Judging market attractivity

Question

Hello! I am regularly struggling to determine whether a market is attractive enough or not (say for example, for a market entry case). I don't have problems fetting the information on market size and growth rate, competition etc. But how do I determine whether the market is actually large enough or whether the growth is fast enough? Is this the kind of business judgement I need to get from reading articles etc.? Or are there general rules?

Answer 1

Hi Anonymous,

there are no fixed rules regarding which size or growth rate makes a market "attractive". However, there are rigorous criteria that need to be met. This is what I call "thinking from first principles"!

Here is what I mean: "large enough" or "fast enough" are attributes that can only be defined against the prevalent objective. The actual question is:

"Is the market size or growth rate sufficient to reach the objective?"

This objective can either be defined as a clear target value (e.g., "break even within 3 years", or "reach EUR 100 millions in sales by 2022"), or in terms of exceeding opportunity costs (e.g., "we have expanded our production capacity and will expand to a new market if the expected additional profits there exceed the additional profits we would expect if we just pump additional volumes into our existing market").

So in summary, you always need to start your thinking from the objective, and then assess whether the market preferences will allow you to meet this objective in a better way than any other available strategic alternative.

Cheers, Sidi