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2 Framing the Market Opportunity chapter McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
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Framing the Market Opportunity — Today’s Objectives
Objectives will be to: Introduce the framework for market opportunity analysis Examine three basic “value-types” Discuss the identification of unmet and under-served needs Explore how customers are segmented and targeted Examine the role of resources in evaluating market opportunities Discuss how to assess the attractiveness of a market opportunity Examine eBay’s market opportunity
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Chapter 2: Framing the Market Opportunity
Market Opportunity Analytic Framework Three Basic “Value Types” Use of the Customer Decision Process to Identify Unmet and Underserved Needs Segmentation and Targeting The Role of Resources in Evaluating Market Opportunity Assessing the Attractiveness of a Market Opportunity EBay’s Market Opportunity Conclusion
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Chapter 2: Framing the Market Opportunity
Market Opportunity Analytic Framework Three Basic “Value Types” Use of the Customer Decision Process to Identify Unmet and Underserved Needs Segmentation and Targeting The Role of Resources in Evaluating Market Opportunity Assessing the Attractiveness of a Market Opportunity EBay’s Market Opportunity Conclusion
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Framework for Market Opportunity
Seed Opportunity in Existing New Value System Influenced by the New Economy Competition occurs across industries rather than within industries Competitive behavior occurs at unprecedented speed Competition occurs between alliances of companies rather than between individual companies Easier to influence customer behavior because still in early stages of being defined Industry value chains are being reconfigured Identify Unmet and Underserved Need(s) Identify Target Segment(s) Declare Company’s Resource-Based Opportunity for Advantage Assess Competitive, Technical, and Financial Opportunity Attractiveness Make “Go / No Go” Assessment
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Exhibit 2.1: Framework for Market Opportunity
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Chapter 2: Framing the Market Opportunity
Market Opportunity Analytic Framework Three Basic “Value Types” Use of the Customer Decision Process to Identify Unmet and Underserved Needs Segmentation and Targeting The Role of Resources in Evaluating Market Opportunity Assessing the Attractiveness of a Market Opportunity EBay’s Market Opportunity Conclusion
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Exhibit 2.2: Three Types of Basic Value
Trapped Value New-to-the-World Value More Efficient Markets More Efficient Value Systems Disrupt Pricing Ease Access Radically Extend Reach Customize Offerings Build Community Introduce New Functionality or Experience Hybrid Value
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Exploring Basic Value New-to-the-World Value Trapped Value
More efficient markets lower search and transaction costs Bizbuyer.com Lending Tree Inc. OffRoad Capital Corp. More efficient value systems compress or eliminate steps in an existing value system Amazon.com New-to-the-World Value Customizing offerings allows customers to add and remove features Yahoo Quicken.com Build communities to leverage customers’ participation Zeal.com Introduce new functionality to transform all or part of an industry value chain e-books Internet telephony Hybrid Value Disrupt pricing and change pricing-power relationships MySimon.com Enable ease of access and help customers find products Abebooks.com Extend reach and welcome distant customers Distance education
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Chapter 2: Framing the Market Opportunity
Market Opportunity Analytic Framework Three Basic “Value Types” Use of the Customer Decision Process to Identify Unmet and Underserved Needs Segmentation and Targeting The Role of Resources in Evaluating Market Opportunity Assessing the Attractiveness of a Market Opportunity EBay’s Market Opportunity Conclusion
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Customer Decision Process
A framework to look systematically for unmet or underserved needs Origination What prompts the customer to action? Pre-purchase Information Gathering What factors influence the customer’s decision? Because value creation is based on understanding and meeting customer needs. Evaluation What attributes of the product does the customer consider? Purchase Decision What options does the customer identify? What decision(s) does he make? Purchase Post- purchase Postpurchase Evaluation and Behavior What does the customer do about his decision?
