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To determine the attractiveness of a market ( or submarket) to current and potential participants. Market attractiveness, the firms profit potential as measured by the long term ROI achieved by its participants, will provide important input into the product market investment decision To understand the dynamics of a market
Emerging Submarkets
Relevance
Hybrid
Having great products is not enough. You need to make what customers want to buy. - David Aaker
Determ ine Select Product Brands Category or to Subcategory Consid er SUV Lexus BMW Mercedes
Emerging submarket
The challenge is to detect and understand emerging submarkets, identify those that are attractive to the firm, given its assets and competencies, and then adjust offerings and brand portfolios in order to increase their relevance to the chosen submarkets.
A) Product or service can be augmented or expanded to include a new dimension. Eg cell phones with cameras B) Market can be broken into niches. Eg an energy bar fragmented into : High Protein For women Low calories Apple Crunch Oats N Honey Each of these niches is an area for which the original Power Bar was not relevant
C) Application scope can be expanded from components to systems or turnkey solutions ie.an aggregation into submarkets. Siebel in the 1990s created Internet based CRM solutions by aggregating a host of application areas including customer loyalty programmes, call centres ,sales force automation D) Emergence of a new and distinct application can define relevant brand options. ( Eg, Bayer 81 mg Baby Aspirin and later Enteric Safety Coating for minimizing adverse effects of regular aspirin usage on the stomach.
E) A product class can be repositioned eg Starbucks repositioning the retail coffee market F) A customer trend can drive a submarket. Eg, Wellness and Herbs etc has given rise to HRB ( Healthy Refreshment Beverages) G) New Technology Notebook computers, I phones, hybrid cars can drive the perception of a submarket. H) A whole market can be invented eg e Bay creating an online auction.
Market Size
Actual market size is the starting point of the analysis of a market or submarket. In addition to this the potential market needs to be considered. A new use, new user group, or more frequent usage could dramatically change the size and prospects for the market. However, potential must not only be recognized but the marketer must have the vision and strategy in place to exploit it.
Special cases
Ghost potential Need for computers in many underdeveloped countries but low buying power and government regulations make it impossible for companies to operate in these markets. Large companies often cannot operate in smaller markets as the growth rate is low as compared to the companys desired levels. This can be an opportunity missed.
Driving Forces
The most strategic uncertainty involves prediction of market sales. A strategic investment decision will often depend on understanding the driving forces behind the market dynamics.
Forecasting growth
Historical data is useful but needs to be used with care. What is more useful strategically is prediction of turning points , ie times when the rate and perhaps direction of growth change. Leading indicators of market sales include demographic data and sales of related equipment /products
Figure 4.1
Cost Structure
Major cost and value-added components for various types of competitors?
Figure 4.1
Michael Porter has identified 5 forces that determine the intrinsic long run attractiveness or profitability of a market or market segment.
Industry Profitability
Source: Adapted from Michael E. Porter, Industry Structure and Competitive Strategy: Keys to Profitability Financial Analysis Journal,July-August 1980,p.33.
Figure 3-2
Intra-Industry Rivalry
Strategic Business Unit
A segment is unattractive if both entry and exit barriers are high. Worst case where entry barriers are low but exit barriers are high.
A segment is unattractive when there are actual or potential substitutes for the product
A segment is unattractive if the companys suppliers are able to raise prices or reduce quantity supplied.
The intensity of rivalry, which is the most obvious of the five forces in an industry, helps determine the extent to which the value created by an industry will be dissipated through head-to-head competition.
This force is located at the centre of the diagram; Is most likely to be high in those industries where there is a threat of substitute products; and existing power of suppliers and buyers in the market.
Both potential and existing competitors influence average industry profitability. The threat of new entrants is usually based on the market entry barriers.
Bargaining power of suppliers exists in the following situations: Where the switching costs are high (eg.switching from one Internet provider to another); High power of brands (McDonalds, British Airways, Tesco) Possibility of forward integration of suppliers Fragmentation of customers (not in clusters) with a limited bargaining power (Gas/Petrol stations in remote places).
" The nature of competition in an industry is strongly affected by the suggested five forces. The stronger the power of buyers and suppliers, and the stronger the threats of entry and substitution, the more intense competition is likely to be within the industry. "
Market Trends
It is crucial to distinguish between trends that will drive growth and reward those who have adopted differentiated strategies and Fads that will only last long enough to attract investment that is subsequently underemployed or lost forever.
Competitive Risk Overcrowding Superior competitive entry Market Changes Changing KSFs New technology Disappointing growth Price instability
Figure 4.5