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2 - Defining a Market

2 - Defining a Market

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Published by Adrien Ramesan

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Published by: Adrien Ramesan on Nov 13, 2013
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Defining a Market
What is a market?
A group of individuals or organization (buyers) having the willingness and ability to buy goods or services to satisfy a particular class of wants or needs.
Markets MUST be seen from the customer’s point of view, it’s the market definition of
business rather than the product definition of a business.
To the buyer the product is what it does What is sought is a solution to a problem Different technologies can produce same function Technologies are fast changing, while generic needs are stable
3 Dimensions
What are the solutions sought in a given market?
What is being satisfied?
Who are the different groups of customers searching for these solutions? 
Who is being satisfied?
What are the alternative technologies available to produce these solutions?
How buyer’s needs are satisfied? 
How attractive is a market: Defining market size
Helps in the definition of market share
Allows manager to distinguish between: The penetrated market
(the set of
consumers who are buying the company’s product)
The potential market
(the maximum of what would be feasible)
total population is made of users of the company’s product (
penetrated market
), users of the
competition’s product, relative non
-users and absolute non-users. The
potential market
 is composed of the
penetrated market
, some of the relative non-users and
some of the competition’s users. The
target market
 is equal or inferior to the
potential market
. It is relative to the potential market that you c
an evaluate a company’s performance.
 potential market
is the estimated maximum total sales revenue reachable by all suppliers of a product/service in a market during a certain period for a given marketing environment.
 (   )
market saturation rate
 is the
actual total sales of all suppliers
 of a product/service divided by the market potential of that product/service. The
market penetration rate of company
 is that
company’s t 
otal sales
 in the market divided by the market potential for this market. The
market share
 is the
 percentage of all sales
within a market that is held by one brand/product/company. It can be general:
The company’s own sale divided by the total sales of all 
 companies in the market
or relative:
Market share of the company divided by market share of its major competitor(s)
How attractive is a market: Market and submarket growth
Market growth is a very important criterion Increased sales may be expected with a stable market share in a growing market If the market sales decline competitors may leave the market If the aggregate market size declines, there may be submarkets that grow
When examining market growth the product life cycle should be considered
Product development
Sales haven’t started 
 Profits become negative with investments Few buyers, trial of early adopters Few competitors
 Sales start Profits start going back to 0
Both sales and profit are up and running above 0 Growing adopters Entry of competitors, attempt to achieve trial, fight for share, undifferentiated products
Sales continue to grow fast Profits grow in at a slower pace Growing selectivity of purchase May be many competitors, likely price-cutting for volume, shakeout of the weakest
 Eventually sales and profit hit a wall and decline Saturation of users, repeat purchase reliance Fight to maintain share, difficult gaining share, emphasis on efficiency/low cost
 Both tend to 0 Drop off in usage Exit of some competitors Selective distribution
How attractive is the market: Sensitivity to economic and seasonal trends
Markets in which sales are very sensitive to economic or seasonal trends tend to be less attractive than markets in which this is not the case
Sensitivity to economic trends occurs especially with luxury goods, which are often durable consumer goods

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