RESEARCHING AN OPPORTUNITY Session 5

Why research? Start by defining product/service and understand its core benefits. What makes it stand out – price, quality, service? What are your customers characteristics? What is the likely level of demand from them? Try to ascertain your own market position and market share. How much good competition is there? What are customers preferences and what are their spending and buying habits.

Why research? What are customers needs and wants...what problem do you solve? What level of service, quality and price do customers want? How long will it take you to market your products? How will you communicate with your market? How many will you sell and over what timescale? What do you need to sell to breakeven? Is the market growing, declining or static, what are the forecasts and trends? Where will you trade from?

The market review This sets the scene – it provides a solid (factual) base for determining the marketing objectives. You should be reviewing: 1.The market, its size, trends, segmentation, the elasticity of demand for the product, the potential impact of political, economic, social or technological change. 2.The competition – direct and indirect - focusing on their strengths and weaknesses, the opportunities and threats 3.Potential customers – their number, frequency of purchase, purchasing habits and so on. 4.The business itself - its strengths and weaknesses. Kirby (2003, )

The Market – explore it You need to become an expert in your product area. Who is offering what? Where and from whom do customers buy? What do customers think of their existing supplier and their product/services? How could you persuade them to use you? What could you do to persuade them to switch?

Sources of information The web Yellow pages Local newspapers/directories Business Link Competitors websites and brochure – request information, test their market. Chamber of Commerce directories Companies House Trade association lists and publications.

Tools for evaluation – the technical bit Porter’s Five Forces – to help you to evaluate how attractive a market is. PEST(EL) – Political, Economic, Social, Technological, Legal and Environmental SLEPT – Social, Legal, Economic, Political, Technological STEEPLED – Social, Technological, Education, Economic, Political, Legal, Environmental, Demographic Strategic Group Mapping (SGM) - critical success factors SWOT Boston Matrix

Porters five forces Aims to analyse the attractiveness of a market by looking at a businesses opportunity’s ability to create and sustain profit based on how many other players are in the market niche, how easy it is to enter the market and on the bargaining power of buyers and suppliers. Mellor, Coulton, Chick, Bifulco, Mellor and Fisher (2009: 45-62) ‘Entrepreneurship for Everyone.’ Sage: London

Porters Five Forces + 1 Rivals or competitors already in the marketplace Potential Competitors Customers purchasing power Alternative products and services Suppliers position in the marketplace The 6 th force – lobby or interest groups.

Porter’s Five Forces, plus 1 Rivals or competition already in the market Potential Competition Customers purchasing power Alternative products and services Suppliers position in the market 6 th force: interest groups Mellor et al (2009: 45-62) Cited in ’Entrepreneurship for Everyone’ London: Sage Bargaining power Threats of substitution Bargaining power New products

Rival already in the market Is there rivalry already amongst sellers in the market? How many are there and how hard do they fight? Lots of competitors makes it hard to enter the market. Johnson, Scholes and Whittington (2005: )

Potential Competition Economies of scale – can be vital to some industries or sectors, but technology also makes niches viable. Cost of entry to a market – low cost of entry can be an asset and an inhibitor, depending on the sector. Assess to supply and distribution channels – how will you serve your market? Customer and supplier loyalty – will they stay with you or shift to a new supplier. Experience – how quickly you learn and adapt to the market. Differentiation -

Alternatives products and services Substitution can take many forms – Product for product – direct replacement of one product or service for another. It may that complementary services can be offered. Substitution of need – product enhancements can make some services/products redundant. Generic substitution – New TV or a holiday?

Suppliers Position in the market Supplier power increases if they have a wide range of clients. Incentives can concentrate supplier in one direction. E.g. education funding for maths and English. The costs of moving from one supplier to another can be time consuming and expensive – therefore prohibitive. Suppliers competing directly with their buyers.

Buyer power Buyers can squeeze suppliers, especially if they are in a volume market. Cost of switching can be high. Backward integration – if the cost of buying materials becomes too high, source it yourself.

The 6 th Force The 6 th force might be a lobbying group – one who neither you or the other competitors have any control over. It can work in your favour or against you depending on your market/product or service.

Purpose of Porter To see if one industry or sector is more attractive than another – the industry is attractive when the forces are weak. What are the underlying forces driving the market? – Need to use with PESTEL. Is it likely that the forces will change? What is happening in the market that will impact on your business or idea? Evaluate if and how you can change the balance of power.

Purpose of Porter To see if one industry or sector is more attractive than another – the industry is attractive when the forces are weak. What are the underlying forces driving the market? – Need to use with PESTEL. Is it likely that the forces will change? What is happening in the market that will impact on your business or idea? Evaluate if and how you can change the balance of power.

PESTEL Political Economic Socio-cultural Technological Environmental Legal Key purpose - to evaluate the key drivers for change in your sector. Not all will impact all the time, but some will. Understanding these will help you to identify opportunities and threats.

PESTEL The Organisation Legal: Competition; Employment; H & S Product Political: Government stability Tax; Trade; Welfare Economic Environmental Technological Socio-cultrual

PESTEL Political - government stability, taxation policy, social welfare policy Economic - interest rates, money supply, VAT, unemployment, disposable income. Socio-cultural – lifestyle changes, social mobility, levels of education, work and leisure. Technological – obsolescence, new discoveries and developments, speed of technology transfer. Environmental - energy cost and consumption; new laws, waste disposal, Legal – health and safety, employment, competition.

SWOT StrengthsWeaknesses OpportunityThreat Idea

Boston Matrix High Low HighMarket Share Growth of Market 10 x 1 x 0.1x Relative market share 10 % 20 % 0%

Boston Consulting Group Cash cow – large share of an existing market, investment will not yield higher return. A Star has a large share of a growing market – more investment will yield large returns. When the market stops growing it becomes a cash cow. Question mark (or problem child) – has a small share of a growing market. It needs a lot of investment to grow. A Dog – has a small share of a market that is not growing, further investment questionable.

Growth-Share Matrix The market growth rate is the annual percentage growth rate of the market you operate in. Growth rate above 10% is considered high. Relative market share is the product or units market share relative to its nearest competitor. It helps to demonstrate the company’s (products) strength in the sector. A products market share that is 0.1 is only 10% of the market leaders share. You don’t want too many dogs or question marks.