UNDERSTANDING MARKETS AND CUSTOMERS Module 3

UNDERSTANDING MARKETS n Conduct a market analysis

WHY A MARKET ANALYSIS? n It helps in the determination of attractiveness of a market. n It helps in understanding the dynamics of the market.

COMPONENTS OF A MARKET ANALYSIS n Actual / Potential Market Size n Market Growth and Profitability n Distribution Systems n Trends and Developments n Key Success Factors

ACTUAL / POTENTIAL MARKET SIZE n Total sales n Potential sales

MARKET GROWTH n What will be the market’s size in the future? n What forces “drive” or impact the market?

FORECASTING MARKET GROWTH n Commonly Used Qualitative Techniques –Trend Extrapolation MediaFutures/forecasting.html n Identification of leading indicators

LEADING INDICATORS n New orders of durable goods n Index of net business formations n Corporate profits after taxes n New building permits (private) n Change in manufacturing inventories n Contracts and orders for plant & equipment n Change in consumer installment debt

FORECASTING MARKET GROWTH n Experience of analogous industries (Analogy Method) n Delphi Technique

MARKET MATURITY / DECLINE n Price pressure caused by overcapacity or lack of product differentiation n Buyer sophistication n Growth of substitute products n No apparent growth sources n Customer disinterest

MARKET PROFITABILITY ANALYSIS n PORTER’S MODEL –Rivalry among competitors –Potential entrants –Substitute products –Bargaining power of customers –Bargaining power of suppliers

DISTRIBUTION SYSTEMS n What are the alternative distribution channels? n What are the trends? n Who has the power in the channel?

MARKET TRENDS n What are the trends? –it helps us to focus on change –it tends to identify what is important n Example: Food Industry – l# Executive Summary

KEY SUCCESS FACTORS n These are the critical assets and skills that provide the bases for competing successfully n Example: Chemi-Dansk – chemidansk/ksf.html

KEY SUCCESS FACTORS n Strategic necessities n Strategic strengths

KEY SUCCESS FACTORS n Which are most critical today? n Which will be critical in the future?

MARKET ANALYSIS-- Summary n We conduct a market analysis to determine market attractiveness and to understand its dynamics. n We conduct a market analysis along seven factors (market size, growth, profitability, trends, costs, distribution, KSF’s).

UNDERSTANDING CUSTOMERS

“The key to failure is trying to please everybody.” (Fortune Cookie)

IDENTIFYING MARKETS TO SERVE CUSTOMER NEED MARKET EMERGENCE MARKET BOUNDARY DEFINITION SERVED MARKET CUSTOMER SEGMENTATION

CUSTOMER NEED n Understand customer needs! n Business strategy can be based on the certainty that needs exist n Key is to expose/discover non- obvious needs

MARKET EMERGENCE n Needs - Market Opportunity - Market Emergence n Must be able to measure market size and market potential

DEFINING MARKET BOUNDARIES n The crux of any strategy formulation is market definition n Can define in terms of –products (home cooking appliance market) –technology (gas, electricity, microwave) –customer functions (bake, roast, fry,...) –customer group (contractors, households)

SERVED MARKET n Should the business serve the entire market or limit itself to serving part of it? n Pages 112 / 113 present a list of factors that may impact selection of served market(s)

CUSTOMER SEGMENTATION n What niches exist within the marketplace? n What opportunities are there that are not being met?

SEGMENTATION n divide a heterogeneous market into homogeneous groups n “The process of placing customers into subgroups so that the buyers in a segment will respond similarly to a particular marketing strategy” (Cravens, 1996)

SEGMENTATION n Market segmentation is warranted when: –market is homogeneous –number of consumers is large –consumers are accessible with particular media and distribution channels –size and consumer characteristics can be measured

SEGMENTATION n Consumer markets: –Demographic descriptors –Geography –Lifestyles (VALS) –Product Usage Rates –Benefits Sought

SEGMENTATION n Business-to-business markets: –NAIC’s htm –Geography –Customer Size –Product Uses

SEGMENTATION n Outcomes: –divide the large mass market into small, similar groups –describe and profile each market

FROM THE TEXT n Pages 101 to 119