Market Analysis

Chapter 5

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 Market Analysis
• Market Analysis builds on customer and competitor
analyses to make some strategic judgments about a
market (and submarket) and its dynamics.

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 Objective of Market Analysis
1. Determine the attractiveness:
 analyze the attractiveness of a market (or submarket) to
current and potential participants.
 Market attractiveness, the market’s profit potential as
measured by the long-term return on investment
achieved by its participants, will provide important
input into the product-market investment decision.
◦ Taking all competitors as Frame of Reference market
analysis depends not only on the market attractiveness but
also on how the firm’s strengths and weaknesses match up
against competitors’.

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 Objective …
2. understand the dynamics of the market
 The need is to identify emerging key
success factors, trends, threats, and
opportunities and to develop strategic
questions that can guide information
gathering and analysis.
 A key success factor /KSF/ is an asset or
skill that is needed to “play the game.”

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 Market Analysis Dimensions
Size and Growth
What are the important and potentially important
submarkets?
What are their size and growth characteristics?
What submarkets are declining or will soon decline?
What are the driving forces behind sales trends?
Profitability
How intense is the competition among existing firms?
Evaluate the threats from potential entrants and substitute
products.
What is the bargaining power of suppliers and customers?
How attractive/ profitable are the market and its
submarkets both now and in the future?

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…
COST STRUCTURE
What are the major cost and value-added
components for various types of competitors?
DISTRIBUTION SYSTEMS
What are the alternative channels of distribution?
How are they changing?
TRENDS
What are the trends in the market?

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…
KEY SUCCESS FACTORS

What are the key success

factors, assets, and skills needed
to compete successfully?

How will these changes in the

assets and skills of competitors
be neutralized by strategies?
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 Actual and Potential Market Size
A basic starting point for the analysis of a market or
submarket is the total sales level.
 For example if the all cement factories in Ethiopia are
supplying 3,000,000 quintals of cement per annum and
6,000,000 quintals are imported every year at least the
current market potential can be said 9,000,000 per annum
 On the top of this growth forecasts in the construction
sector can be consulted to determine future potential
market size
 Such information can be acquired from government and
industry ( ex. Chamber) sources

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 Potential …
Further a potential market can be analyzed by
looking into
◦ New users
◦ New uses
◦ More usage of the given product/ service
◦ Ex. The banking sector can attract
 new users ( market segment)
 New uses ( e- banking, mobile banking, etc)
 More usage ( attracting more deposit and more
transactions to be made through bank)

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Ghost Potential
Sometimes marketers assume a certain market
potential exists with out having empirical evidence
or else unforeseen environmental dynamism will
vanish the potential causing GHOST POTENTIAL
Example: looking into the population growth rate
and the infant population size in Ethiopia Pampers
might assume starting a diaper factory will be
lucrative: however looking into the income of the
population will show majority of the parents can’t
afford to buy diapers for their kids hence ‘Ghost
Potential’ exists

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 ii. Market Growth
The analysis shall also consider the potential for
the market to grow due to :
◦ Population growth
◦ Economic Development
◦ Change in life style
◦ Other environmental requirements:
 Increased global warming is creating more demand for Air
Conditioners
 New government regulations demanding compulsory
comprehensive motor insurance will make the insurance
market to grow

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 Driving Force of Growth…
Understanding the Key Driving Forces that
make the market to Grow is essential:
◦ What makes the airline market to grow- ?
◦ What makes hotel market to grow- ?
◦ What makes the banking market to grow- ?
◦ What makes the entertainment market to grow- ?
◦ What makes the security market to grow- ?
◦ What makes the health sector to grow- ?
See the leading Indicators

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 Growth…
Understanding the Key Driving Forces that
make the market to Grow is essential:
◦ What makes the airline market to grow- travel
◦ What makes hotel market to grow- tourism
◦ What makes the banking market to grow- finance
& transaction
◦ What makes the entertainment market to grow- life
style
◦ What makes the security market to grow- crime
◦ What makes the health sector to grow- disease

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 Risk In High-growth Markets
 The conventional wisdom that the strategist should seek out
growth areas often overlooks a substantial set of associated
risks.
 The number and commitment of competitors may be greater
than can be supported by the market.
 A competitor may enter with a superior product or low-cost
advantage.
 Key success factors might change and the organization cannot
adapt.
 Technology might change.
 The market growth may fail to meet expectations.
 Resource might be inadequate to maintain a high growth rate.
 Adequate distribution may not be available.

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 Dimensions Of Market Analysis

Risks of High-Growth Markets

Risks of
High-growth
markets

Competitive risk Market Changes Firm Limitations

 Overcrowding Changing KSFs
 Superior New technology Resource constraints
competitive entry Disappointing growth Distribution unavailable

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 Detecting Maturity and Decline
When
 the growth phase of the product lifecycle changes to a

flat maturity phase and when the maturity phase changes into a

decline phase.
Historical sales and profit patterns of a market can help to

identify the onset of maturity or decline, but the following often

are more sensitive indicators.

 Price pressure caused by overcapacity and the lack of product

differentiation.

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…

 Buyer sophistication and knowledge

 Substitute products or technologies.

 Saturation.

 No growth sources.

 Customer disinterest.
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 III. MARKET PROFITABILITY ANALYSIS

The basic idea is that the attractiveness of an industry or

market as measured by the long-term on investment of the
average firm depends largely on five factors that influence
profitability:
 The intensity of competition

 The existence of potential competitors who will enter if profits are

high.
 Substitute products that will attract customers if prices become high.
 The bargaining power of customers.

 The bargaining power of suppliers.

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 Five- Factor Model of Market Profitability

Threat of
Potential
Entrants

Bargaining
Bargaining Power of
COMPETITION Customers
Power of AMONG EXISTING
Suppliers FIRMS

Threat of
Substitute
Products

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IV: Cost Structure

◦ Which cost are significant to affect

strategic decisions?
◦ Which components of the industry
costs are controllable?
◦ Is the industry labor or capital
intensive?
◦ What cost saving initiatives would
make us more competitive ?

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v)Distribution Systems
An analysis of distribution systems
should include the following important
questions:
What are the alternative distribution
channels?
What are the trends? What channels
are growing in importance? What new
channels have emerged or are likely to?
Who has the power in the channel and
how is that likely to shift?

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Vi. Market Trends
It focuses on change and tends to identify what is
important.
A discussion of market trends can serve as a
useful summary of customer, competitor, and
market analyses.
It is thus helpful to identify trends near the end of
market analysis.

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VII. Key Success Factors –Bases of
Competition
 Theyare asset and skills that provide the bases for
competing successfully.
There are two types.
First there are the strategic necessities,
which do not necessarily provide an advantage
because others have them but their absence
will create substantial weakness .
Second there are strategic strengths those at
which a firm excels, the asset or skills that
are superior to those of competitors and
provide a base of advantage .

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