A market structure analysis is a systematic review of factors that determine the level of difficulty in entering or expanding into a specific market area.
A market structure analysis is a systematic review of factors that determine the level of difficulty in entering or expanding into a specific market area. The term market structure describes the economic environment in which a company operates. Also known as an entry-to-market analysis, this review assesses competitors’ capabilities, weaknesses, and strengths, as well as measures potential access to supplies. Other factors generally considered in a market structure analysis are the level of product or service substitution that may occur and the expected sales that may materialize from entering a new market.
The prospects for a successful entry into a new market often depend on a company’s internal decisions as well as the general competitive field. Market structure analysis focuses research on this latter area in an attempt to measure the statistical probability of success or failure. The data collected in the analysis usually examines the sales potential and the difficulty and level of investment required for a successful entry into the niche market. The level of access to supplies necessary for business activity is also frequently evaluated.
Quantitatively measuring existing competitors active in the niche market is a key aspect in an analysis of market structure. This may require some detective work, for example, combing through public data on key competitors. Transcripts of earnings calls and data consisting of a competitor’s sales figures can often provide insights into key aspects of a market’s structure.
Reliability and access to supply chains are key components of a market structure analysis. A specific competitive arena can offer a high level of access to a new entrant in a niche market. However, if crucial supplies are controlled by a cartel or a limited number of companies, such factors can seriously impede the prospects of successful market entry.
Another factor often considered in an analysis is consumers’ willingness to replace one similar product offering with another. If product loyalty is high among a large player in a specific niche market, then price wars can occur when new competitors enter the market. There are numerous examples of how product loyalty or lack of it can affect a company’s success in entering the market. As a factor in market structure analysis, brand loyalty is generally considered to be a critically important factor for a new market entrant to assess.
The factors in market structure analysis are dynamic, as various market participants expand or contract, or enter or exit the arena. These factors continually affect the cost of market entry or expansion. As a result, these reviews are sometimes conducted at regularly scheduled intervals.