Market Analysis and

Feasibility Studies
Alison Davis
Rural Economic Development
Extension Specialist

University of Kentucky
Conducting a Feasibility Study
Too often, we launch new ideas without
thinking through what our market is
Preparing a feasibility study will help you
determine if there is sufficient demand for the
product or service AND can the product or
service be provided on a profitable OR
sustainable basis?

Before you begin we should think about the
following questions
What defined market am I trying to reach?
What specific companies/organizations are
servicing this market?
Are they successful?
Something similar?
What is their market share?
Is the market saturated or wide open?
Questions continued
What is the size of the market?
Is it growing?
Is it stable, volatile, trendy?
How can you reach this market?
How are competitors currently reaching the
market?
What do customers expect from this type of
product or service?
Questions continued
What are the business models of competitors?
What core competencies must the product or
service have?
What are customers willing to pay for this
service or product?
What is your competitive advantage?
Market Assessment
A market assessment may be conducted to help
determine the viability of a proposed product in the
marketplace.
The assessment will help you identify opportunities
in the market or market segment
If no opportunities are found, then you dont have to
continue on with the feasibility study.
If opportunities are found, the market assessment can
give focus and direction to the big idea.
Overview of a feasibility study
Description of the project
Market feasibility
Technical feasibility
Financial/Economic feasibility
Organizational/Managerial Feasibility
Results/Next Steps/Conclusion

Difference between feasibility study and
business plan
A feasibility study is NOT a business plan.
Feasibility study provides an investigating function
is this viable?
Business plan provides a planning function. The
business plan outlines the actions needed to take the
proposal from idea to reality
Often feasibility studies identify more than once
alternative to the proposed idea
The feasibility study is prepared before the business
plan.
Why do a feasibility study?
Gives focus to the project
Narrows alternatives
Surfaces new opportunities
Enhances the probability of success by addressing
factors early that could affect the project
Provides quality information for decision making
Helps in securing funding
Helps to increase investment in idea
Description of the project
Identification and exploration of project
scenarios
Identify alternative scenarios
Eliminate scenarios that dont make sense
Flesh-out scenarios that appear to have potential
for future exploration
Description of the Project
Definition of the project and alternative
scenarios and models
List type and quality of service to be marketed
Outline the general business model
Include the technical processes, size, location,
and kind of inputs
Specify the time horizon from the time the project
is initiated until it is up and running at capacity.
Description of the project
Relationship to the surrounding geographical
area
Identify economic and social impact on local
communities
List environmental impact on the surrounding
area
Market Feasibility
Industry Description
Describe the size and scope of the market
Estimate the future direction of the market
Describe the nature of the market
Identify the life-cycle of the market
Market Feasibility
Industry Competitiveness
Investigate industry concentration
Analyze major competitors
Explore barriers of entry into market
Determine concentration and competitiveness of
input suppliers
Identify price competitiveness of service
Market potential
Identify the demand and usage trends of the
market or market segment
Examine the potential for emerging market
opportunities
Assess estimated market usage and potential
share of the market
Market Feasibility
Access to market outlets
Identify the potential buyers of the service and
the associated marketing costs
Investigate the distribution system and the costs
involved

Technical Feasibility
Determine facility needs
Estimate the size and type of production facilities
Investigate the need for related building and
equipment
Investigate and compare technology providers
Identify limitations or constraints of technology
Technical Feasibility
Availability and suitability of site
Access to markets
Access to transportation
Access to a qualified labor pool
Access to production inputs
Explore economic development incentives
Explore community receptiveness to have service
located there.
Program Evaluation:
A Primer
The Evaluation Process
Focusing the evaluation
Collecting the information
Using the information
Focusing the evaluation
What do you intend to evaluate?
The whole program?
A portion of it?
What time frame?
Immediate impact?
Long-term result?
Behavioral impact or impacts which require a more
comprehensive evaluation and level of effort?
Who are the clientele? Whose impacts are we
measuring?
What is the purpose of evaluation?
Help others understand the program and its
results?
Improve the program?
Did the program make a difference in
someones life?
Answer questions posed by funders and
influential members of the community?
Who will use the evaluation? How?
People affected in some way by the program
County board members, elected officials
Community leaders
Current funders
Potential future funders
Examples of Who, What, and How
Who might use
evaluation?
What do they want to
know?
How will they use the
results?
You Is the program meeting
clientele needs?
To make decisions about
modifying the program
County board Who does the program
serve?

