exchangeable Products

  • Real substitution behaviour is identified by customer panels
  • The question about the “why” is usually not answered (black box)

Customer Types

  • End-user: Individuals for personal consumption
  • Industrial goods: Raw materials or capital goods
  • Trading markets: Goods for resale without additional treatment
  • Public institutions: Schools, hospitals, etc.
  • State demand: Infrastructure, military, etc.
  • International markets: Other countries and their consumers

2. PESTLE Analysis

Internal and External Factors for Business Development

For a clear analysis and subsequent strategic planning, distinguish between internal and external factors:

Internal Factors (Strength or Weakness)

The considered factor develops differently compared to competitor companies. The difference is due to the company itself.

e.g., Due to our excellent reputation for quality and customer service, our sales are growing above average compared to the competition → Strength.

External Factors (Chance or Risk)

The considered factor affects all companies in the sector in a similar way.

e.g., Demand for individual mobility promotes our sales of cars in China → Chance.

What Factors Should Be Considered in the Opportunity/Risk Analysis?

The only factor that cannot be influenced by the company itself is the Environmental Analysis. We classify opportunities and risks for the company depending on the strengths and weaknesses. A guideline for a structured analysis is:

POLITICAL

  • Global political trends (East-West, North-South, risk of local/international conflicts…).
  • Political developments in the relevant countries.
  • Change of government party and relation to politicians.

ECONOMICAL

  • Development trends of national income in the relevant countries.
  • Development of international trade (trade, economic integration, protectionism).
  • Tendencies in the development of the balance of payments.
  • Development of exchange rates and expected inflation.
  • Development of capital markets.
  • Development of employment.
  • Expected investment expenditure.
  • Expected macroeconomic fluctuations (characteristics and frequency).
  • Development of relevant sectors of the economy.

SOCIAL

  • Population development in the relevant countries (important groups, migration…).
  • Socio-psychological currents (work mentality, propensity to save, leisure behaviour, automation, relevant materials and products).

TECHNOLOGICAL

  • Production technology (trends in process technology, innovation, automation…).
  • The speed of product innovation.
  • Substitution technologies (possible innovations, development of costs).
  • Recycling technology.

LEGAL

  • Trends in economic policy (tax, compliance, competition laws).
  • Trends in social legislation, labour law.
  • Importance, freedom, and influence of trade unions.

ECOLOGICAL

: 

It refers to trends in the protection of environment (environmental awareness, environmental impact and environmental legislation). Availability of Energy, Raw material and recycling material are also part of this point.