12

ENTREPRENEURSHIP
QUARTER 1– WEEK 5
MODULE 5: Tools to be used to determine product/service
viability, profitability and customer requirement.

MELC: Screen the proposed solution/s based on viability,

profitability, and customer requirement; and select the
best product or service that will meet the market need.

Prepared by: EMERENCIANA H. SALAPARE

 SHS Teacher II

OVERVIEW
One of the traits of an entrepreneur is being innovative opportunity seekers for they
always discover and love new things or ideas and see if these will work in the
marketplace. This is what makes them different from other businessman whose aimed is
just simply to earn profits from producing, buying and selling. But an entrepreneur they
see to it that the product or service they offer in the market will really proposed solutions
based on viability, profitability and customer requirement by means of doing such
research, survey and analysis. And once have just successfully hurdled such analysis and
after being able to assess what enterprise and product/service they intend to put up, they
find out what business opportunities their environment currently offers, and which among
these will be wise to pursue and select the best product/service that will meet the
customer’s need. So in this module we will be discussing how to determine market
viability, profitability and customer requirement for a product or service. This is a little bit
more technical for it entails a considerable degree of experience and expertise to really
appreciate how the tools discussed in this study apply to the business enterprise. And this
module is good for two weeks.

LESSON 5: TOOLS TO BE USED TO DETERMINE PRODUCT AND

SERVICE VIABILITY, PROFITABILITY AND CUSTOMER
REQUIREMENT.

Product due diligence is the approach used to evaluate the viability, profitability and
customer requirement of a given product or service. There are four (4) common tactics
include:
1. SWOT Analysis
2. Identifying Opportunities in the Environment Using Trend Analysis
3. Competitor Analysis.
4. Industry Analysis
 A. SWOT Analysis

A SWOT analysis is used to assess your internal competencies as well as external factors
that could impact your success. SWOT is an acronym for strengths, weaknesses,
opportunities and threats. This framework is sometimes referred to as TOWS, which starts
by identifying threats and opportunities before weaknesses and strengths. Strengths are the
“internal positives of the organization, the assets or valuable resources of the organization
or the enterprise. Examples, state-of-the-art facilities, competitive advantage, and strategic
location of business. Weaknesses are the exact opposites of strengths, these are factors that
are causing negative impacts on company’s performance. Examples, high number of
untrained workers, inefficient distribution channels, and a high amount of liabilities.
Opportunities, on the other hand, are the external positives of the enterprise. In contrast to
strengths and weaknesses, opportunities are outside the control of the enterprise. These are
possible occasions to improve the organization’s resources, quality or productivity. In here,
you have to consider the political, economic, social and technological environments.
Examples, a new regulation increasing import quotas lower personal income taxes etc.
Threats are the external negatives that may inhibit or prevent the organization from
reaching its goals. Analyzing opportunities and threats helps you prepare for market entry
with a clear vision of how to make money, and how to protect against potential pitfalls.
Example, influx of cheap and imported goods to the Philippines is a threat to local
industries offering same products. The figure below illustrates the relationships of the
elements in the SWOT Matrix.

POSITIVE NEGATIVE

S W
Internal

Strengths Weaknesses

O T
External

Opportunities Threats
Proper identification of factors into SWOT elements is very important in order to come up
with effective strategies to make sure that the product/service you offer to the market is
viable, profitable and it is the needs of the customers that will really satisfy them.

B. Business Opportunity Identification Using Trend analysis

Let us go the external environment. After being able to assess your enterprise, then try to
find out what business opportunities your environment currently offers, and which among
these will be wise to pursue by using trend analysis. Trend analysis is a technique used
in technical analysis that attempts to predict the future stock price movements based on
recently observed trend data. Trend analysis is based on the idea that what has happened in
the past gives traders an idea of what will happen in the future. (www.investopedia.com)

C. Competitor Analysis
Competitor analysis involves a comparison of your product or service features, strengths
and weaknesses relative to those offered by competitors. After identifying some possible
opportunities you can now further scrutinized these opportunities by answering the guide
questions below to help you decide what business or product/service to set up or how you
can improve a current one to meet customer’s needs.
1. Who are the competitors?
2. Among these competitors, who are my direct competitors?
3. Among these competitors, who are my indirect competitors?
4. At what prices do my competitors sell their product?
5. How do they distribute their products to make these accessible to their customers?
6. What is their relative size and market share?
7. Is there still a portion of the market I can make as target market? Is there a
“neglected” part of the market my competitors don’t offer products to that I can
make my target market?
8. What can make my intended products different from those of my competitors?

D. Industry Analysis
An industry analysis is a review of the current scope of an industry and the types of goods
being offered. After identifying your competitors you can see now the bigger picture. Take
note that before an entrepreneur enters into the industry, they conduct first an industry
analysis to let them assess their capability to set up, operate and sustain the business
enterprise. In conducting industry analysis below are the guidelines adapted from the Five
Forces Model of Michael Porter of Harvard University. Porter is known for his extensive
research on competition and competitive strategy, and his studies are widely used by
professionals, regulators, and businesses. These elements are shown below.