Is the program cost-
effective?
To make decisions about
budget allocations?
Potential funder Is there a net benefit
from this program?
To make funding
decisions
What questions will the evaluation
seek to answer?
About outcomes/impacts
What do people do differently as a result of the program?
Who benefits and how?
Are the programs accomplishments worth the resources
invested?
What are the strengths and weaknesses of the program?
What, if any, are unintended secondary consequences?
How well does the program respond to the initiating
need?

What questions will the evaluation
seek to answer?
About program context
How well does the program fit in the local
setting?
What in the socio-economic-political
environment inhibits or contributes to program
success?
Who else works on similar concerns? Is there
duplication?
Collecting the Information
Indicators
Numerical and narrative
Will your audience be impressed with numbers and
statistics?
Will your audience by impressed with human interest
stories and examples of real situations?
Will a combination of numbers and narrative
information be valuable?
What sources of information will you
use?
Existing information
Previous reports, census data, other agency
records
People
Programs participants, proponents and critics,
legislators, funders, and policy makers
Observations
Direct observation of program events, activities
and results

What data collection method will you
use?
Survey
Interview
Observation
Case Study
Testimonials
Expert review
When will data be collected?
Before and after the program?
At one time?
At various times during the course of the
program?
Over time?
Using the information
How will data be analyzed?
How will responses be organized/tabulated?
Do you need separate tabulations from different
locations or groups?
What, if any, statistical techniques will be used?
Who will organize and analyze the information?

How will evaluation be shared?
Written report
Film or video
Media releases
Internet postings
Economic Impact Analysis
A quantitative tool often used to evaluate
community projects
What is Economic Impact Analysis?
Economic Impact Analysis (EIA) models focus on
how elements of the local economy are interrelated
and how a change in one element may affect the
others.
These relationships can help predict important
aspects of economic change such as:
Employment and unemployment
Commuting and migration trends
Changes in government spending
Why do we compute EIA models?
In smaller communities, elected officials often lack
the technical skills for economic analysis
Communities need information to help anticipate and
respond to economic changes
Local leaders and citizens face difficult questions
about the impacts of changes such as business
growth, decline of traditional industrial and evolving
land uses
When seeking funding, having a dollar value impact
of a program might make the proposal more
attractive
Choices made prior to analysis
Communicating with the community is essential
when setting up the model. Dialogue within the
community will determine
1) The nature and scope of the study
(i.e. deciding where to measure: county-wide or regional impacts)
2) The required data

3) The research methods
What are the general results?
Direct answers to direct questions
Changes in employment
Changes in community income
Changes in tax revenue
Changes in related industries
The process, if done correctly, should result in a
stronger sense of community; the process should
involve input from diverse groups across the
community

Input-Output Analysis
Input-Output analysis creates a picture of
a regional economy describing flows to
and from industries and institutions

Examples of Interrelationships
Between Sectors:

Sectors purchase from other sectors
Sectors sell to other sectors
Sectors sell outside the local economy
Sectors buy outside the local economy
Sectors pay their employees
Sectors pay taxes
Households
Industry
Basic
Services
Goods &
$
Inputs
Products
Inputs
$ $
$
$
Services
$ $
Labor
Overview of
Community
Economic
System
Input-Output Models

An input/output table quantifies the
transactions between sectors in an economy.
Its a snap-shot of the economy for a one-
year period.
By understanding these linkages, we are able to
predict how a change in one sector will affect
the other sectors.
Multipliers can be estimated.

