© 2006 by Nelson, a division of Thomson Canada Limited2-104/21/23

Slides developed by:Slides developed by:

Peter YannopoulosPeter Yannopoulos

Chapter 2Chapter 2

Defining and Defining and Assessing MarketsAssessing Markets

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Strategic MarketStrategic Market

It defines the broad, current,It defines the broad, current,

and future arena where theand future arena where the

firm plans to compete firm plans to compete

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Marketing MyopiaMarketing Myopia

It occurs when strategic markets are defined narrowly based on pure product definitions

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Multi-Dimensional Market Multi-Dimensional Market DefinitionDefinition

Technologies/Competencies

Functions/Applications

Customer Segments

Strategic Market

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Served MarketServed Market

It is aIt is a subset of the strategic market subset of the strategic marketIt is aIt is a subset of the strategic market subset of the strategic market

It is the part of the strategic market whereIt is the part of the strategic market wherethe firm actively competes for customersthe firm actively competes for customersIt is the part of the strategic market whereIt is the part of the strategic market wherethe firm actively competes for customersthe firm actively competes for customers

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Served Market DefinitionServed Market DefinitionFunctions/Applications

Customer Segments

Technologies/ Competencies

Served Market Strategic Market

2-7

Strategic Market Definition of Xerox and

Canon in the Early Years Functions/Applications

Customer Segments

Xerox’s Strategic Market

High Speed Copiers

Low-speed Copiers

High Price

Low Price

Small Companies/Individuals

Large Companies

Canon’s Strategic Market

Xerography

Technology/Competencies

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Strategic Market Definition of Xerox and Canon in Recent Years

Functions/Applications

Customer Segments

Xerox’s and Canon’s Strategic Market

High Speed Copiers

Low-speed Copiers

High Price

Low Price

Small Companies/Individuals

Large Companies

Xerography

Technology/Competencies

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MarketAttractiveness

Industry Factors•Rivalry among current competitors•Threat of new products•Bargaining power of buyers•Bargaining power of suppliers•Substitutes•Complements

Market FactorsMarket sizeMarket growthProfit marginPrice elasticitySeasonalityCyclicality

Determinants of Market Attractiveness

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Porter’s Five Forces Framework

Rivalry among current competitors

Potential entrants

Substitutes

SuppliersBuyers

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Methods for Defining MarketsMethods for Defining Markets

NAICS System

Brand Switching

Substitution in Use

Managerial Judgement

HierachicalMarkets

Strategic Groups

Cross-elasticity of

Demand Methods for Methods for Defining Defining MarketsMarkets

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Hierarchical Market DefinitionHierarchical Market Definition

Ground

Beverages

Coffee

Soft Drinks

Instant

International Domestic

Brands Brands

Industry

Product Class

Product Category

Product Variants

Brands

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Matrix of Probabilities of Switching Among Brands

.36 .06

.38

.58

.07

.04 .06 .90

.55 A

B

B

Brand

Brand

C

C

A

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Methods for Estimating Market Potential

The total market potential methodThe total market potential method

The chain ratio method

The chain ratio method

Methods for Estimating

Market Potential

Methods for Estimating

Market Potential

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The Total Market Potential Method

S = N × Q × P

Where:S = Market potentialN = Number of potential buyersQ = Average quantity purchasedP = Average selling price

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Example – Market Potential for Movies

Assume:

N = 20,000,000 movie goers

Q = 12 times a year

P = $10

Then:

S = 20,000,000 × 12 × $10

= $2.4 billion

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The Chain Ratio MethodExample – Market Potential for Premium Beer

Assume: Total number of all people of drinking age =

21,000,000 10% of people of drinking age prefer premium

beer 50% of those who prefer premium beer

actually drink premium beer Premium beer drinkers spend on average $180 on

premium beer

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Market Potential for Premium Beer (continued)

Total number of people of drinking age 21,000,000

% of people who prefer premium beer .10

% of people who prefer premium beer and

actually drink premium beer .50

Total number of people who drink beer 1,050,000

Average amount spent on premium beer $180

Market potential of premium beer $189,000,000