Chapters Four & Five Identifying & Analyzing Market Opportunities

Seven Domains of Attractive Opportunities Team Market Industry Macro Micro Market Attractiveness Industry Attractiveness Target Segment Benefits & Attractiveness Sustainable Advantage Mission Aspirations Risk Propensity Ability to Execute 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 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 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 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

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 MethodAdvantagesDisadvantages Statistical Best for established situations (historical data readily available) Can be VERY wrong at times of rapid change Observation Relies 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’ Analogy Good 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 Market Live 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? Early majority 34% Late majority 34% Early adopters 13.5% 16% 2.5% Innovators Laggards and 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. © All rights reserved. See Exhibit 5.7: Cell Phones vs. PC’s Example: alternative fuel vehicles for the auto industry

Keys to Good Forecasting n Make assumptions explicit n Debate the assumptions, not the forecast n Collect data to verify or refute the assumptions n Use multiple methods n Provide a range, not a single number n Track progress & issue regular updates