Example: Transactions Table
S
e
l
l
i
n
g

S
e
c
t
o
r
s


(
$

m
i
l
l
i
o
n
)

Purchasing Sectors ($ million)
Agriculture Health Services Final Total
Demands Output

Agriculture 10 6 2 18 36
Health 4 4 3 26 37
Services 6 2 1 35 44
Final 16 25 38 0 79
Payments

Total Input 36 37 44 79 196
Predictive Use of Input-Output Analysis
Impacts are tracked throughout the economy

Multipliers are derived from regional
economic accounts

Only local transactions are used to create the
multiplier effect
Multipliers
What are Multipliers?
Multipliers measure total change
throughout the economy
from a one unit change
for a given sector.
Multipliers
Direct effects represent direct or initial spending

Type I - Direct and indirect effects include the direct
spending plus the indirect spending or businesses
buying and selling to each other

Type II - Direct, indirect and induced effects include
direct and indirect plus household spending earned
from direct and indirect effects
Multipliers Continued
Three multipliers are used to describe the
economic impact:
Employment
Income (Value-Added)
Output (Receipts)
Interpretation of Multipliers
You will often see values for multipliers in
the media, the interpretation of these numbers
typically causes confusion
Example 1
Type II employment multiplier (Ag) = 2.25
When the Agricultural Sector realizes a 1 employee
change, total employment in the study area changes
by 2.25 jobs from direct, indirect and induced effects


Multipliers Continued
Example 2
Type II Income Multiplier (Ag) = 1.78
When the Agricultural Sector realizes a $1.00
change in income, total income in the study area
changes by $1.78 from direct and indirect
linkages

Multiplier Cautions
(Very Important)
Multipliers are NOT interchangeable
(i.e. employment and value added multipliers are very
different, thus you cant use one for the other)
Not transferable to other study areas or across
different time periods
No differentiation between full-time and part-time
jobs
Results less certain for new types of economic
activity
They do tend to overstate the impact of change
Take caution for multipliers larger than 3
IMPLAN Software
A talented person could probably figure out
relationships for a 6 sector economy
An economy with more than 500 sectors is
another story
IMPLAN software does the work for us and
calculates multipliers
IMPLAN is relatively expensive, hence the
need for a partnership with the University
Pushing the local initiative
Kentucky Proud
Buy Local
When we keep our money local, the
multipliers are larger allowing more money to
flow in the local economy, resulting in higher
incomes for local residents
Local Examples
The Economic Impact of Various Health
Related Services on the Local Economy
Impact of Health Sector
Impact of a Rural Physician

Economic Impact of Health Care Sector
Estill County Health Care Sector Impact on County Employment
Direct Impact
of Health care
Employment
Indirect Impact
of Health Care
Employment
Induced Impact
of Health Care
Employment
Employment
Multiplier
Total Impact
Of Health Care
Employment.
432 Jobs 25.5 Jobs 64 Jobs 1.21 521.4 Jobs
Source: 2000 IMPLAN Data Base

Estill County Health Care Sector Impact on County Revenue (Sales)
Direct Impact
of Health care
Sector Output
Indirect Impact
of Health Care
Sector Output
Induced Impact
of Health Care
Sector Output
Output
(Sales)
Multiplier
Total Impact
Of Health Care
Sector Output (Sales)
$20,172,564 $1,530,139 $2,961,219 1.22 $24,663,922
Source: 2000 IMPLAN Data Base


Interpretation
Employment Multiplier:
1.21


For every employee hired in
the health sector there are an
additional 0.21individuals
employed because of
indirect and induced effects.
Output Multiplier:
1.22


For every $1 of sales in the
health sector there is an
additional $0.22 of revenue
generated due to indirect
and induced effects
The Economic Impact
of a Rural Physician in Kentucky
Other Interesting Potential Economic
Impact Studies
The Economic Impact of the new sports
complex in Knott County
The Economic Impact of Eco-tourism in
Eastern Kentucky
The Economic Impact of Agriculture in
Kentucky
The Economic Impact of a manufacturing
firm leaving a rural town
Model Limitations
Based on a set of assumptions that might restrict the
model. Other modeling techniques can be used to
provide a range of impacts, not one single number
Economic impacts should only be part of the
discussion. We should not ignore the following:
Quality of Life
Environmental Impacts
Social and Cultural History
Equity Impacts
THIS IS WHY COMMUNITY INVOLVEMENT IS VITAL