The concept of market attractiveness offers a way of examining and measuring the possibilities of a market in terms of its potential profitability. The concept examines a far wider range of characteristics than merely looking at the possibility that the market will grow. In addition to looking at the market size and growth rate, the concept looks at features such as market risk, level of competition, segmentation, demand variability, bargaining power and the barriers to entry. Before developing a product and marketing plan for a particular market, an enterprise needs to examine all of these features and determine the market attractiveness.
The measurement of market attractiveness would consider pricing trends and the effect of the trends on existing and new players in the market. Market attractiveness might be increased if there is an opportunity for the enterprise to differentiate its products and services within the market and therefore to distinguish itself from competitors. There might, however, be a threat from substitute products and services that can make the market potentially risky. Factors such as the distribution structure required in the market might be more suited to some firms than to others, depending on the level of resources and skills in an enterprise.
The competitive intensity within the market also must be considered. A market might be dominated by a few large firms or include a large number of smaller competing enterprises, and this might affect the ability of a new entrant to position itself in the market and carve out its market share. The large firms' strategy toward new entrants in the market could be aggressive, and where some existing firms have strong brand recognition and marketing capacity, it might be difficult for new entrants to advertise or to gain product recognition. The market might already be saturated and offer little profit potential to new entrants.
Barriers to entry to the market might be relatively few, allowing new competitors to arise within a short time and take advantage of any changes in technology, consumer demand or logistics. On the other hand, the products sold in the market might require high production costs and investment in expensive plants, making it unattractive to enter the market because of a significant risk of failure. The main barrier to entry into the market might be regulatory in nature, and this could change with the stroke of a legislator’s pen. The technology used within the industry might be on the point of a significant development or breakthrough that might favor new entrants. These factors all affect the level of market attractiveness.