MARKET ANALYSIS

Purpose of Market Analysis

•To determine the attractiveness of a market ( or

submarket) to current and potential participants.

Market attractiveness, the firm’s 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

 Dimensions of a Market Analysis

• Emerging submarkets relevance

• Actual and potential market and submarket size
• Market and submarket growth
• Market and submarket profitability
• Cost structure
• Distribution systems
• Trends and developments
• Key success factors
 RELEVANCE VS PREFERENCE

Relevance dominates. If a group of customers wants a battery powered car it

does not matter how much they love your hybrid brand. It will not be relevant.

A newspaper can have the best new coverage and editorial staff, but if readers

are diverted to cable news or blogs, relevance will decline.

The ultimate tragedy is to achieve brilliant differentiation, winning the

preference battle, only to have that effort wasted as its relevance declines.
 4 strategies to gain relevance

1. Gain parity. The goal is to create a close-enough option to a

competitor's "must have”. ( eg Mc Donald’s Mc Café line with
reasonable coffee quality to take on Starbucks threat to breakfast
and off hours business)

2. Leapfrog the innovation. Instead of being satisfied with being

relegated to having a parity product, a firm could attempt to take over
the new category or subcategory or at least to become a significant
player with a substantial or transformational innovation that leapfrogs
the competitor. ( eg Nike, Adidas, Cisco Systems)

3. Reposition. Modify and reposition the brand so that its value

proposition becomes more relevant given the market dynamics.
( Madonna, LL Bean from hunting fishing and camping to all
outdoors))

4. Stick to your knitting. Rather than adapting, keep pursuing the

same strategy with the same value proposition but just do it better,
keep improving, and create brand energy.  ( Gilette vs Electric
razors)
Customer Decision Process

Brand Relevance
Brand Preference
Select Product Determine Brands to
Consider Select Brand to
Category or
Buy
Subcategory

 SUV  Mercedes
 Lexus GX,
RX etc
 BMW X1
 Mercedes
Benz GLK
compact
 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.
 Creation and Types of Sub markets

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

Energy 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. Or In Japan Asahi Super Dry Beer was a
new category of dry beer created to capture a large
segment of Kirin the leading lager beer.

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 – Eg, Need for computers in many
underdeveloped countries but low buying power and
government regulations make it impossible for
companies to operate in these markets. Many dotcom
concepts also received huge hype but the applications
failed to materialize.

• Large companies such as Marriot, P& G have

investment criteria which prohibit them from investing in
smaller markets as the growth rate is low as compared
to the company’s desired levels.

This can be an opportunity missed and causes them to

lose the first mover advantage should the market expand
in size. It must be remembered that most markets were
small to begin with and remained so for years.
 Market and submarket growth
It appears logical to identify and invest in growth
situations and disinvest in decline situations. But
declining products markets may cause competitors
to exit and present a growth opportunity. The firm
may attempt to become a profitable survivor by
encouraging others to exit and by becoming
dominant in the most viable segments.

Conversely, growth contexts are not always

attractive as they can involve substantial
risk.
 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.
• Some leading indicators of market sales
may help in forecasting and predicting
turning points eg

• Demographic data : eg, the number of

births is a leading indicator of the demand
for education / the number of people
reaching 58/60 is a leading indicator of the
demand for retirement facilities.
• Eg.Sales of related equipment : Personal computers and
printers sales would provide a leading indicator of the
demand for supplies and service needs.

• Market sales forecasts, especially of new markets, can

be based on the experience of analogous industries.
This is done by identifying a prior market with similar
characteristics .eg sales of CTV are likely to follow
patterns similar to sales of B& W TV seen earlier. A new
snack could study the history of granola bars or energy
bars and make educated guesses.

• If several analogous classes exist and can be examined

and differences related to their characteristics, maximum
benefit will be obtained.
Detecting Maturity and Decline
• A particularly important turning point in market
sales occurs when the growth phase of a
product life cycle changes into a flat maturity
phase and the maturity phase changes into a
decline phase.

