Example – Pizza Shop Market Attractiveness
Step 1 – Identify variables to evaluate segments
So, in this case, we chose three variables.
We chose population size of each suburb (as suburbs are the segment we are evaluating) since this information is relatively easy to find online. And from a segment attractiveness point of view, the bigger the population, the bigger the opportunity.
However, it gives no indication of how much people might pay for pizzas.
So, we also consider a more price / profit driven measure. In this case, it would be relatively easy to look at the pricing of other pizza shops in each suburb and work out an average price paid. This serves as a proxy for the likely profitability in each segment.
Finally, we also want to consider the level of competition in the market.
In this case, this could be as simple as the number of pizza shops in each suburb.
However, here, you need to be a little bit more clever with the arithmetic. More competitors makes a segment less attractive. So we need to find a way of making lower numbers more attractive.
In this case, we made an assumption that all pizza shops would be a relatively similar size, so by calculating what our share would be, we were able to flip the numbers round so that less competitors equalled a higher score.
So for example, if there were 3 competitors in the suburb, and we became competitor number 4, if all shops had equal share, our share would be 1 out of 4 or 25 %.
But, if there were 5 competitors in the market and we became number six, our equal share would only be 1 out of 6 or 16.7%.
So, with this logic, a market of 3 competitors is more attractive than a market of 5 competitors.
Step 2 – Identify weighting across variables
Here, we decided to give equal weighting to population size and profitability and less weighting to competition.
We did this because we could see a more direct link between those two variables and our business goal to grow sales.
We did not want to discount the level of competition completely, but given the nature of the category, it seemed like less of a factor than market size and profitability.
Step 3 – Identify segments to evaluate
Here we’d picked three potential suburbs as our segments to evaluate.
Step 4 – Add up the total size of the variable
For each variable – population, average price, competitiveness, we added up each row horizontally to give us a total for each variable (T1, T2, T3 etc)