Chapters Four & Five Identifying & Analyzing Attractive Markets

Macro Trend Analysis: A Framework for Assessing Market Attractiveness Demographic environment Sociocultural environment Economic environment Political/legal environment Technological environment Physical environment

Threat Matrix Probability of Occurrence HighLow Level of Impact on Company* High Low *Profits or market share or both. Probability of Success HighLow Attractiveness to Company* High Low Opportunity Matrix Compare strengths to opportunities Compare weaknesses to threats

Exhibit 5.2 The Major Forces that Determine Industry Attractiveness Rivalry among existing industry firms Threat of substitute products Bargainingpower of buyers Bargainingpower of 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 new entrants entrants

Segment Rivalry The industry is less attractive if: –numerous strong competitors –stable or declining market –large capacity increments –high fixed costs –high exit barriers

Threat of Substitutes The industry is less attractive if: –numerous current substitutes –numerous potential substitutes

Supplier Power The industry is less attractive if: –suppliers are concentrated or organized –suppliers are few in number –providing critical component –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 a large percentage of buyer’s total costs –your product is undifferentiated –switching costs are low –backward integration is easy –buyer profits are low

Potential Entrants Low Stable Returns Low Risky Returns High Stable Returns High Risky Returns Entry Barriers Exit Barriers Low High LowHigh

If alternative fuel vehicles are a major opportunity for the auto industry, how fast will customers adopt? Early majority 34% Late majority 34% Early adopters 13.5% 16% 2.5% Innovators Laggards and nonadopters 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. © All rights reserved.

Exhibit 5.8 Generalized Product Life Cycle Source: Reprinted with permission from p. 60 of Analysis for Strategic Marketing Decisions, by George Day. Copyright © 1986 by West Publishing Company. All rights reserved. Product category sales (real dollars) Profit per unit (real dollars) Profit/unit Sales Life cycle extension Growth Competitive turbulence MaturityDecline or extension Time (years) Introduction

Exhibit 5.9 Common Product Life-Cycle Curves Source: Adapted from J.E. Swann and D.R. Rink, “Effective Use of Industrial Product Life Cycle Trends,” in Marketing in the ‘80s (New York, American Marketing Association, 1980), pp Unit sales Unit sales Unit sales Unit sales Time I. Growth-decline-plateauII. Cycle-recycle IV. ClassicalIII. Innovative-maturity Intro. Growth Maturity Decline

Competitive Analysis Identify & assess existing and potential competitors at all levels of competition –product market: SUV’s (for all important segments) –product category: Family Cars –generic product: Automobiles –budget category: Transportation