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chapter 2 Framing the Market Opportunity McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

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Presentation on theme: "chapter 2 Framing the Market Opportunity McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved."— Presentation transcript:

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2 chapter 2 Framing the Market Opportunity McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

3 Framing the Market Opportunity — Today’s Objectives Objectives will be to: Introduce the framework for market opportunity analysis Examine three basic “value-types” Discuss the identification of unmet and under-served needs Explore how customers are segmented and targeted Examine the role of resources in evaluating market opportunities Discuss how to assess the attractiveness of a market opportunity Examine eBay’s market opportunity

4 Chapter 2: Framing the Market Opportunity Market Opportunity Analytic Framework Three Basic “Value Types” Use of the Customer Decision Process to Identify Unmet and Underserved Needs Segmentation and Targeting The Role of Resources in Evaluating Market Opportunity Assessing the Attractiveness of a Market Opportunity EBay’s Market Opportunity Conclusion

5 Market Opportunity Analytic Framework Three Basic “Value Types” Use of the Customer Decision Process to Identify Unmet and Underserved Needs Segmentation and Targeting The Role of Resources in Evaluating Market Opportunity Assessing the Attractiveness of a Market Opportunity EBay’s Market Opportunity Conclusion Chapter 2: Framing the Market Opportunity

6 Framework for Market Opportunity Influenced by the New Economy Competition occurs across industries rather than within industries Competitive behavior occurs at unprecedented speed Competition occurs between alliances of companies rather than between individual companies Easier to influence customer behavior because still in early stages of being defined Industry value chains are being reconfigured Seed Opportunity in Existing New Value System Identify Unmet and Underserved Need(s) Identify Target Segment(s) Declare Company’s Resource-Based Opportunity for Advantage Assess Competitive, Technical, and Financial Opportunity Attractiveness Make “Go / No Go” Assessment

7 Exhibit 2.1: Framework for Market Opportunity

8 Market Opportunity Analytic Framework Three Basic “Value Types” Use of the Customer Decision Process to Identify Unmet and Underserved Needs Segmentation and Targeting The Role of Resources in Evaluating Market Opportunity Assessing the Attractiveness of a Market Opportunity EBay’s Market Opportunity Conclusion Chapter 2: Framing the Market Opportunity

9 Exhibit 2.2: Three Types of Basic Value More Efficient Markets More Efficient Value Systems Customize Offerings Build Community Introduce New Functionality or Experience Disrupt Pricing Ease Access Radically Extend Reach Trapped Value New-to-the-World Value Hybrid Value

10 Exploring Basic Value Trapped Value More efficient markets lower search and transaction costs Bizbuyer.com Lending Tree Inc. OffRoad Capital Corp. More efficient value systems compress or eliminate steps in an existing value system Amazon.com New-to-the-World Value Customizing offerings allows customers to add and remove features Yahoo Quicken.com Build communities to leverage customers’ participation Zeal.com Introduce new functionality to transform all or part of an industry value chain e-books Internet telephony Hybrid Value Disrupt pricing and change pricing-power relationships MySimon.com Enable ease of access and help customers find products Abebooks.com Extend reach and welcome distant customers Distance education

11 Market Opportunity Analytic Framework Three Basic “Value Types” Use of the Customer Decision Process to Identify Unmet and Underserved Needs Segmentation and Targeting The Role of Resources in Evaluating Market Opportunity Assessing the Attractiveness of a Market Opportunity EBay’s Market Opportunity Conclusion Chapter 2: Framing the Market Opportunity

12 Customer Decision Process Origination Information Gathering Evaluation Purchase Decision Postpurchase Evaluation and Behavior Pre- purchase Purchase Post- purchase What prompts the customer to action? What factors influence the customer’s decision? What attributes of the product does the customer consider? What options does the customer identify? What decision(s) does he make? What does the customer do about his decision? A framework to look systematically for unmet or underserved needs Because value creation is based on understanding and meeting customer needs.

