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TECHNICAL FEASIBILITY:Market Feasibility, Market Testing

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SME Management (MGT-601)
VU
Lesson 16
Dealing with the technical and marketing feasibility of the identified project
1. TECHNICAL FEASIBILITY
It covers the following
(A) Identification of critical technical specifications comprising
a)
The functional design of the product.
b)
Adaptability to the new customer demand.
c)
Durability
d)
Reliability of performance.
e)
Safety
f)
Reasonable utility (i.e. acceptable level of obsolescence)
g)
Standardization (i.e. elimination of unnecessary variety)
(B) Examination of product quality-cost relationship
In making this investigation, the entrepreneur must understand that there are trade offs between
technical excellence and associated cost i.e. a positive relationship exists between technical quality
and costs. It is possible through an increase in the technical excellence of a product to that level at
which marginal product quality equals marginal cost. This level is reached where slope of product
quality and product cost curves are equal.
Quality enhancement should not be carried beyond a particular point because it would cause cost
increase and lead to decrease in total market demand (except where the product has a snob value).
Thus entrepreneur should avoid unnecessary gold plating when market situation does not justifies
it.
(C) Product testing, which includes?
a) Engineering studies relating to machines, tools, instruments work flow etc.
b) Product development through blueprint, models, prototypes.
c) Product testing through laboratory testing and field-testing.
2. Market Feasibility.
The following process may be adopted to assure the market opportunities of a product.
I. Identifying the Market Potential
It involves an estimation of both the current demand of the product and projection of future
market trends. The prospective entrepreneur will do well to identify (a) specific end users, (b)
major market segments, and (c) potential volume of purchases within each market segment.
Some statistical yardstick may be of quite help in accomplishing this work. To illustrate, a
potential manufacturer of helmets may find out the annual production of two wheelers,
percentage of helmet users and proportion of demand already met.
II. Estimating Cost-volume Relationship to ascertain how various price levels may affect
total sales volume
The price must reflect the value of the product. The entrepreneur may not adopt a uniform
price structure to take care of the sensitivity of the buyer to price changes. The cost-volume
analysis would also facilitate the determination of appropriate economies of scales i.e. optimum
size of enterprise, which has lowest average per unit cost of production and distribution.
III. Sources of Market Information.
Relevant data for market analysis can be gathered from two main sources viz (a) primary
sources such as interviews, mailed questionnaire, survey etc and (b) secondary sources like
government agencies, trade unions, chambers of commerce etc. Whereas the former is costly,
the latter may not meet the requirements of the entrepreneur.
The following kind of data matrix may be quite helpful:
(a) Data relating to general economic trends as revealed by various indicators such as new
orders, house activity, inventories consumer spending.
(b) Market data relating to demand pattern, seasonal variation etc.
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SME Management (MGT-601)
VU
(c) Pricing data i.e. range of prices for same, complementary and substitute products; base
price; discount structure etc.
(d) Channels of distribution both wholesale and retail.
(e) Data relating to competitors.
To obtain this data, the entrepreneur may either conduct his own survey or approach a
consultant.
IV. Market Testing
It is an important method of establishing the overall feasibility of a new venture, significant
market testing methods include: (a) displaying the product at trade fairs, (b) test marketing to
analyze the receptivity of the product, and (c) sample sales. A market test can provide following
information.
(a) Likely sales volume and profitability.
(b) Sales volume at different price levels.
(c) Soundness of chosen market strategy.
(d) Unknown weakness that need attention.
The drawbacks of this technique are: delay in implementation, premature exposure to competitors and
expensiveness.
Books References
Entrepreneurship and small business management by Hans and Kuriloff and Arthur H.
