3.1. understanding market opportunities test

][Welcome to

Marketing StrategyUnderstanding Market Oportunities

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

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The Seven Domains of Attractive

Opportunities

Macro

Level

Micro

Level

Market Domains Industry Domains

Mission, Ability to

Aspirations, Execute

Propensity on CSFs

for Risk

Connectedness up

and down Value

Chain

Team

Domains

Market Attractiveness

Target Segment Benefits

and Attractiveness

Industry Attractiveness

Sustainable

Advantage


Market IndustryA group of individuals or organizations (i.e., buyers) having the willingness and ability to buy goods or services to satisfy a particular class of wants or needs

A group of organizations (i.e., sellers) offering goods or services that are similar and close substitutes for one another

The distinction between market and industry is important because:

•Assessments of market and industry attractiveness differ, and use different analytical tools•Companies need to account for sellers from other industries serving their target market 2-3


Situation Analysis

• One of the most widely used approaches to the collection and analysis of marketing information is the situation analysis.

• The purpose of the situation analysis is to describe current and future issues and key trends as they affect three key environments: the internal environment, the customer environment, and the external environment.

• There are many issues to be considered in a situation analysis. When viewed together, the data collected during the situation analysis gives the organization a big picture of the issues and trends that affect its ability to deliver value to stakeholders.

• These efforts drive the development of the organization’s competitive advantages and strategic focus

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Issues to Be Considered in a Situation Analysis

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Conducting a Situation Analysis

• Analysis Alone Is Not a Solution

• Data Is Not the Same as Information

• The Benefits of Analysis Must Outweigh the Costs

• Conducting a Situation Analysis Is a Challenging Exercise

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The Internal Environment

• The first aspect of a situation analysis involves the critical evaluation of the firm’s internal environment with respect to its objectives, strategy, performance, allocation of resources, structural characteristics, and political climate.

• Or in short:

- Review of Current Objectives, Strategy, and Performance

- Availability of Resources

- Organizational Culture and Structure

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The Customer Environment

• Who Are Our Current and Potential Customers?

• What Do Customers Do with Our Products?

• Where Do Customers Purchase Our Products?

• When Do Customers Purchase Our Products?

• Why (and How) Do Customers Select Our Products?

• Why Do Potential Customers Not Purchase Our Products?

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The External Environment

• Competition

• Economic Growth and Stability

• Political Trends

• Legal and Regulatory Issues

• Technological Advancements

• Sociocultural Trends

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Competition

1. Brand competitors, which market products with similar features and benefits to the same customers at similar prices.

2. Product competitors, which compete in the same product class, but with products that are different in features, benefits, and price.

3. Generic competitors, which market very different products that solve the same problem or satisfy the same basic customer need.

4. Total budget competitors, which compete for the limited financial resources of the same customers.

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Competitive Analysis

1. Identification. Identify all current and potential brand, product, generic, and total budget competitors.

2. Characteristics. Focus on key competitors by assessing the size, growth, profitability, objectives, strategies, and target markets of each one.

3. Assessment. Assess each key competitor’s strengths and weaknesses, including the major capabilities and vulnerabilities that each possesses within its functional areas (marketing, research and development, production, human resources, etc.)

4. Capabilities. Focus the analysis on each key competitor’s marketing capabilities in terms of its products, distribution, promotion, and pricing.

5. Response. Estimate each key competitor’s most likely strategies and responses under different environmental situations, as well as its reactions to the firm’s own marketing efforts.


Collecting Marketing Data and Information

• Secondary Information Sources

- Internal Data Sources

- Government Sources

- Book and Periodical Sources

- Commercial Sources

• Primary Data Collection

- Direct observation

- Focus groups

- Surveys

- Experiments

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SWOT Analysis

• Many consider SWOT analysis to be one of the most effective tools in the analysis of marketing data and information.

• SWOT analysis is a simple, straightforward framework that provides direction and serves as a catalyst for the development of viable marketing plans.

• It fulfills this role by structuring the assessment of the fit between what a firm can and cannot do (strengths and weaknesses), and the environmental conditions working for and against the firm (opportunities and threats).

• When performed correctly, a SWOT analysis not only organizes data and information, it can be especially useful in uncovering competitive advantages that can be leveraged in the firm’s marketing strategy.

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SWOT-Driven Strategic Planning

• Strengths and Weaknesses

• Opportunities and Threats

• The SWOT Matrix

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Competitive Advantage

• Developing and Leveraging Competitive Advantages

- Operational Excellence

- Product Leadership.

- Customer Intimacy


Establishing a Strategic Focus

Using the results of the SWOT analysis as a guide, a firm might consider four general directions for its strategic efforts:

1. Aggressive (many internal strengths/many external opportunities). Firms in this enviable position can develop marketing strategies to aggressively take on multiple opportunities. Expansion and growth, with new products and new markets, are the keys to an aggressive approach.

2. Diversification (many internal strengths/many external threats). Firms in this position have a great deal to offer, but external factors weaken their ability to pursue aggressive strategies. To help offset these threats, firms can use marketing strategy to diversify their portfolio of products, markets, or even business units.


Establishing a Strategic Focus (cont’d)

3. Turnaround (many internal weaknesses/many external opportunities). Firms often pursue turnaround strategies because they find themselves in the situation—often temporary—of having too many internal problems to consider strategies that will take advantage of external opportunities. In these cases, firms typically have to put their own house back in order before looking beyond their current products or markets.

