Topic 6

Market research and strategy

formulation

Prepared by Thierry Volery

Swiss Institute of Entrepreneurship and Small Business
University of St Gallen
 Chapter outline
• Explain the types of secondary research
sources commonly available
• List some common forms of primary
market research
• Explain the different perspectives on
strategy
• Outline the key steps of strategy
formulation for new business ventures
 Learning objectives
• List the types of secondary information
sources commonly available
• List some common forms of primary
market research
• Explain the different perspectives on
strategy
• List the key steps of strategy formulation
for new business ventures
The role of market research
• One of the most common problems faced
by entrepreneurs is a lack of information
that relates to their business idea
• There is now much evidence to show that
a lack of research is a key inhibitor to new
venture creation
• A lack of effective research can also create
less obvious barriers to business survival
and growth
What is market research?
• Market research refers to the use of
information to identify and define market
opportunities and problems
• It is used to generate, refine and evaluate
marketing-related activities within a small
firm or to help determine future
marketing strategies and sales forecasts
for a new business venture
 What to research?
• One of the first issues to be considered is
exactly what information should be
investigated
• The most conventional framework in
marketing describes the environment of
the entrepreneur in terms of an ‘onion’,
which distinguishes between three
different degrees of interaction:
– the market
– the industry
– the macro-environment
 What to research?
The market
• Consists of the people or firms who could
benefit from the new product, have the
means to buy it and will be offered the
opportunity to do so
• Specific information requirements about
the market include:
– the customer profile(s) and segment(s)
– the product or service
– the price
– sales and distribution channels
 What to research?
The industry

Figure 6.1 Porter’s five forces

 What to research?
The macro environment
• The macro-environment is often not
recognised as a force impinging on
organisations
• These external factors are most often
grouped as the STEP factors
– social
– technological
– economic
– political
 Constraints on research
• Costs- in terms of money, time, personal effort
• Research experience
• Reliability of data – level of confidence in the information
collected.
• Personal prejudices- tendency to seek out self verifying
information, seeking information that proves ones own
bias or claims.
• Uniqueness - new business ideas lack existing research to
help assess its viability.
• Time
Conducting research
• The business researcher has two main
avenues when seeking and collecting
information
– to consult existing sources of data
(secondary information) which will provide a
general picture of the current state of
knowledge about a particular problem
– after this, it may be necessary to investigate
some issues in more detail by undertaking
original research from primary sources
(primary information)
 Secondary data
• Data that has already been collected,
analysed and published by other parties
is broadly defined as secondary data
(sometimes called ‘desk research’); that
is, the reader receives the information
second hand
 Sources of secondary data
• Ppublications
• Reports from private market researchers
• Business directories
• Database vendors
• Government statistics and official reports
• The internet
• Industry associations
 Primary data
• Observation
• Experimentation
• Surveys (telephone, personal, email)
• In-depth interviews
• Focus groups
 Types of primary research
Table 6.3
 Developing a strategy
• Immediate objective of market research is to
determine the feasibility (commercial viability)
of a new start-up business, product offering, or
purchase of a business
• But this information will also help to forecast
likely future events, and will provide the
foundation to develop a strategy for the
business venture
• Strategy matters because of its role in the
direction taken by the firm
Two perspectives on strategy
• A strategy defines the business direction, its
scope, and it will seek competitive advantage
• The strategic fit between the internal aspects of
an organisation and the external environment
determines competitive advantage
• Two dominating perspectives explain how to
achieve a strategic fit:
– the market-led view
– the resource-based view
The resource-based perspective
• This view suggests that the business venture
should assemble and deploy appropriate
resources that provide opportunities for
sustainable competitive advantage
• Competitive advantage is thus created by
distinctive, valuable, firm-specific resources that
competitors are unable to reproduce
The market-led perspective
• Firms gain competitive advantage
through identifying external
opportunities in new and existing
markets and then aligning the firm with
these opportunities
• Competitive changes within an industry
determine which markets the business
venture should enter, stay in, or exit
 The process of strategy
development