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Exhibit 2.3: Decision for Purchasing a Camera
Origination Personal use Gift Features Type (digital/film) Cost Brand/ manufacturer Information Gathering Pre-purchase Evaluation Complexity Usage occasions Reviews Past Experiences Budget constraints Film Digital Instant Body Type Lens Purchase Decision Purchase 35mm APS Basic Fully loaded Throw-away Standard SLR Point & shoot Zoom Fixed Postpurchase Evaluation and Behavior Post- purchase Print quality Reliability Learning curve/ ease of use Range of accessories Likelihood of repeat purchase or recommendation
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Vacation Travel Destination Decision
Origination Event Break Holiday Honey-moon Reunion Information Gathering Number and Relationship of Travelers Budget Duration and Distance Activities Weather Pre-purchase Travel Agent Travel Guides Past Experiences Evaluation Books Brochures Chat rooms Vacation Package Independently Planned Purchase Decision Purchase World Tour Cruise Small-Town Discovery Beach Escape Outdoor Adventure Comfort Style Photos Degree of Memorability Postpurchase Evaluation and Behavior Post- purchase Likelihood of Repeat or Referral
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Chapter 2: Framing the Market Opportunity
Market Opportunity Analytic Framework Three Basic “Value Types” Use of the Customer Decision Process to Identify Unmet and Underserved Needs Segmentation and Targeting The Role of Resources in Evaluating Market Opportunity Assessing the Attractiveness of a Market Opportunity EBay’s Market Opportunity Conclusion
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Exhibit 2.4: Segmentation Approaches
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Effective Segmentation Requirements
Meaningful Customers must demonstrate needs, aspirations or behavioral patterns that are similar within a segment and different across segments A distinction between a price-sensitive and a quality-seeking segment is meaningful, since the two segments demonstrate distinguishable sets of needs Actionable A company must be able to reach customers within each segment through effective and targeted marketing programs A customer segment consisting of customers with blue eyes is not actionable, since it is very hard to identify and reach only customers with blue eyes Substantial Segments must be large and profitable enough to make the investment in serving them worthwhile MyCFO.com is targeted toward high-net-worth individuals, helping them manage their portfolios; even though the number of those individuals is small, the dollar amount managed is sizeable, thus constituting a substantial segment Measurable Key characteristics of the segments (e.g., size and spending patterns) must be easy to measure Source: Philip Kotler, Marketing Management (1997), p. 269
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Exhibit 2.6: Consumer Digital Camera Purchasing Segmentation
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Consumer E-Books Purchasing Segmentation
Purchase Occasion Self-Consumption Gift Institutional By Request Reader Reference and Research Materials Hobby or Special Interest For Display In-Depth Topical Insights and Discussion Required Reading Comp-endium by Topic College Education Moderate Education Entertainment How-To Information How-To Information Advice and Recom-mend-ations Limited Education
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Number of E-Books Purchased
Purchase Occasion Self-Consumption Gift Institutional By Request Reader Reference and Research Materials Hobby or Special Interest For Display In-Depth Topical Insights and Discussion Required Reading Comp-endium by Topic College Education Moderate Education Entertainment How-To Information How-To Information Advice and Recom-mend-ations Limited Education High Moderate Low
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Ideal E-Book Delivery Mechanisms
Purchase Occasion Self-Consumption Gift Institutional By Request Reader Reference and Research Materials Hobby or Special Interest For Display In-Depth Topical Insights and Discussion Required Reading Comp-endium by Topic College Education Moderate Education Entertainment How-To Information How-To Information Advice and Recom-mend-ations Limited Education New Economy Either Traditional
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Amazon.com Homepage for Two Different Customers
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Chapter 2: Framing the Market Opportunity
Market Opportunity Analytic Framework Three Basic “Value Types” Use of the Customer Decision Process to Identify Unmet and Underserved Needs Segmentation and Targeting The Role of Resources in Evaluating Market Opportunity Assessing the Attractiveness of a Market Opportunity EBay’s Market Opportunity Conclusion
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Specifying a Resource System
Identify core benefits in the value proposition or cluster Identify capabilities that relate to each benefit Link resources to each capability Identify to what extent the firm can deliver each capability Identify partners who can complete capabilities
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Assessing the Quality of a Resource System
