Aggregate Market Factors.
The factors that affect position of the product category in the market ( size of market, market growth, profit, product life cycle, seasonality )
Category size ( measured in both units and monetary value ) is an important piece of data about any market. It is clearly an important determinant of the likelihood that a product will generate revenues to support a given investment. The size of the market for the product will affect the product attractiveness. Large market is good and attractive for product and it will contribute revenue and profits. Company can segment the market and focus on each specific segment however it may attract large competitors ( unattractive for small firms ).
Market growth is a key market factor. Market growth is about current and future market growth of the product category. Not only the current growth is important, but growth projections over the horizon of the plan are also critical. Fast – growing categories are almost desired due to their abilities to achieve high margins and sustain profits in future years. It also has dynamic market structure in terms of competitors because large categories and fast growing also attract competitors. Slow market growth is an unattractive to the firm.
Product Life Cycle
Product life cycle is presumed to be S- shaped, this curve breaks down product sales into four segment; introduction, growth, maturity, and decline. The introduction and growth phases are the early phases of the life cycle when sales are growing rapidly, maturity represents a levelling off in sales, and the decline phase represents the end of the life cycle. In the introductory phase, both the growth rate and the size of the market are low, thus making it unattractive. When market growth and sales start to take off, the market becomes attractive. In the maturity phase, the assessment is unclear, while the growth rate is low, the market size could be at its peak.
This pattern involve for soft drinks, fast food and many other packaged goods. However, the attractiveness of products in different phases of the life cycleis not always clears. Sometimes product in the decline stage also can contribute profit for the company.
Highly capital – intensive business such as automobiles, steel, and machine tools are often tied to general business conditions and therefore suffer through peaks and valleys of sales as gross domestic product varies. Products based on agricultural commodities are affected by yearly climatic conditions. This is clearly not an attractive characteristic of a category as these sales swings affect profits, employment levels, and cash available for new product development. Nowadays, many firms attempt to develop products and acquire other businesses to eliminate interyear sales cyclicity. High variation in sales is unattractive to the firm. Low variation in sales is an attractive to the firm. Demands are affected by many factors business conditions, interest rate and climate.
Some products are seasonal, people buy during certain seasons. For example the sales of baju kurung ,baju melayu , kuih raya, pelita are increase during Hari Raya. When the product out of season which it means that the sales of baju kurung, baju melayu, kuih raya will fall and low of sales. Another example, the sales for durian fruit within its season the demand for the fruit is increase.
The profit margin is not the same for different product category. For example the average profit margins for footwear, personal care and biotechnology are different respectively. These differences are underlying these several factors. Differences can be due to factors of production, manufacturing technology and competitive rivalry. Product that have high in demand will contribute high in profit. It is good to the firm. While product that have low in demand will contribute low profit, its means that the firm is less attractive than those that offer higher returns.