13 Exhibit 2.3: Decision for Purchasing a Camera Origination Information Gathering Evaluation Purchase Decision Postpurchase Evaluation and Behavior Personal use Gift Features Brand/ manufacturer Brand/ manufacturer Type (digital/film) Type (digital/film) Cost Likelihood of repeat purchase or recommendation Pre- purchase Purchase Post- purchase Film Digital Instant APS Basic Fully loaded Complexity Usage occasions Reviews Past Experiences Budget constraints Print quality Reliability Learning curve/ ease of use Learning curve/ ease of use Range of accessories 35mm Body Type Lens Zoom Fixed SLR Point & shoot Throw- away Standard

14 Vacation Travel Destination Decision Origination Information Gathering Evaluation Purchase Decision Postpurchase Evaluation and Behavior Pre- purchase Purchase Post- purchase Likelihood of Repeat or Referral Comfort Style Photos Degree of Memorability Event Break Honey- moon Reunion Holiday Number and Relationship of Travelers Weather Duration and Distance Activities Budget Travel Agent Travel Guides Past Experiences Brochures Chat rooms Books Vacation Package Independently Planned World Tour Cruise Small-Town Discovery Beach Escape Outdoor Adventure

15 Market Opportunity Analytic Framework Three Basic “Value Types” Use of the Customer Decision Process to Identify Unmet and Underserved Needs Segmentation and Targeting The Role of Resources in Evaluating Market Opportunity Assessing the Attractiveness of a Market Opportunity EBay’s Market Opportunity Conclusion Chapter 2: Framing the Market Opportunity

16 Exhibit 2.4: Segmentation Approaches

17 Effective Segmentation Requirements Source: Philip Kotler, Marketing Management (1997), p. 269 Meaningful Actionable Substantial Measurable Customers must demonstrate needs, aspirations or behavioral patterns that are similar within a segment and different across segments –A distinction between a price-sensitive and a quality-seeking segment is meaningful, since the two segments demonstrate distinguishable sets of needs A company must be able to reach customers within each segment through effective and targeted marketing programs –A customer segment consisting of customers with blue eyes is not actionable, since it is very hard to identify and reach only customers with blue eyes Segments must be large and profitable enough to make the investment in serving them worthwhile –MyCFO.com is targeted toward high-net-worth individuals, helping them manage their portfolios; even though the number of those individuals is small, the dollar amount managed is sizeable, thus constituting a substantial segment Key characteristics of the segments (e.g., size and spending patterns) must be easy to measure

18 Exhibit 2.6: Consumer Digital Camera Purchasing Segmentation

19 Consumer E-Books Purchasing Segmentation Purchase Occasion Reader Self-ConsumptionGiftInstitutional By Request College Education Moderate Education Limited Education Reference and Research Materials How-To Information Hobby or Special Interest Entertainment For Display In-Depth Topical Insights and Discussion How-To Information Required Reading Comp- endium by Topic Advice and Recom- mend- ations

20 Number of E-Books Purchased Purchase Occasion Reader Self-ConsumptionGiftInstitutional By Request College Education Moderate Education Limited Education Reference and Research Materials How-To Information Hobby or Special Interest Entertainment For Display In-Depth Topical Insights and Discussion How-To Information Required Reading Comp- endium by Topic Advice and Recom- mend- ations High Moderate Low

21 Ideal E-Book Delivery Mechanisms Purchase Occasion Reader Self-ConsumptionGiftInstitutional By Request College Education Moderate Education Limited Education Reference and Research Materials How-To Information Hobby or Special Interest Entertainment For Display In-Depth Topical Insights and Discussion How-To Information Required Reading Comp- endium by Topic Advice and Recom- mend- ations New Economy Either Traditional

22 Amazon.com Homepage for Two Different Customers

23 Market Opportunity Analytic Framework Three Basic “Value Types” Use of the Customer Decision Process to Identify Unmet and Underserved Needs Segmentation and Targeting The Role of Resources in Evaluating Market Opportunity Assessing the Attractiveness of a Market Opportunity EBay’s Market Opportunity Conclusion Chapter 2: Framing the Market Opportunity

24 Specifying a Resource System Identify core benefits in the value proposition or cluster Identify capabilities that relate to each benefit Link resources to each capability Identify to what extent the firm can deliver each capability Identify partners who can complete capabilities