Barriers to
Entry

Bargaining Bargaining
Power of Power of
Suppliers Porter’ Buyers
s Five
Forces

Threat of Rivalry of
Substitutes Competition

1. Barriers to Entry. The threat of entry by new competitors. Barriers to entry

determinants include economies of scale, product differentiation, capital
requirement, access to distribution channels, government policies, resource
exclusivity, and industry growth rate. These are the factors that tend to raise barriers
to the entry of competitors.
 Are there government policies existing that may enhance or hamper my entry
into this industry?
 What cost disadvantages will I encounter in the operation of my business?
 What costs will I encounter due to distribution?
  What costs will I encounter in encouraging my customers to switch their
current brand to mine? What costs will there be if my customers switch from
my brand to other newer brands?
 How much capital do I need to make my product different from the other
brands?
 How much products do I need to produce to reach economies of scale? Do I
have the advantage in increasing this scale?
(Note: The easier competitors can enter the industry, the more competitors you will
have. The harder to penetrate the industry, the less competitors.)
2. Bargaining Power of Suppliers. Determinants of supplier power include supplier
concentration, availability of substitute inputs, supplier’s product differentiation,
buyer’s switching cost to other inputs, supplier’s threat of forward integration, and
buyer’s threat of backward integration. This item assesses how much influence do
suppliers have.
 Is the industry dominated by a few or many suppliers?
 How concentrated or dispersed are these suppliers compare to the buyers?
 Are there or are there no substitutes for these supplies?
 How many important customers do suppliers have?
 Is the supplier’s input or contribution critical to the industry?
 How high or how low are switching costs of enterprise if they switch from
one supplier to another?
(Note: If the answers to these questions tend to favour suppliers, suppliers have the
upper hand. If answers tend not to be in their favour, suppliers tend to have less
influence.)
3. Bargaining Power of Buyers. The bargaining power of buyers impacts industry
structure. It points to the influence of consumers on product/service prices in the
industry. Common determinants are number of buyers relative to sellers, product
differentiation, switching costs to use other products, buyer’s threat of backward
integration, and buyers volume. This item measures how much influence do buyers
possess.
 How concentrated or dispersed is the bargaining power of buyers?
 Do buyers buy in volume or in smaller quantities?
 Do buyers prefer standardized or differentiated products?
  Do buyers experience high or low switching costs?
 Does the industry experience low profit margins from these buyers?
 How important is the product to the buyers?
 How much relevant information do the buyers have regarding the product?
(Note: The more favourable the answers are to the buyers, the greater is their
bargaining power. The less favourable, the less the bargaining power.)
4. Threat of Substitutes. Substitutes refer to goods or services that satisfy the same
consumer need as another good or service. The main determinants of the threat of
substitutes include price of substitute products, relative quality of substitutes, and
switching costs to buyers. Pressure from substitutes products. This item measures
the threat presented by substitute products.
 How many close (direct) substitutes does the industry have for the product I
am considering?
 How many not-so-close (indirect) substitutes does the industry have for the
product I am considering?
 How differentiated are these substitutes?
 What advantages or disadvantages will my product have over these substitute
products?
 How different will my product be from these substitutes?
(Note: If there are more close substitutes that tend to be more superior, the harder it
is to compete. The fewer substitutes there are and more varied features from one
another, the easier it will be.)
5. Rivalry of Competition. The intensity of rivalry among existing competitors.
Determinants of industry rivalry include the number of competitors and
concentration, relative size of competitors, industry growth rate, fixed costs versus
variable cost, product differentiation, diversity of competitors, and exit barrier.
These factors tend to increase or decrease the rivalry among the existing
competitors.
 How many rivals are there in the industry – few or numerous?
 Is the rivalry equally balanced or does it tend to favour some over the others?
 What is the growth scenario in this industry? Do competitors grow slowly or
at a rapid pace? What do I expect with the growth of my business enterprise?
  How high or how low are the fixed costs of rival firms? Could I be at par
with them?
 How differentiated are products in this industry? Could my product be any
different?
 How high or how low are switching costs? Could I afford these costs?
 What is the standing of these enterprise in terms of incremental production
capacity?
 How many competitors will my enterprise really have? How diverse is this
competition?
 How high or how low are the stakes or risks in this industry?0Could I afford
to take these risks?
 How easy or difficult is it to leave or exit this industry?
(Note: The greater the rivalry among firms, the less profitable it will be for a
business enterprise. The less the rivalry, the better for your business.)

DEVELOPMENTAL ACTIVITY
Directions: Categorize the following as strength, weakness, opportunity, or threat. Support
your answer by giving a brief explanation.
Example Category Explanation
1. Strategic location
of business _________________________
2. Influx of cheap and
imported goods to
the Philippines _________________________
3. Imposition of
import quotas _________________________
4. Inefficient
 distribution _________________________
channels
5. Competitive
advantage _________________________

II. Directions: Identify at least three (3) trends in the environment/problems encountered
with the products you use as possible sources of business opportunities. List them below and
refer to them as you complete the table.
Some Current Trends Possible Business Opportunities
1. 1.
2. 2.
3. 3.

