A simple means of forecasting the market growth rate is to extrapolate ( infer or estimate ) historical data into the future. While this method may provide a first-order estimate, it does not predict important turning points. A better method is to study growth drivers such as demographic information and sales growth in complementary products .
While different firms in the market will have different levels of profitability, the average profit potential for a market can be used as a guideline for knowing how difficult it is to make money in the market.
Porter’s Five Competitive Forces Rivalry among Competitors Threat of Substitute Products Potential New Entrants Bargaining Power of Buyers Bargaining Power of Suppliers Internet tends to increase bargaining power of suppliers Internet reduces barriers to entry Internet blurs differences among competitors Internet creates new substitution threats Internet shifts greater power to end consumers
The cost structure is important for identifying key factors for success. To this end, Porter’s value chain model is useful for determining where value is added and for isolating the costs.
The cost structure also is helpful for formulating strategies to develop a competitive advantage. For example, in some environments the experience curve effect can be used to develop a cost advantage over competitors.
Porter’s Generic Value Chain Support Activities Primary Activities Profit Margin Profit Margin Infrastructure Human Resource Management Technology Development Procurement Elapsed Time - Value added time cost Inbound Logistics Operations Outbound Logistics Marketing & Sales Service
Changes in the market are important because they often are the source of new opportunities and threats . The relevant trends are industry-dependent, but some examples include changes in price sensitivity , demand for variety , and level of emphasis on service and support . Regional trends also may be relevant.