Analyzing the Market Position of the Company The Market Introduction: Market Analysis EVERY BUYER, and indeed every seller, should have some measurement of what the future will offer. This includes not only the possibility of maintaining the same volume of sales as in the past, but also the opportunity to increase sales. The buyer must have some idea of what he is acquiring besides the physical assets of the business. He is, in fact, investing in or obligating himself to the continued operation of the business. The true value to him lies in the ability of the business to generate sales at lease equal to its current position in the market. This calls for a careful investigation and analysis of two factors: (1) the past growth of the company within the market of which it is a part, and (2) a forecast of the future sales pattern. The seller also needs a market analysis for the business he proposes to sell. He wants the best possible price for the business--and the better the outlook, the more likely the buyer is to agree to the asking price. Who Does the Work? Will a single market analysis fill the needs of both buyer and seller? Separate studies are probably better. The seller has access to data about the business that are not available to the buyer. Unless the buyer has had wide and recent experience in the same kind of business, he may--rightly or wrongly--tend to rely on the seller's statement of the market position of the company. No two studies of the same company will produce exactly the same results. The buyer's analysis is almost certain to be on the conservative side, and a compromise will be necessary. Another question is whether the buyer and seller should conduct their own market studies or hire specialists to do it. The detailed and complex type of investigation conducted by a professional market analyst is valuable, of course, but the cost is considerable. The basic purpose of a market analysis in the buy-sell situation is to get a clearer picture of the company in the marketing scheme and some indication of the general direction in which it is moving. The buyer and seller should be able to gather and analyze the basic data they need for this purpose--if they avoid a highly statistical approach. Organizing the Study Part 5 includes five series of questions and a checklist to guide the buyer or seller in his analysis of the market position of the business. Sample rating charts +-------------------------------------------------------------------+ ¦COMPANY SALES: ¦ ¦ Dollar Percent ¦ ¦ Year sales change ¦ ¦ ¦ ¦1974.................................. $__________ ___________ ¦ ¦1975.................................. ___________ ___________ ¦ ¦1976.................................. ___________ ___________ ¦ ¦1977.................................. ___________ ___________ ¦ ¦1978.................................. ___________ ___________ ¦ ¦Dollar increase 1978 over 1974........ $__________ ___________ ¦ ¦Percent increase 1978 over 1974.................... ___________ ¦ ¦How satisfactory? 1 2 3 4 5 ¦ ¦ ¦ ¦SHARE OF MARKET: ¦ ¦ Share of ¦ ¦ Industry Company market ¦ ¦ Year sales sales (percent) ¦ ¦ ¦ ¦1974................ $____________ $______________ ___________ ¦ ¦1975................ _____________ _______________ ___________ ¦ ¦1976................ _____________ _______________ ___________ ¦ ¦1977................ _____________ _______________ ___________ ¦ ¦1978................ _____________ _______________ ___________ ¦ ¦Change in share of market 1978 over 1974............ ___________ ¦ ¦How satisfactory? 1 2 3 4 5 ¦ +-------------------------------------------------------------------+ The list of questions is not complete, and not all of those given will be equally useful for all types of businesses. The nature of the business determines what kind of information is needed and in what detail. The questions will, however, call attention to some aspects of the market that might otherwise be overlooked. Determining how important to the business a specific market characteristic is presents a problem. What is vital to one company may be unimportant to another. And some system should be worked out for rating each characteristic. A possible method for this is to list the major subject areas in the study, showing their relative importance, and then to rate them according to a uniform system--a rating scale using numbers, for instance, or words such as "high," "medium," "low," and "not significant." An example of how a numbered scale might work in rating the company's sales over time (one of the characteristics most likely to be studied) is shown in the box above.