New product decision an analytical approach by Pessemeir, Edgah A
Book recommended
Entrepreneurship and small business BY C L Bansal
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Table of Contents:
  1. THE HISTORY:Cottage Industry, CONCEPT OF SMALL BUSINESS
  2. THE RELATIONSHIP BETWEEN SMALL AND BIG BUSINESS:The SME’S in Pakistan
  3. THE ROLE OF ENTREPRENEURSHIPS IN SMEs:Focus and Perseverance Guide the Entrepreneur
  4. THE ROLE OF ENTREPRENEURSHIPS IN SMEs:Kinds of Entrepreneurs
  5. SMALL ENTREPRENEURS IN PAKISTAN:National Approaches
  6. THE DEVELOPMENT OF SMES IN PAKISTAN:The Industrial History of Pakistan
  7. GOVERNMENT’S EFFORT TOWARDS SME DEVELOPMENT:Financing Programs
  8. THIS LECTURE DEFINES THE ROLE OF NGOS AND SMEDA:Mission Statement
  9. ISSUES AND POLICY DEVELOPMENT FOR SME:Monitoring Developments
  10. ISSUES IN SME DEVELOPMENT:Business Environment, Taxation Issues
  11. LABOR ISSUES:Delivery of Assistance and Access to Resources, Finance
  12. HUMAN RESOURCE DEVELOPMENT:Market and Industry Information, Monitoring Developments
  13. MARKET AND INDUSTRY INFORMATION:Measuring Our Success, Gender Development
  14. LONG TERM ISSUES:Law and Order, Intellectual Property Rights, Infrastructure
  15. THE START UP PROCESS OF A SMALL ENTERPRISE:Steps in Innovative Process
  16. TECHNICAL FEASIBILITY:Market Feasibility, Market Testing
  17. FINANCIAL FEASIBILITY:Financial resources and other costs, Cash Flow Analysis
  18. ASSESSMENT OF PERSONAL REQUIREMENTS AND ORGANIZATIONAL CAPABILITIES:Analysis of Competition
  19. Post Operative Problems of a New Enterprise:Environmental Causes
  20. HOW TO APPROACH LENDERS:Bank’s Lending Criteria, Specific Purpose, Be Well Prepared
  21. WHAT A BANK NEEDS TO KNOW ABOUT YOU:General Credentials, Financial Situation
  22. COMMERCIAL INFORMATION:Checklist for Feasibility Study, The Market
  23. GUARANTEES OR COLLATERAL YOU CAN OFFER:Typical Collateral
  24. Aspects of Financial Management:WINNING THE CASH FLOW WAR, The Realization Concept
  25. MEANING OF WORKING CAPITAL:Gross Working Capital, Net Working Capital
  26. RECRUITMENT, SELECTION AND TRAINING:Job Description, Job Specification
  27. SELECTION AND HIRING THE RIGHT CANDIDATE:Application Blank, Orientation
  28. TRAINGING AND DEVELOPMENT:Knowledge, Methods of Training
  29. CONDITIONS THAT STIMULATE LEARNING:Limitations of Performance Appraisal, Discipline
  30. QUALITY CONTROL:Two Aspects of Quality, Manufactured Quality
  31. QUALITY CONTROL:International Quality Standards, MARKETING
  32. MARKETING:Marketing Function, MARKETING PROCESS - STEPS
  33. MARKETING:Controllable Variable, Marketing Uncontrollable, Marketing Mix
  34. MARKETING:Demerits of Product Mix, Development of new product, SMEDA
  35. ROLE OF TECHNOLOGY:Training programmes, Publications
  36. ROLE OF TECHNOLOGY:Measure to Undertake for Promoting Framework.
  37. EXPORT POTENTIAL OF SME IN DEVELOPING COUNTRIES I:Commonly Seen Assistance Programme
  38. EXPORT POTENTIAL OF SME IN DEVELOPING Countries. II:At the national level
  39. WORLD TRADE ORGANIZATION (WTO):WTO Agreements: Salient Features
  40. WTO MINISTERIAL CONFERENCES:PAKISTAN AND WTO
  41. WORLD TRADE ORGANIZATION (WTO) PAKISTAN & WTO. II:International Treaties
  42. WORLD TRADE ORGANIZATION (WTO) PAKISTAN & WTO. III:Agriculture
  43. WORLD TRADE ORGANIZATION (WTO):PAKISTAN & WTO. III
  44. WORLD TRADE ORGANIZATION (WTO):CONCLUSIONS AND RECOMMENDATIONS
  45. SUMMARY & CONCLUSIONS:Financing Tool, Financing Tool