Chapters Four & Five

Identifying & Analyzing Market Opportunities

Seven Domains of Attractive Opportunities

Team

Market Industry

Macro

Micro

Market Attractiveness Industry Attractiveness

Target SegmentBenefits & Attractiveness Sustainable Advantage

MissionAspirations

Risk Propensity

Ability toExecute CSF’s

Connectedness

Macro Trend Analysis: A Framework for Assessing Market Attractiveness

• Demographic environment

• Sociocultural environment

• Economic environment

• Regulatory environment

• Technological environment

• Natural environment

Exhibit 5.2

The Major Forces that Determine Industry Attractiveness

Rivalry among Rivalry among existing industry existing industry

firmsfirms

Threat of substitute Threat of substitute productsproducts

BargainingBargainingpowerpower

of buyersof buyers

Bargaining Bargaining powerpower

of suppliersof 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 newThreat of new entrantsentrants

Segment Rivalry

• The industry is less attractive if:– Numerous competitors, none dominant– Stable or declining market– High investment/large capacity increments– Low product differentiation– Low switching costs

Potential Market Entrants

• The easier to jump in, the less attractive• Conditions that make the industry less attractive:

– Low economies of scale and learning effects– Low capital intensity– Low product differentiation– Gaining distribution outlets is easy

Supplier Power

• The industry is less attractive if:– Suppliers are concentrated or organized – Substitute prices are high– Providing critical component/large value added– High switching costs exist– Forward integration is easy

Buyer Power

• The industry is less attractive if:– Buyers are few, large or organized– Your product is undifferentiated– Switching costs are low– Backward integration is easy– Buyer profits are low & your product is a large

percentage of buyer’s total costs– Your product isn’t all that critical to buyer

Threat of Substitutes

• The industry is less attractive if:– Numerous current substitutes– Numerous potential substitutes

• Substitute doesn’t mean another brand, but another product type. (Tea for Coffee)

Good Markets at Micro Level

• Clearly defined segments with identified difficulties which your product can solve

• Your product solves some aspect of the problem that other solutions don’t

• Segment is likely to grow (rapidly?)

• Other somewhat similar segments exist that may also adopt your product

Good Industries at Micro Level

• Basically, can you sustain your advantage?

• More likely if:– Proprietary products (not easily duplicated)– Superior processes, capabilities or resources

(not easily duplicated)– An economically viable business model (duh!)

Threat Matrix

Probability of Occurrence

High LowLevel of Impacton Company*

High

Low

4

2

1

3

*Profits or market share or both.

Probability of Success

High LowAttractivenessto Company*

High

Low

4

2

1

3

Opportunity Matrix

Compare strengthsto opportunities

Compare weaknessesto threats

Internal Factors (Team Domains)

• Does it fit with what we want to do?

• Can we execute well in the industry’s Critical Success Factors

• When big changes occur, will you be among the first to see them coming because your company is well connected with suppliers and customers?

Forecasting Sales

• The first thing to remember is that all forecasts are wrong.

• But, that doesn’t mean they are useless.

• Make sure all key players understand the basis and potential error of the forecast.

Summary of Forecasting Methods

Method Advantages Disadvantages

StatisticalBest for established situations (historical data readily available)

Can be VERY wrong at times of rapid change

ObservationRelies upon actual consumer behavior

Not good for new products & expensive if good secondary data not available

Surveys & Focus Groups

Very useful when historical data is lacking or insufficient

More expensive & based on ‘say’ rather than ‘do’

AnalogyGood when consumer lacks knowledge

Not always possible to locate similar situations

Judgment Good if respondents have strong intuition & experience

Difficult to support, may not be sufficient to gain support

Test MarketLive versions provide realistic data if time and resources not a big problem.

VERY expensive & time consuming. May reveal sensitive data.

Chain Ratio Forecasts

Research Findings: Forecast Result:

Target Market Size: 77.4m

Estimated Trial: 34.5%(1) 77.4 * .345 = 26.7 million(if all are aware)

Estimated Awareness: 48%26.7 * .48 = 12.8 million

(if product available)

Estimated Distribution: 70%12.8 * .70 = 9.0 million

(Estimated Trial)

(1) Reduced from actual response of 70%. See Exhibit 5.3

How fast will customers adopt?

Earlymajority34%

Latemajority34%

Earlyadopters13.5% 16%2.5%

Innovators

Laggardsand Non-adopters

Source: Adapted with permission from Marketing, 11/e, Acetate 8-8, by Michael J. Etzel, Bruce J. Walker, and William J. Stanton. The McGraw-Hill Companies, Inc. © 1997. All rights reserved.

See Exhibit 5.7: Cell Phones vs. PC’s

Example: alternative fuel vehicles for the auto industry

Keys to Good Forecasting

Make assumptions explicit Debate the assumptions, not the forecast Collect data to verify or refute the assumptions

Use multiple methods Provide a range, not a single number Track progress & issue regular updates