WORKSHEET

Part 1. True or False

Direction: Write the word “TRUE” if the statement is correct and “FALSE” if it is incorrect.

_____ 1. The reciprocal of the factors involved in computing the ROI is the profit margin.

_____ 2. In analyzing the intensity of rivalry among existing competitors, one should assess
how High or low are switching costs.

_____ 3. Threats are considered the external negatives to business organizations.

_____ 4. Strengths are considered the external positives to an enterprise/business

organization.

_____ 5. Opportunities are possible occasions to improve the enterprise/business organization

resources, quality or productivity.

_____ 6. In analyzing the bargaining power of a supplier one should ask the question, “Are
there no substitutes for these suppliers?”

_____ 7. In identifying opportunities in the environment one should determine and evaluate
the rrivalry.
_____ 8. Supplier Information is important in conducting an Industry analysis.

_____ 9. Special Products are products which can be used to replace an existing product with
the same purpose or use.

_____ 10. The more players in the industry are, the greater the competition.

Part 2: Multiple Choice

Directions: Read each question carefully then choose the correct letter that best describe the
concepts/statements. Write the letter on the space provided before each item.
__1. These are internal positives, assets or valuable resources of the enterprise.
A. Opportunities C. Strengths
B. Business opportunity D.Competitive Advantage
__2. It refers to the assessment of enterprise internal and external environment specifically its
strengths, weaknesses, opportunities and threats.
A. Trend Analysis C. SWOT Analysis
B. Competitor Analysis D. Industry Analysis
__3. It is the approximate time needed to recover the initial investment.
A. Payback Period C. Holding Period
B. Recovery Period D. Return Period
__4. These are considered as internal negatives.
A. Weaknesses C. Business Limits
B. Threats D. Weak Points
__5. It is computed by dividing the potential profit per year by the total amount of the
investment.
A. Asset Turnover C. Profit Margin
B. Return on Investment D. Residual Income
__6. These are the external negatives that prevent the enterprise from reaching its goals.
A. Risks C. Threats
B. Weaknesses D. Opportunities
__7. The following questions are helpful in identifying possible opportunities EXCEPT
A. How easy or difficult is it to leave or exit this industry?
B. Who are my competitors?
 C. How do they distribute their products to make these accessible to their
customers?
D. Is there still a portion of the market I can make as target market?
__8. Determinants that tend to raise barriers to the entry of competitors include the following
EXCEPT
A. Economies scale C. Government policies
B. Capital requirement D. Number of competitors
__9. In conducting an industry analysis, guide questions are adapted from the Five Foces
Model contributed by
A. Peter Porter C. Michael Porter
B. Peter Drucker D. Michael Drucker
__10. A technique used in technical analysis that attempts to predict the future stock price
movements based on recently observed trend data.
A. SWOT Analysis C. Competitor Analysis
B. Industry Analysis D. Trend Analysis
KEY ANSWER
Activity 1: Categorize and Explain

Example Category Explanation

1. Strategic location This is an enterprise strength
of business Strength because if you have strategic
location you can attract and
retain best employees which
can boosts company’s
performance. Also you can
attract more customers to
your outlet. So a well
located store make supply
and distribution easier.
2. Influx of cheap and This is a threat because
imported goods to imported goods increases
the Philippines Threat competition and cuts local
producers profits.
3. Imposition of This is an opportunity
import quotas Opportunity especially if your enterprise
rely on imports of raw
materials
4. Inefficient I consider this as weakness
distribution because you could not reach
channels Weakness all your target market.
5. Competitive This is strength because you
advantage Strength can make this to give a
higher price for your
product/service which gives
you more profit or income.

Activity 2: Complete the Table for Business Opportunity Identification Using Trend
Analysis
Note: answers vary. These are only one of the possible answers.
Some Current Trends Possible Business Opportunities
1. Phone system devices including Plant Shop
smartphones
2. Bakeware Online Business
3. Personal Protective Materials such as Thrift Shop (Ukay Ukay)
face masks, face shield and etc.

WORK SHEET
Part 1. True or False

1. True 6. False
2. True 7. True
3. True 8. False
4. True 9. False
5. True 10. True

Part II. Multiple Choice

1. C 6. C
2. C 7. A
3. D 8. D
4. A 9. C
5. B 10.D

References:
A. Book
Boado, S.A.(2017). Applied Economics. Makati City, Philippines: Diwa Learning
Systems Inc.
Azarccon et.al. (2008).Entrepreneurship Principles and Practices. Baguio City:
Valencia Educational Supply. Page 7-16

B. Online and Other Sources

https://www.envestopedia.com
https://bizfluent.com
https://www.bigcommerce.com
https://strategicmanagementinsight.com