Measuring Market Opportunities Chapter Six Measuring Market Opportunities

Keys to Good Forecasting Make assumptions explicit Then debate the assumptions, not the forecast itself Collect data to verify or refute the assumptions Use multiple methods Top down Bottom up 4

What are the advantages and limitations of the six main evidence-based forecasting methods? Statistical methods Observation Surveys Analogy Judgment Market tests Statistical methods: advantages Useful in established firms for established products Likely to result in a more accurate forecast than other methods under stable market conditions Statistical methods: limitations Assumes the future will look very much like the past Requires history Not useful for new products with no history Observation: advantages Based on what people actually do Observation: limitations Observation is typically not possible for new-to-the-world products Requires prior examples to observe Surveys: advantages Many different groups of respondents can be surveyed, from consumers to salespeople to suppliers, etc. Does not require history or prior examples Surveys: limitations What people say is not always what people do The persons being surveyed may not be knowledgeable, but when asked their opinion, they will probably provide it What people imagine about a product concept in a survey may not be what is actually delivered once the product is launched Analogy: advantages Requires no history nor prior examples Best when used for new product forecasting where neither statistical methods nor observations are possible Also useful for new-to-the-world high-technology products, for which product prototypes are often either not available or extremely expensive to produce Analogy: limitations The proposed new product is never exactly like that to which the analogy is drawn Market and competitive conditions may differ considerably from when the analogous product was launched Judgment: advantages Those with sufficient forecasting experience in a market they know well may be quite accurate in their intuitive forecasts. Judgment: limitations It is often difficult for them to defend their forecasts against those prepared by evidence-based methods when the two differ. Market tests: advantages Closest forecasting method to the true market Market tests: limitations Expensive to conduct For consumer products sold through supermarkets and mass merchants, competitors can buy the data collected through scanners at the checkout and learn the results of the test market without bearing the expense. Competitors can deliberately distort market conditions to invalidate the test

(if product available) 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 Exh. 6.2.

What questions should informed users of marketing research ask, before approving a study? What are the research objectives? Will the proposed study meet them? Are the data sources appropriate? Secondary or primary? Qualitative or quantitative? Is the research itself well designed? Are the planned analyses appropriate?

Targeting Attractive Market Segments Chapter Seven Targeting Attractive Market Segments

Three Kinds of Market Segmentation Criteria Demographic Reflects who the customers are Geographic Reflects where the customers are Behavioral Reflects how they behave in this usage category Geo-demographic YAWYL VALS 4

A Useful Tool for Assessing Market Segments: Segment Rating Chart WEIGHT RATING (0-10) TOTAL Market attractiveness factors Customer needs and behavior .5 10 5.0 Segment size and growth rate .3 7 2.1 Macro trends .2 8 1.6 Total: Market attractiveness 1.0 8.7 Competitive position factors Opportunity for competitive advantage .6 4.2 Capabilities and resources 5 Industry attractiveness 1.4 Total: Competitive position 6.6 Where does the necessary data come from to support the factor ratings? Primary and secondary marketing research Analytical frameworks from earlier chapters

How should we decide which segments to target? Market Attractiveness High (8-10) Moderate (4-7) Low (0-3) Company’s Competitive Position = Market attractiveness and competitive position of distance runners segment How can these factors be assessed? Market attractiveness factors Customer needs and behavior: unmet needs? Segment size and growth rate Macro trends Competitive position factors Opportunities for competitive advantage Capabilities and resources Industry attractiveness

Market Attractiveness Exhibit 7.9 Implications of Alternative Positions Within the Market-Attractiveness/Competitive-Position Matrix Competitive Position Weak Medium Strong Build selectively: Spec. in limited strengths Seek to overcome weak. Withdraw if indications of sustainable growth are lacking Desirable Potential Target Invest to build: Challenge for leadership Build selectively on strengths Reinforce vulnerable areas Desirable Potential Target Protect position: Invest to grow at max. digestible rate Concentrate on maintaining strength High Limited expansion or harvest: Look for ways to expand w/out high risk; otherwise min. invest. and focus operations Desirable Potential Target Build selectively: Emphasize profitability by increasing productivity Build up ability to counter competition Manage for earnings: Protect existing strengths Invest to improve position only in areas where risk is low Med. Market Attractiveness Divest: Sell when possible to maximize cash value Meantime, cut fixed costs & avoid further investment Manage for earnings: Protect position Minimize investment Protect and refocus: Defend strengths Seek ways to increase current earnings without speeding market’s decline Low Sources: Adapted from George S. Day, Analysis for Strategic Market Decisions (St. Paul: West, 1986), p. 204; D. F. Abell and J. S. Hammond, Strategic Market Planning Problems and Analytical Approaches (Englewood Cliffs, NJ: Prentice Hall, 1979); and S. J. Robinson, R. E. Hitchens, and D. P. Wade, “The Directional Policy Matrix: Tool for Strategic Planning,” Long Range Planning 11 (1978), pp. 8-15. 14