25 Assessing the Quality of a Resource System Uniqueness Good resource systems provide benefits, capabilities and activities that are different from those of competitors Links Good resource systems have links between capabilities and benefits, among capabilities, among resources, and between virtual-world and physical-world business systems Sustainability Good resource systems are difficult for competitors to replicate Source: Philip Kotler, Marketing Management (1997), p. 269

26 Market Opportunity Analytic Framework Three Basic “Value Types” Use of the Customer Decision Process to Identify Unmet and Underserved Needs Segmentation and Targeting The Role of Resources in Evaluating Market Opportunity Assessing the Attractiveness of a Market Opportunity EBay’s Market Opportunity Conclusion Chapter 2: Framing the Market Opportunity

27 Exhibit 2.8: Competitor Profiling — Eastman Kodak

28 Exhibit 2.12: Kodak’s Overall Opportunity Assessment Competitive Vulnerability Technical Vulnerability Magnitude of Unmet Need Interaction Between Segments Likely Rate of Growth Technological Vulnerability Market Size Level of Profitability Positive Factor Neutral Factor Negative Factor

29 Market Opportunity Analytic Framework Three Basic “Value Types” Use of the Customer Decision Process to Identify Unmet and Underserved Needs Segmentation and Targeting The Role of Resources in Evaluating Market Opportunity Assessing the Attractiveness of a Market Opportunity EBay’s Market Opportunity Conclusion Chapter 2: Framing the Market Opportunity

30 Exhibit 2.13: EBay’s Financial Growth

31 Exhibit 2.14: Market Share — EBay eBay 73% uBid 17% Yahoo 3% Amazon 2% Egghead 5%

32 Exhibit 2.15: EBay — Defining the Value System Trapped

33 Exhibit 2.16: EBay — Unmet and Underserved Needs Conduct preliminary research on items Bid Win? Seller Auction House / Dealer Buyer Realize he or she would like to sell something Like to browse or have a specific interest or need Research the value of the item and a possible channel for exchange Research venues / channels for procurement Choose exchange agent and negotiate terms Choose procurement channel Establish and agree to selling / buying process Deliver merchandise Determine appropriate schedules and locations Set auction schedule and choose venue Attend auction Hold auction Receive payment Pass a percentage of proceeds to seller Pay Receive payment Receive merchandise Take commission Notification of when specific items are being sold Easy channel / venue access Objective listing agent Passive search and decision process Easy listing process and objectives Ability to list modestly priced items Improved availability and access Simplified shipping; elimination of two-stage process Time to conduct due diligence research on items Time to think about purchase Ease of payment Reasonable agent fees Minimized time lag between merchandise surrender and compensation Pre-Purchase Purchase Post-Purchase

34 Exhibit 2.17: Potential EBay Customers High Income Moderate Income Limited Income Active Deal-Makers with Means Active Frugal Collectors Price-Sensitive Active Frugal Collectors Passive Collectors Ease Convenience Limited Accessibility or Options History of Responding to Promotions

35 Exhibit 2.18: EBay Overall Opportunity Assessment Competitive Vulnerability Magnitude of Unmet Need Interaction Between Segments Likely Rate of Growth Technological Vulnerability Market Size Level of Profitability Positive Factor Neutral Factor Negative Factor

36 Market Opportunity Analytic Framework Three Basic “Value Types” Use of the Customer Decision Process to Identify Unmet and Underserved Needs Segmentation and Targeting The Role of Resources in Evaluating Market Opportunity Assessing the Attractiveness of a Market Opportunity EBay’s Market Opportunity Conclusion Chapter 2: Framing the Market Opportunity

37 Framing the Market Opportunity — Conclusion A firm needs to follow a rigorous approach to correctly isolate market opportunities — the market opportunity analysis framework is a six- stage process that addresses this need The six stages of the framework are: 1) seed opportunity in an existing new value system, 2) identify unmet and underserved need(s), 3) identify and choose target segments, 4) declare the company’s resource-based opportunity for advantage, 5) assess competitive, technological and financial opportunity attractiveness and 6) conduct a “go/no-go” assessment In assessing the attractiveness of an opportunity, four dimensions should also be considered: 1) competitive intensity, 2) customer dynamics (e.g., unmet needs, likely rate of growth, etc.), 3) technological vulnerability and 4) microeconomics (industry size and profitability)


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