• These transitions are important indicators of

the health and nature of the market. Historical
sales and profit patterns of a market can help to
identify the onset of maturity or decline.
More sensitive Indicators for Detecting Maturity and Decline

• Price pressure caused by overcapacity and the lack

of product differentiation

• Buyer sophistication and knowledge

• Substitute products or technologies

• Saturation

• No growth sources

• Customer disinterest
Questions to Help Structure a
Market Analysis
• Submarkets
Are augmented products, emerging niches, trend toward
systems, new applications, repositioned product classes,
customer trends, or new technologies creating
worthwhile submarkets? How should they be defined?

• Size and Growth

Potentially important submarkets? Size and growth
characteristics? Submarkets declining? How fast?
Driving forces behind the trends?

Figure 4.1
Questions to Help Structure a
Market Analysis
• Profitability
How intense is the competition among existing firms?
Threats from potential entrants and substitute products?
Bargaining power of suppliers and customers?
Attractive/profitable markets or submarkets?

• Cost Structure
Major cost and value-added components for various
types of competitors?

Figure 4.1
Questions to Help Structure a
Market Analysis
• Distribution Systems

Alternative channels of distribution? How are

they changing?

• Market Trends

• Key Success Factors

Key success factors, assets, and competencies
to compete successfully? Can assets and
competencies of competitors be neutralized?
Figure 4.1
 Market and submarket Profitability
Analysis
Harvard Economist Michaal Porter applied
his theories and findings to the business
strategy problem of evaluating the
investment value of an industry or market.

The problem is to identify how profitable

the average firm will be.
 Industry Profitability or Long term
Attractiveness

• Michael Porter has identified 5 forces that

determine the intrinsic long run
attractiveness or profitability of a market or
market segment.
Porter’s Five-Factor Model of
Market Profitability
Competition
among
existing firms

Threat of Threat of
Potential Industry Substitute
Entrants Profitability Products

Bargaining Bargaining
Power of Power of
Suppliers Customers

Source: Adapted from Michael E. Porter, “Industry Structure and Competitive

Figure 4.3 Strategy: Keys to Profitability” Financial Analysis Journal,July-August 1980,p.33.
"
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. "
 Threat of intense segment rivalry
A segment is unattractive if
• It contains many strong or aggressive
competitors
• Both entry and exit barriers are high.
Worst case where entry barriers are low
but exit barriers are high.
• There are actual or potential substitutes
for the product.
• Buyers possess strong or growing
bargaining power
• A segment is unattractive if the company’s
suppliers are able to raise prices or reduce
quantity supplied.
 Force 1: The Degree of Rivalry

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 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.
Force 2: The Threat of Entry

Both potential and existing competitors

influence average industry profitability. The
threat of new entrants is usually based on the
market entry barriers.
 Most common entry barriers
Economies of scale: for example, benefits associated
with bulk purchasing;

Cost of entry: for example, investment into technology;

Distribution channels: for example, ease of access for

competitors not easily duplicated

Existing Contracts and expertise.

Product differentiation of competitors that protect them

from new entrants
 Force 3: The Threat of
Substitutes
• The threat that substitute products pose to an
industry's profitability depends on the relative
price-to-performance ratios of the different types
of products or services to which customers can
turn to satisfy the same basic need.

• The threat of substitution is also affected by

switching costs – that is, the costs in areas such
as retraining, retooling and redesigning that are
incurred when a customer switches to a different
type of product or service.
 Force 4: Buyer Power
Buyer power is one of the two horizontal forces that
influence the appropriation of the value created by an
industry. 

This force is relatively high where there a few, large

players in the market.

It is present where there is a large number of

undifferentiated, small suppliers, such as small farming
businesses supplying large grocery companies

Low cost of switching between suppliers, such as from

one fleet supplier of trucks to another.
 Force 5: Supplier Power
• Supplier power is a mirror image of the buyer
power. As a result, the analysis of supplier
power typically focuses first on the relative size
and concentration of suppliers relative to
industry participants and second on the degree
of differentiation in the inputs supplied.

