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Chapter 2: Market Characteristics Disclaimers: All logos, photos, etc. used in this presentation are the property of their respective copyright owners and are used here for educational purposes only. Some material adapted from: Lehmann & Winer, “Analysis for Marketing Planning”, 7 th ed Some material adapted from: Kotler & Keller, “Marketing Management”, 13 th ed See book: Sorger, “Marketing Planning” for full bibliography Marketing Planning © Stephan Sorger 2010: Ch. 2www.stephansorger.com
Market/ Industry/ Category Definition TermDefinition MarketCustomer need satisfied by business (vs. product) See “Product definition” vs. “Market definition” below IndustryGroup of firms offering products seen as substitutes Example: White goods (appliance) industry: GE CategoryGroup of competing firms; subset of industry Example: High-end appliances: Sub Zero CompanyProduct DefinitionMarket Definition Wang (1980s)We make word processorsWe help process documents Sony BMG (Music)We sell CDsWe market entertainment Encyclopedia BrittanicaWe sell encyclopediasWe distribute information MicrosoftWe make operating systemsWe make it easy to use PCs Marketing Planning © Stephan Sorger 2010: Ch. 2 Situation Anyl. I: 2.3www.stephansorger.com
Market Characteristics TermDefinition SizeBigger = Better, usually… GrowthFaster = Better, usually… CyclicityMulti-year sales cycles; Stable = better, usually… SeasonalityMulti-month sales cycles; Stable = better, usually… The real estate market is seasonal: Sales in January & February are almost always lower than the rest of the year Marketing Planning © Stephan Sorger 2010: Ch. 2 Situation Anyl. I: 2.4www.stephansorger.com
FactorDescription Life CycleStages: Intro, Growth, Maturity, Decline Growth stage: Good, but not guaranteed Mature stage: Profitable if done right StageIntroductionGrowthMaturityDecline Category SizeSmallModerateLargeModerate Category GrowthLowHighLowNegative AttractivenessLowHighLow/HighLow Sales time Market Characteristics: Life Cycle Marketing Planning © Stephan Sorger 2010: Ch. 2 Situation Anyl. I: 2.5www.stephansorger.com
Market Attractiveness: The Porter Five Forces Model Power of SuppliersPower of Customers Substitute Products (and capacity) New Entrants Rivalry Business Why study attractiveness? - Determine if market worth investing in (or continuing to invest in) - Avoid bad surprises later Marketing Planning © Stephan Sorger 2010: Ch. 2 Situation Anyl. I: 2.6www.stephansorger.com
ConditionsDescription/ Examples Product essentialProduct large % of buyer’s costs Auto: Steel; Replaced by plastic UndifferentiatedBuyers view product as commodity Computers: Bulk semiconductors Backward integrationBuyers go around suppliers Consumers: Do It Yourself; Home Depot Full informationBuyers aware of competitive offerings Car dealer: Negotiate using invoice price Porter Five Forces Model: Power of Customers - Customers force down prices Profits Drop Marketing Planning © Stephan Sorger 2010: Ch. 2 Situation Anyl. I: 2.7www.stephansorger.com
ConditionsDescription/ Examples ConcentratedDominated by a few firms PC Operating Systems: Microsoft No SubstituteNo replacement in short term OPEC Switching CostsSupplier makes it difficult to switch Software Limited SupplyFew resources available Electronics: Shortage of essential chips Porter Five Forces Model: Power of Suppliers - Suppliers dictate terms Profits Drop Marketing Planning © Stephan Sorger 2010: Ch. 2 Situation Anyl. I: 2.8www.stephansorger.com
ConditionsDescription/ Examples ExceptionProprietary product filling unique need iPod amidst all other MP3 players; price premium Porter Five Forces Model: Power of Substitutes & Capacity Substitutes - Many substitutes Profits Drop ConditionsDescription/ Examples RecessionHotels vacant, so prices drop Capacity - Overcapacity Profits Drop Marketing Planning © Stephan Sorger 2010: Ch. 2 Situation Anyl. I: 2.9www.stephansorger.com
BarrierDescription/ Examples Economies of scaleHigh fixed costs High volume Hospital supplies: Fixed order & fulfillment costs Product differentiation Well-established brand names Cereal: Kellogg, Kraft, General Mills, Quaker Capital requirementsMany $ to start operations Fast Food: $$$ for marketing & distribution Switching costs$ to switch from Supplier A to Supplier B Software: Difficult to switch: Oracle SAP DistributionShelf space difficult to get Expensive slotting fees for space Porter Five Forces Model: Threat of New Entrants - New Entrants Profits Drop - Solution: Erect barriers to entry Marketing Planning © Stephan Sorger 2010: Ch. 2 Situation Anyl. I: 2.10www.stephansorger.com
