21 Nov

Following the Right Path: The Process of a Market Study

The market study is used to identify the market that exists for a particular product at a given time. The study seeks to analyse the feasibility of a proposed development concept and identify its related risks and opportunities.

 Why is a Market Study necessary?

• The market study is used to identify the market that exists for a particular product at a given time. The study seeks to analyse the feasibility of a proposed development concept and identify its related risks and opportunities. Questions such as “what type of development should be built?” can only be answered if a careful review of demand and supply is conducted and analysed. Many developers come up with the development option that they want or prefer to build, disregarding the market situation. The development option is selected for such reasons as a preference for a specific  brand, an iconic project, to set the new benchmark in the market or due to a limited budget. In such cases, the end products that are built are often met with low demand, are not competitive in the market and hence are less likely to be feasible.

• The lack of a prudent research process will lead to challenges in identifying the suitable products and/or the right positioning. The market study will help make future oriented decisions through analysing the change in demand, future supply trend or segments and hence anticipating the future competition.

• In order to focus the market study and ensure it remains on the right track in order to arrive at the key market insights, the researchers should have a list of issues that must be identified or a “must find out” list. In regards to a hospitality market study, the key “must find out” issues may be:
   – What factors cause the market to become a tourism destination? Are there any future         demand generators that will ensure that trend remains in place?
   – What are the sources of demand? And why?
   – What is the current supply in the market? How are the existing properties performing?        What is the future trend?
   – Are there any latent demand opportunities?

• A real estate market study usually required two main steps: desk research and market inspection/ direct interviews with local representatives. Sometimes a third step is required, which is direct interviews with end-users in case buyer behaviour is also required to be understood.

1. Desk Research

• The desk research is the initial study before the inspection is performed. Typical information collected include tourist arrival statistics from reliable sources, generators and sources of demand, analysis of existing operating properties (existing supply) and future openings (future supply). This part establishes a good foundation to pave the way for the primary research (market inspection and direct interviews). The below table lists out some of the typical information that can be collected from desk research.



2. Market Inspection and Direct Interviews with Local Representatives

• The inspection allows researchers to physically approach information sources which were not available through desk research or those that need additional verification. Effective interviews with local industry representatives are fundamental for truly understanding market characteristics, performance and trends. In depth discussions are conducted with local brokers, resorts owners, general managers, front office managers, local authorities and even taxi drivers and restaurant owners. Discussion topics include everything related to market trends, past performance, costing, staffing, type of clients and market outlook. Interviews with potential competitors are also important to establish benchmark performance information. Such interviews should be conducted with selected staff members and managers of relevant hotels or resorts (competitive set) to obtain the information which is later used for the projected performance of the subject property. The benchmark information can include but is not limited to: occupancy, average daily rate, guest segmentation (MICE vs. leisure, nationalities), average length of stay and utilisation of facilities. The interviews with representatives of potential competitors, brokers and local authorities may also reveal information related to planning of future projects.

• The market inspection also helps to identify future supply that may not yet be announced or published publically. Such supply can be recognised by having a fenced site, a signboard or visible construction activities.

3. Direct Interviews with End Users

• This is a special case where an understanding of consumer behaviour is required to be understood and typically applies for residential, condotel and timeshare projects. For such projects, the end user demand characteristics have a moderate to high influence on the design, targeted positioning, price, products characteristics, sales and marketing structures, as well as rental pool program. This part requires a well designed questionnaire in order to avoid ambiguous results and carefully considered target respondents, sample size and catchment area. This research method is the most time consuming and requires a high level of work hours. Main steps are: problem identification, questionnaire preparation, fieldwork, data analysis and outcome/insight production.

The Market Study is one of the initial steps in the development planning stage and assists with correctly shaping the business model and development concept. It is a fundamental step in forming the financial projections because it involves collecting market evidence that become a benchmark for the various financial inputs.

A property is successfully operated at its highest optimisation level only if all the following elements are successfully achieved: a well conceived business model, effective design in terms of operation and integration, quality controlled construction process, suitable operation structure and full preparation and execution of operation. The failure or inappropriate execution of any step can slow down and negatively impact future steps. Since the market study is the first required step in order to identify the right business model, it has a high influence on the success of all future steps in the development process. The potential negative impacts in case a market study is not properly conducted, are not only financial costs but also significant costs in terms of time and human effort that is required to make adjustments and corrections in later stages.