• The ability to charge customers different prices

in line with differences in the value created for
each of those buyers usually indicates that the
market is characterized by high supplier power
and at the same time by low buyer power
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).
 Porter Competitive Model
• Foreign General Merchandisers or
Potential Discounters
• Established Retailer Shifting Strategy
New Entrants to Discounting or Megastores

Intra-Industry Rivalry
Bargaining SBU: Wal-Mart
Rivals: Kmart, Target, Bargaining
Power
Toys R Us, Specialty Stores Power of Buyers
of Suppliers
• U.S. Product Manufacturers • Consumers
• Foreign Manufacturers in Small Town U.S.A.
• Local Governments Substitute • Consumers in Metropolitans
Areas in the U.S.
Products • Canadian and Mexican
and Services Consumers
• Other Foreign Consumers
• Mail Order • Telemarketing
• Home Shopping Network • Buying Clubs
• Electronic Shopping • Door-to-door Sales

Figure 3-2
 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.
 Trend vs. Fads
a) Trends are likely to be driven by a solid force
such as:
Demographics, Values, Lifestyle, Technology
Not by Pop culture, fashion, a trendy crowd or
media
b) How accessible is it in the mainstream?
Not confined to a niche or requiring a major
change in ingrained habits or priced too high or
hard to use

c) Is it broadly based ? Across categories/

industries ? Eg Eastern influences in food
design, health care in the US.
 FADS

• Temporary collective fascinations' (such as hula-

hoop, Rubik's cube) known in American
sociology as 'fads', may be regarded as
examples of a model of ephemeral culture.

• They emanate from such social values as:

progress, change, 'being hip'. The consensus
which develops around these fads is usually
short-lived and a current object of fascination is
abandoned once it becomes 'boring'.
Rubix Cube
Hula hoop
 Planking
• Planking or the lying down game is an activity consisting of lying
face down in an unusual or incongruous location. The hands must
touch the sides of the body and having a photograph of the
participant taken and posted on the internet is an integral part of the
game.[1] Players compete to find the most unusual and original
location in which to play.[1] The term planking refers to mimicking a
wooden plank.

• Many participants of planking since 2011 have photographed the

activity on unusual locations such as atop poles, roofs and vehicles,
while some "plankers" engage in the activity by planking only their
upper body and feet while leaving the back suspended.
 PLANKING was so last week.

New viral craze "teapotting" is now bidding to become

the latest phenonmenon to dominate social media sites.

A Facebook page for the "sporting" pursuit has already

attracted dozens of pictures and nearly 2,000 fans.

Marketed as a safer alternative to lying flat and

motionless on your stomach with arms pinned to your
side, teapotting lets enthusiasts keep their feet as they
raise one arm to mimic a spout while the other forms a
handle.
Teapotting
 Owling
• Move over Teapotting ………
•
• For those not in the know, " owling " is a
brand new activity where people pose for
pictures by crouching like an owl in unusual
places, such as on top of a car, fountain or
a staircase. In other words, Owling is the
new Planking.
•
Is human kind really THAT bored?
Owling
 Key Success factors
• These are assets and competencies that
provide the basis for competing
successfully.

• Strategic necessities and strategic

strengths need to be identified and
projected into the future mainly to identify
emerging KSFs.
 Risks in High Growth markets
• Number and commitment of competitors may
be too high for market to support
• Competitor/s with superior product / lower
price
• Key Success Factors might change and the
organization unable to adapt
• Technology might change
• Market growth lower than expectations
• Price instability
• Inadequate resources to maintain high
growth rate
• Inadequate distribution
 Risks of
High-Growth
Market

Competitive Risk Firm Limitations

• Overcrowding • Resource constraints
• Superior competitive entry • Distribution unavailable

Market Changes
• Changing KSFs
• New technology
• Disappointing growth
• Price instability

Figure 4.5
 Your task
Your group are the BIMTECH Management

With the help of Porter’s 5 Forces model assess the

Market Attractiveness of the industry to which
BIMTECH belongs.
Use three slides :

a ) Showing the 5 Forces model for BIMTECH

b) Reasons why you feel the market is an attractive market
or not ?
c) 3 action points for BIMTECH in future.