In today’s business environment, sustaining growth and profitability is never a guarantee. Technological and scientific advances shorten life cycles of products and services, business models change and new competitors appear from outside the industry. This constant instability makes it necessary to seek new business opportunities. How do you identify market opportunities in these conditions?
First, you need to define a framework to help search for opportunities. To do this, it is necessary to understand your company’s business direction and to have knowledge of the resources, strengths and capabilities of your company.
Once you have a good understanding of company goals and areas of expertise, the next step is to analyse the market, assessing consumer needs and how they are being met by companies today. In order to identify market opportunities, the business model as a whole must be evaluated by identifying consumers and companies and other factors such as brand value propositions, direct and indirect competitors, supply chains, existing regulations and the general environment. Let’s examine how to analyse these factors in detail below.
Eight Analysis Types to Identify Market Opportunities
1. Consumer segmentation
To understand your demand, you must identify consumer segments that share common characteristics. These characteristics can be “hard” variables such as age, gender, place of residence, educational level, occupation and level of income or “soft” variables such as lifestyle, attitude, values and purchasing motivations.
Hard variables can help estimate the number of potential customers a business can have. For example, a nappies/diapers producer should know how many children under 3 years live in a certain country as well as the birth rate. Soft variables can help identify motivations that lead to purchasing decisions including price, prestige, convenience, durability and design.
An example of how segmentation can help identify market opportunities is Aguas Danone, a bottled water company in Argentina. Several years ago the company´s sales were falling and they were looking for a new product. Aguas Danone identified two drivers behind non-alcoholic drinks consumption: health and flavor. Bottled water was perceived as healthy but did not offer the attribute of good taste. Soft drinks and juices tasted good, but were perceived as highly caloric. The company realised there was an opportunity for healthy drinks offering both taste and flavour. As a result, they launched flavored bottled waters Ser with great success. According to data from Euromonitor International, Aguas Danone has been the leader of Reduced Sugar Flavoured Bottled Water in Argentina since launching in 2002, beating giants such as Coca Cola and Nestlé. As of 2016, Aguas Danone still had 57% off-trade value share of Reduced Sugar Flavoured Bottled Water as well.
2. Purchase situation analysis
Purchase situations must also be examined to uncover expansion opportunities. Questions to ask when reviewing purchase analysis are:
- When do people buy our product or service?
- Is it when they need it?
- Where do people make the purchase?
- How do they pay?
Looking at distribution channels, payment methods and all other circumstances that involve purchasing decisions can teach you how consumers buy and how you can position your product appropriately. Offering new shopping alternatives may bring new customers. For example, vending machines offering snacks like yoghurt and individual juices have been introduced in the hallways of the subway of Santiago de Chile, promoting on-the-go consumption.
Another aspect to explore is the acceptance of different means of payment. For example, Amazon recently launched Amazon Cash in the US, enabling consumers without credit cards to shop online by adding credit to their personal Amazon accounts.
3. Direct competition analysis
In addition to analysing demand and purchasing situations, it is important to analyse supply. Knowing the existing players in the market where you are competing or going to compete is important when evaluating opportunities. Relevant questions in this case are:
- What are the products and brands of our industry that are growing more significantly and why?
- What is their value proposition?
- What competitive advantage do we have over them?
For example, SKY airline, competing in the Chilean market against a notably positioned brand such as LAN, found there was an opportunity to differentiate itself with a low cost model, which until then had not existed in Chile. SKY lowered its costs, by eliminating complimentary food and beverages for all passengers during flights and in doing so lowered its ticket prices. This helped the company increase its share of carried passengers from 10% in 2008 up to 20% in 2017, according to Euromonitor International.
4. Indirect competition analysis
Opportunities can also be found by analysing substitute industries. For example, thanks to the decrease in air fares, airlines may look for opportunities in consumer segments currently supplied by other means of transport. Air carriers should research how many people travel on long-distance buses and trains, which routes are the most in demand, how much travelers pay for their tickets, what the occupation rate of long-distance buses and trains is and what is necessary to persuade a current passenger of buses or trains to choose to travel by plane instead. This type of analysis helps establish competitive advantages against indirect competitors and provide insight on additional opportunities for growth.
5. Analysis of complementary products and services
Companies should monitor the performance of other companies’ products, which are complementary to their own. For instance, a packaging company should monitor sales of products that it could potentially package, while a company producing coffee machines should gather insights on the evolution of different types of coffee sales. Trends in complementary markets should be taken into account when making investment decisions.