Uniqueness Good resource systems provide benefits, capabilities and activities that are different from those of competitors Links Good resource systems have links between capabilities and benefits, among capabilities, among resources, and between virtual-world and physical-world business systems Sustainability Good resource systems are difficult for competitors to replicate Source: Philip Kotler, Marketing Management (1997), p. 269
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Chapter 2: Framing the Market Opportunity
Market Opportunity Analytic Framework Three Basic “Value Types” Use of the Customer Decision Process to Identify Unmet and Underserved Needs Segmentation and Targeting The Role of Resources in Evaluating Market Opportunity Assessing the Attractiveness of a Market Opportunity EBay’s Market Opportunity Conclusion
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Exhibit 2.8: Competitor Profiling — Eastman Kodak
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Exhibit 2.12: Kodak’s Overall Opportunity Assessment
Positive Factor Neutral Factor Negative Factor Competitive Vulnerability Technical Vulnerability Magnitude of Unmet Need Interaction Between Segments Likely Rate of Growth Technological Vulnerability Market Size Level of Profitability
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Chapter 2: Framing the Market Opportunity
Market Opportunity Analytic Framework Three Basic “Value Types” Use of the Customer Decision Process to Identify Unmet and Underserved Needs Segmentation and Targeting The Role of Resources in Evaluating Market Opportunity Assessing the Attractiveness of a Market Opportunity EBay’s Market Opportunity Conclusion
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Exhibit 2.13: EBay’s Financial Growth
Again, left axis might be better named “Millions of dollars” if MM stands for million. Also, what does the (E) after 2000 stand for? Estimated?
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Exhibit 2.14: Market Share — EBay
Yahoo 3% Amazon 2% Egghead 5% uBid 17% Better title? eBay 73%
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Exhibit 2.15: EBay — Defining the Value System
Trapped
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Exhibit 2.16: EBay — Unmet and Underserved Needs
Auction House / Dealer Seller Buyer Realize he or she would like to sell something Like to browse or have a specific interest or need Notification of when specific items are being sold Research the value of the item and a possible channel for exchange Research venues / channels for procurement Easy channel / venue access Objective listing agent Pre-Purchase Choose exchange agent and negotiate terms Establish and agree to selling / buying process Choose procurement channel Passive search and decision process Easy listing process and objectives Ability to list modestly priced items Deliver merchandise Set auction schedule and choose venue Determine appropriate schedules and locations Improved availability and access Simplified shipping; elimination of two-stage process Hold auction Attend auction Conduct preliminary research on items Time to conduct due diligence research on items Purchase Bid Time to think about purchase Win? Receive payment Pay Ease of payment Post-Purchase Take commission Receive merchandise Reasonable agent fees Receive payment Pass a percentage of proceeds to seller Minimized time lag between merchandise surrender and compensation
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Exhibit 2.17: Potential EBay Customers
History of Responding to Promotions High Income Active Deal-Makers with Means Active Frugal Collectors Passive Collectors Ease Convenience Moderate Income Active Frugal Collectors Limited Income Price-Sensitive Limited Accessibility or Options
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Exhibit 2.18: EBay Overall Opportunity Assessment
Positive Factor Neutral Factor Negative Factor Competitive Vulnerability Magnitude of Unmet Need Interaction Between Segments Likely Rate of Growth Technological Vulnerability Market Size Level of Profitability
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Chapter 2: Framing the Market Opportunity
Market Opportunity Analytic Framework Three Basic “Value Types” Use of the Customer Decision Process to Identify Unmet and Underserved Needs Segmentation and Targeting The Role of Resources in Evaluating Market Opportunity Assessing the Attractiveness of a Market Opportunity EBay’s Market Opportunity Conclusion
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Framing the Market Opportunity — Conclusion
A firm needs to follow a rigorous approach to correctly isolate market opportunities — the market opportunity analysis framework is a six- stage process that addresses this need The six stages of the framework are: 1) seed opportunity in an existing new value system, 2) identify unmet and underserved need(s), 3) identify and choose target segments, 4) declare the company’s resource-based opportunity for advantage, 5) assess competitive, technological and financial opportunity attractiveness and 6) conduct a “go/no-go” assessment In assessing the attractiveness of an opportunity, four dimensions should also be considered: 1) competitive intensity, 2) customer dynamics (e.g., unmet needs, likely rate of growth, etc.), 3) technological vulnerability and 4) microeconomics (industry size and profitability)
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