Market Feasibility Study Steps Explained

A market feasibility study is a critical process undertaken to determine if a potential market exists for a product or service and whether the proposed business idea is viable within that market. It involves assessing factors such as market size, demand, competition, and potential profitability. The steps provided outline key components of this process.

Understanding the Given Steps in Market Feasibility

• (A) Based on the cost and anticipated sales revenue, calculating the break-even price and the sales volume: This step is a financial calculation that determines the point at which total revenue equals total costs. It requires inputs from both cost estimation and sales forecasting.
• (B) Forecasting sales, based on demand estimation and competitive analysis: This involves predicting the specific volume or value of sales that a business can expect to achieve within the target market, taking into account the overall market demand and the actions of competitors.
• (C) Estimation of demand in the target market, of different price levels: This is about understanding the overall potential for the product or service in the target market. It assesses how many potential customers exist and how much they might buy at various possible prices.
• (D) Estimating the cost of serving the market segment: This step involves identifying and quantifying all the expenses that will be incurred to produce, market, and deliver the product or service to the customers in the target market. This depends on the anticipated sales volume.

Determining the Sequential Order of Market Feasibility Study Steps

The steps of a market feasibility study typically follow a logical flow, starting with understanding the market potential and progressing towards financial viability. The most sensible sequence for the given steps is:

1. (C) Estimation of demand in the target market, of different price levels: You must first determine if there is sufficient potential demand for your offering. Understanding the total possible market size and how demand reacts to price changes is the foundational step.
2. (B) Forecasting sales, based on demand estimation and competitive analysis: Once you know the potential market (from C), you then forecast what share of that market you can realistically capture. This involves considering competition, your proposed marketing strategy, and distribution channels, leading to a specific sales forecast.
3. (D) Estimating the cost of serving the market segment: With a forecast of how much you expect to sell (from B), you can then estimate the costs associated with producing and delivering that specific volume of goods or services to your target customers. Costs are often volume-dependent.
4. (A) Based on the cost and anticipated sales revenue, calculating the break-even price and the sales volume: Finally, using the estimated costs (from D) and the anticipated sales revenue (derived from your sales forecast in B and planned pricing), you can perform financial calculations like determining the break-even point to understand the minimum performance required for profitability.

Correct Sequence for Market Feasibility Analysis

Following the logical progression from identifying market potential to assessing financial thresholds, the correct sequence of the steps is:

Estimate Demand → Forecast Sales → Estimate Costs → Calculate Break-Even

This corresponds to the order (C), (B), (D), (A).

Revision Table: Market Feasibility Analysis Steps

Additional Information: The Scope of Feasibility Studies

A market feasibility study is a crucial component but is often part of a broader feasibility study. A complete feasibility study might also include:

• Technical Feasibility: Can the product or service actually be developed and delivered?
• Financial Feasibility: Is the project financially viable? This includes projecting profitability, cash flow, and return on investment.
• Operational Feasibility: Can the necessary operational processes and resources be put in place?
• Legal and Regulatory Feasibility: Are there any legal or regulatory hurdles?

Completing a thorough market feasibility study significantly increases the chances of success for a new business initiative by providing a realistic picture of the market opportunity and challenges.