6. Analysis of other industries
In some cases the objective of companies is not to continue operating within an industrial sector but to expand a certain business model or philosophy. For example, a British holding of companies, Easy Group, started maximising the occupancy rate of flights with the airline Easy Jet. Easy Group understood that it was preferable to sell a seat at a lower price than not selling it at all. Easy Jet opted for a rate management model that depended on the occupancy rate of flights and the time remaining until the day of the flight. With this business model it managed to increase occupancy rates. Easy applied the same model to cinemas when it created Easy Cinema and then with buses for Easy Bus. In any case, to enter a new industry it is important to learn about competition first: market sizes, market shares, growth rates, unit prices, per capita sales and brands positioning.
7. Foreign markets analysis
When a company operates in a mature or saturated market, exploring other countries may lead to additional opportunities. Markets in different countries grow at different paces for several reasons, including disparities in the level of economic development and local habits. Knowing the evolution of per capita consumption of a given product in a given country can serve as an indicator of the maturity of the product’s life cycle. Having information on the size of the market and competitors in other countries will help to estimate the business potential.
In addition to product sales you can also investigate what happens in more developed countries in terms of consumption habits. For example:
- What is the percentage of people who use the smartphone to pay for their purchases?
- What is the market share of private labels in a certain industry?
Answers to those questions in more developed countries can serve as indicators of the potential the indexes have in the own country. On the other hand, monitoring what happens in other countries may lead to new products or services present still absent in your current market.
8. Environment analysis
Market opportunities can also be identified by analysing changes in the environment with technological and scientific developments generating new business opportunities. For example, the growth of Internet and smartphones’ penetration has enabled the arrival of companies with new business models such as Airbnb and Uber. According to Euromonitor International, the share of mobile internet subscriptions to mobile telephone subscriptions in the world was 20% in 2011, reaching 53% in 2016. And while globally only 17% of households possessed a smartphone in 2011, this percentage reached 45% in 2016. Beyond mobile and the Internet, artificial intelligence, robotisation, internet of things, biotechnology and renewable energy sources also provide multiple business opportunities.
Changes in a country’s regulatory framework can also create opportunities. Since June 2016, Chile requires companies to include labels on products high in calories, sodium, sugars and saturated fats. This obligation may represent a growth opportunity for healthier products not affected by the new labels. Euromonitor International expects product sales in Chile will be impacted depending on the product type. Obtaining more market research on category and product sales in Chile may help identify categories that have growth opportunities for new products without labels.
Other transformations in the environment such as climate change, geopolitical movements and changes in financial markets also influence market opportunities. It is imperative to consider using market research to gain insight on the local business environment; ensuring that your strategy will flourish in a new or developing marketplace.
Consumer segmentation, purchasing decisions, direct and indirect competitors, complementary products and services, industry, foreign markets and environmental analysis are the eight types of analysis that will help your organization identify new market opportunities. Using a variety of analysis will help your business gain a holistic view of opportunities and help create long-term strategic business plans. Once opportunities are identified, companies must move quickly to create a plan. It is necessary to develop a value proposition, plan the commercialization chain and estimate costs, revenues, cash flows and financing needs. Not all market opportunities identified will succeed but experimenting will give answers on the potential of each.
To minimize the costs of failed opportunities, pilot testing new products, services or business models can be performed in controlled areas. Risks in pilot testing include alerting the competition about your strategy. This risk must be compared against the risk and cost of launching a new product at a global scale and failing. When pilot testing many experiments will fail, but some will succeed and be developed at a larger scale.
For example, in 2013 Coca-Cola launched Coca-Cola Life within the Low Calorie Cola Carbonates category. It was a pilot test that started in Argentina and Chile, followed by launches in other countries like the UK, Sweden, Australia, Switzerland, Japan and New Zealand. Sales of Coca-Cola Life did not grow as much as expected in many of these markets. According to Euromonitor International, in 2016 Coca Cola Life reached less than 2% value share in Australia and less than 4% value share in the UK. As such, Coca Cola discontinued the brand in those two countries. In other countries similar measures have been announced: retirement of the product line within the market or reduction of production within the market. Pilot testing helped Coca Cola determine success of Coca Cola Life, since a failure at a global scale would have had higher costs in terms of expenditure and brand image.
When looking to identify market opportunities, consider Euromonitor International’s global market research. We help analyse direct and indirect competitors, complementary products and services, diverse industries, foreign markets and relevant factors of the environment. Our team of analysts focuses on demand and competitive analysis and can provide strategic insights that will help you with your market strategy. Our online database, Passport, includes analyses about industries, economies and consumer trends. The platform possesses strategic and comparable information by country, comprising historical and prospective data. Contact us to learn more.