Analyse the market

Review the characteristics, capacity and capability of the supply market to understand which market can meet the Agency’s need.

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What is a market analysis?

A market analysis looks at the traits, capacity and capability of the supply market to understand which market can meet the Agency’s need.

The level of research depends on the:

  • nature of the procurement
  • project scope
  • risks involved

How to analyse the market

Step 1: Define the market

1.1. Define the market segments

Understand market characteristics.

Example, an IT software solution can be:

  • retail product
  • customised product
  • retail/customised product and maintenance

In this example, the IT software solution can be both a product and a service.

Check to see if a state purchase contract, Agency panel or register, and/or a Prequalified supplier arrangement exists that can meet the need.

See, state purchase contracts and registers. 

Consider the following steps while following the rules of use.

1.2: Consider market sounding

Market sounding allows an Agency to seek feedback before conducting a formal market approach, such as a request for tender, quote, or information

Market sounding can help support better procurement models that include market feedback on the:

  • practicality of the procurement activity
  • market’s capability and capacity to meet the need
  • competitive environment

For goods and services, review Early market engagement – goods and services.

1.3: Investigate the market size and share

Answer the following questions:

  • Who the major suppliers?
  • What share of the market do they control or supply to?

1.4: Research market strength

Assess the market concentration and competitiveness.

Example, a market with one supplier is less competitive than a market with 10 suppliers.

Example, a market with one big supplier and four small suppliers, is not as competitive as a market where all supplier are about the same size.

1.5: Understand market demand

Answer the following questions:

  • How many buyers are there?
  • Do buyers have influence?
  • How many buyers are looking to purchase the same thing at the same time?

Example, a monopoly market with one supplier and high demand, equates to limited buyer influence.

For goods and services, review the Market analysis and review - goods and services guide.

Step 2: Competition amongst suppliers

2.1: Research how the market competes.

Understand the degree of competition. Markets compete through:

  • price
  • service
  • distribution
  • product types
  • brand image

Example, some markets will compete on price, offering the same generic product.

2.2: Identify any future market behaviours.

Identify any factors that may impact the purchase. Include technology and overseas markets.

2.3: Price influence

Analyse current prices and factors that influence price.

Example, the price of personal protective equipment will go up in a pandemic.

Example, when a supply chain is broken, supply is reduced, and the price will go up.

Step 3: Capability of the supply market

The supply market must show it has both the capability and capacity to deliver.

Identify any potential risks of supply failure.

Example, in Australia there is no industry to manufacture cars but there is an industry to repair cars.

For goods and services, review the Market analysis and review - goods and services guide.

Step 4: Capacity of the supply market

The supply market must show it has both the capability and capacity to deliver.

Identify any potential risks of supply failure.

Assess the availability of substitute or alternative options.

Example, buyer needs a product to deliver a project, can the market deliver the product on time or will the buyer have to wait or delay the project.

Step 5: Look at the size and diversity of suppliers

Investigate the following:

  • Size of the suppliers
  • Geographic location
  • Service delivery area
  • Country of ownership

For goods and services see, Improving access to government business for Small to Medium sized Enterprises.

Investigate opportunities for targeted categories of suppliers listed under procurement-related policies. Consider:

  • Not for profit enterprises
  • Social benefit suppliers
  • Victorian Aboriginal businesses
  • Disability enterprises
  • Social enterprises
  • Women’s equality and safety
  • Regional disadvantage
  • Environmentally sustainable practices

Optional step 7: Supply chain analysis

If the nature the procurement requires an understanding of the supply chain, investigate it.

Supply chain analysis requires deeper research that looks at the risks that impact the nature and quality of the supply chain. Such as raw materials, labour and logistics.

For goods and services, review Understanding the supply chain – goods and services guide.

Step 8: Record in draft procurement plan

Record information about market analysis in the draft procurement plan. For more information see, Prepare a procurement plan.

Consider:

Manage probity and conflicts of interest

Manage probity – consider issues raised at Probity issues by stage and task.

Conflicts of interest can arise during this task. Identify, declare and manage these.

Address Agency rules

Consult Agency procurement team for advice on meeting:

Follow Agency specific rules on when to seek an approval and who can give the approval.

Follow Agency specific rules for recording decisions and storing records.

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