4. Defensive (many internal weaknesses/many external threats). Firms take a defensive posture when they become overwhelmed by internal and external problems simultaneously.


Developing Marketing Goals

• Attainability

• Consistency

• Comprehensiveness

• Intangibility


Developing Marketing Objectives

• Attainability

• Continuity

• Time Frame

• Assignment of Responsibility


Macroenvironmental Trends Analysis• Unfavorable macro trends that negatively influence market demand can have a

devastating effect on the performance of firms serving that market. Similarly, favorable trends exert positive forces that make it easier for firms to perform well. Thus, the influence of macroenvironmental trends can be pervasive and powerful.

• Implications of macro trends:

• Demographic trends can result in rapidly growing markets or on the flip side, can make markets less attractive than they once were.

• Sociocultural trends can result in changes of consumer tastes and behavior.

• Economic trends influence the level of demand in most markets, but they are particularly important in capital goods markets, real estate, and other markets where sensitivity to interest rates and the level of household or corporate income can be extreme.

• Regulation and deregulation in the political/legal environment can change the attractiveness of a market.

• Technological trends often create attractive new markets or change existing markets.

• Trends in the natural environment can affect market attractiveness. 2-31


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Macro Trend Analysis:

Demographic environment

Sociocultural environment

Economic environment

Regulatory environment

Technological environment

Natural environment


How Macro Trends Can Affect Businesses

• Demographic trend examples/businesses affected:

•Graying of the population/nursing homes, hospitals

•Increase in ethnic population/food, clothing industries

• Sociocultural trend examples/businesses affected

•Evolution of the family structure (less traditional structure)/food, women’s apparel (business attire)

•Exercise for both genders is in/exercise clothing, sports beverages

• Economic trend examples/businesses affected

•Increase or decrease of interest rates/capital goods, real estate

•Free trade agreements/goods and services2-33


How Macro Trends Can Affect Businesses

• Regulatory trend examples/businesses affected

•Government regulation/food, drug

•Government deregulation/airlines, trucking, railroads, telecommunications, and banking

• Technological trend examples/businesses affected

•Development of fiber-optic cables/telecommunications, computers

•Production of more disease-resistant livestock and plants/farming and ranching, food

• Physical trend examples/businesses affected

•Global warming/ ski resorts, winter tourism 2-34


Macro Trends and the Industry

• Macro trends may be favorable or unfavorable to the industry

• How attractive is a market or an industry, now and in the future?

• Specific trends worth strategic attention, so we can:

- Take advantage: Do trends suggest customer needs that are poorly served?

- Mitigate its effects

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Industry Attractiveness

It makes sense to play in a game with more winners!

• Average firm profitability varies from industry to industry.

• In some industries (e.g., pharmaceuticals) most firms are highly profitable. In others (e.g., restaurants) the failure rate is high and average returns on equity are low.

• It’s easier to raise capital and acquire other resources in attractive industries .


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Porter’s Five Forces: A Tool for Assessing Industry Attractiveness

Rivalry among

existing industry

firms

Threat of substitute

products

Bargaining

power

of buyers

Bargaining

power

of suppliers

Source: Adapted from Michael E. Porter, “Industry Structure and Competitive Strategy: Keys to Profitability,” Financial Analysts Journal, July-August

1980, p. 33.

Threat of new

entrants

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Example

Five Forces Analysis of the Attractiveness of Worldwide Cell Phone Service Industry In Early 2004

• Rivalry is high leading to high customer churn: unfavorable

• Products are differentiated through new features and services, customer switching costs are low.

• Threat of new entrants is low: moderately favorable

• While rapid pace of technological change may bring new entrants based on new technologies (i.e.packet switching, satellites) new service providers must purchase a bandwidth licence by spending billions.

• Supplier power is high: moderately unfavorable

• Governments have raised the price of additional bandwidth through auctions.

• Buyer power is low: very favorable

• Even large customers have little power to set terms and conditions in this oligopolistic industry.

• Threat of substitutes is high: moderately unfavorable

• PDAs or new multimedia devices could replace cell phones.

• Overall conclusion: only 2 out of 5 forces are favorable. Thus the cellular phone industry is not particularly attractive at this time.

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Info sources for information about macro trends

• Trade associations

• Trade magazines

• General business and popular press

• The Internet

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Macro Level Analysis Micro Level Analysis

The macro level of analysis The micro level of analysis

looks at aggregate markets looks at customers individually

– it takes the overall perspective on markets: their size; growth rates in terms of customer numbers and in value terms; etc.

– whether trade customers, or end consumers or business users – to understand the attractiveness of the particular market segments.

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Markets at the Micro Level

Industries at the Micro Level

•Involves looking individually at customers to understand the attractiveness of the target segment

•Involves looking at the company and whether it has a sustainable competitive advantage

Key questions:- Is there a clearly identified

source of customer pain?- Does the provide offering

provide customer benefits that other solutions do not?

- Is the target segment likely to grow? Is it a springboard to other segments?

Key question:- What is the basis of

competitive advantage?• Proprietary technology,

brand, etc• Superior organizational

processes, capabilities or resources

• Economically viable business model

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The Team Domains

• Opportunities are only as good as the people who will pursue them

Key questions:

• What are the Missions, Aspirations and Risk Propensity of the team?

• Does the team have the Ability to Execute on the Industry’s Success Factors

• Is the team well Connected up and down the Value Chain


Thank You

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3.1. understanding market opportunities test

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