Figure 6.2
The market-led perspective
• The essence of strategic planning revolves
around three questions:
– setting objectives ( vission& mission
statement)
• where do you want to go?
– doing a situation analysis (SWOT)
• where you are now?
– selecting a strategy
• how to get there?
Formulating a vision, a mission,
objectives and goals
• Vision: picture of the business’s activities in
three or more years’ time
• Mission: purpose and nature of the business
• Objectives: what the business wants to
achieve in the medium term (growth,
profitability, offerings and markets)
• Goals: SMART (specific, measurable,
achievable, realistic and time-bound)
measurements
 Situation analysis: SWOT

Table 6.4 SWOT analysis matrix

 Selecting a generic strategy
• A new business venture positions itself by
leveraging its strengths.
• According to porter, strengths are divided into
two categories: Cost advantage and
differentiation.
• The application of this strengths result in three
generic strategies:
 Selecting a generic strategy
• Cost leadership. This strategy emphasises efficiency
(high volumes of standardised products or services)

• Differentiation. This strategy involves creating a

product that is perceived as unique

• Focus. This strategy concentrates on a narrow

segment and within that segment it attempts to
achieve either a cost advantage or differentiation
Towards 'blue ocean' strategies
• Contrary to most corporate strategies based on
military models and direct confrontations, ‘blue ocean’
strategies build new business where none existed,
giving innovative entries clear sailing
• The core element of a ‘blue ocean’ strategy is ‘value
innovation’, that is, tangible product advancements
accompanied by demonstrable savings
• A strategy aiming to develop compelling value
innovations that create uncontested market space.
 Towards 'blue ocean' strategies
• The six principles of a ‘blue ocean’ strategy:
1.Rebuild market boundaries
2.Focus on the big picture, not the numbers
3.Reach beyond existing demand
4.Get the strategic sequence right
5.Overcome key organisational hurdles
6.Build execution into the strategy
Principles of resource-based
theory
• Resources are necessary to exploit
opportunities and to create
entrepreneurs
• The resource-based theory considers that
firms have different starting points for
resources (called resource heterogeneity)
and that other firms cannot get them
(called resource immobility)
 Principles of resource-based
theory
• In order to be successful, entrepreneurs must
exploit market imperfections based upon
imperfect information or variations in
expectations about prices, while adhering to
the following simple formula:
– buy (or acquire) resources and skills cheaply
– transform the resources into a product or service
(production)
– deploy and implement (strategy)
– sell dearly (value creation)
 Resources types
• Financial resources – money, share etc
• Physical resources – location , equipment etc.
• Human resources
• Technological resources- example patents,
unique software products
• Reputation – people’s perception of the firm
• Organisational resources – firms structure,
routines and systems
Attributes of strategic resources
• Sustainable competitive advantage is
created when firms possess and use
resources that are:
– valuable
– Rare – not widely available to competitors
– non-substitutable
– hard to copy (historical conditions, ambiguous
causes and effects, complex social
relationships)
 Business model
• Business models and strategy are linked
but yet distinct concepts
• A practical distinction describes business
models as a system that shows how the
pieces of a business fit together, while
strategy also includes competition
• Therefore a business model is the
conceptual and architectural
implementation of a business strategy
 The four components
of a business model
• The customer (target customer, distribution
channel, customer relationship)
• The firm (core resources and competencies, key
processes, partner network)
• The value proposition bridges the gap between
the firm and the customer (job to be done and
offering)
• Profit formula (revenue streams, cost structure,
margin model)
 Summary
• Comprehensive market research with both
primary and secondary data creates the
foundation for a successful business venture
• Information gathered from market research
will help guide you in choosing between a
resource-based strategy views or market-led
strategy views
• Blue ocean strategy is a new strategy
approach that deviates from the militaristic
and generic corporate approaches