ConditionsDescription/ Examples Balanced competitorsNear-equals in size & power Home Depot & Lowe’s Slow growthSteal market share from competitor Cell phones carriers: Verizon, Cingular, Sprint DifferentiationProducts look the same Cell phones: Apple iPhone differentiator Porter Five Forces Model: Rivalry - Handful of Competitors Dominate Profits Drop Marketing Planning © Stephan Sorger 2010: Ch. 2 Situation Anyl. I: 2.11www.stephansorger.com
Rivalry: Top 1-2 Brands Dominate Market Brand Value Interbrand Brand Strength New Brand #3 Brand #1 or #2 Brand 0%100% $ Low $ High #1 Brand worth significantly more than # 3 brand Example Rivals: Democrat & Republican Coke & Pepsi UPS & FedEx American & United Airlines Home Depot & Lowes GM & Ford Hertz & Avis Intel & AMD Marketing Planning © Stephan Sorger 2010: Ch. 2 Situation Anyl. I: 2.12www.stephansorger.com
PEST Analysis Political Economic Social Technological Marketing Planning © Stephan Sorger 2010: Ch. 2 Situation Anyl. I: 2.13www.stephansorger.com
PEST Analysis: Political PEST ComponentExample PoliticalTax policy Employment laws Environmental regulations. Trade restrictions and tariffs Political stability Partisan politics Governmental policies can change significantly depending on whether Democrats or Republicans control Congress Marketing Planning © Stephan Sorger 2010: Ch. 2 Situation Anyl. I: 2.14www.stephansorger.com
PEST Analysis: Economic PEST ComponentExample EconomicEconomic growth Interest rates Exchange rates Inflation rate Recession/ Depression In a recession/ depression, almost every market falls Marketing Planning © Stephan Sorger 2010: Ch. 2 Situation Anyl. I: 2.15www.stephansorger.com
PEST Analysis: Social PEST ComponentExample SocialAttitudes toward outsourcing Career attitudes Emphasis on safety Generation X, Y, N: Skeptical; Bombarded with ads Boomers: Audi R8 for midlife crisis Trends: Diversity, convenience, individualism (?) Audi designed its R8 specifically for the Baby Boomer midlife crisis market segment Marketing Planning © Stephan Sorger 2010: Ch. 2 Situation Anyl. I: 2.16www.stephansorger.com
PEST Analysis: Technological PEST ComponentExample TechnologicalGPS: New economy iPhone: New economy Internet: New economy Hybrid cars: New trend New fuels: Impact? A technological change from gasoline to hydrogen fuel would have a major impact on the automotive market Marketing Planning © Stephan Sorger 2010: Ch. 2 Situation Anyl. I: 2.17www.stephansorger.com
Business Market: SIC/ NAICS Codes TermDescription SICStandard Industrial Classification 1987: Started by US government; Similar to USPS ZIP code Table includes all possible types of industries; popular More digits More specific industry segment NAICSNorth American Industrial Classification System: 20 Sectors 1997, 2002: Replaced SIC code to include more segments 51 - Information 513 – Broadcasting & Telecommunications 5133 – Telecommunications – Satellite Telecommunications – Satellite Telecommunications Marketing Planning © Stephan Sorger 2010: Ch. 2 Situation Anyl. I: 2.18www.stephansorger.com
Business Market: NAICS Example Estimating Market Size using Market Buildup Method Example: Acme Searchlights, manufacturing lights for key markets: - Airports NAICS Motion Picture Production NAICS Automotive Dealerships NAICS Naval Ships NAICS Marketing Planning © Stephan Sorger 2010: Ch. 2 Situation Anyl. I: 2.19www.stephansorger.com
FactorDescriptionAttractiveness Aggregate Market Size139 Million devices (gartner.com)+ Growth12-15% (ibtimes.com)+ Life CycleGrowth+ CyclicityNone/ Low+/0 SeasonalityNone/ Low+/0 Competitive Entries/ ExitsGoogle Ion; Samsung Omnia, etc.- Power of buyersLow; Only one carrier/ smartphone+ Power of suppliersModerate; PCs use similar parts0 RivalryIntense; Heavy competition- SubstitutesModerate; different types of phones- Capacity usageCriticisms of slow phone provisioning0/- PEST Political/ RegulatoryPossible telecomm regulations0/- EconomicRelatively inexpensive+ SocialMobile lifestyle+ TechnologicalIntense- Example: Apple iPhone Marketing Planning © Stephan Sorger 2010: Ch. 2 Situation Anyl. I: 2.20www.stephansorger.com
Tutorial 5 Five forces and PEST analysis Q1 What is the main purpose of Five-Forces Analysis?
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The five forces are environmental forces that impact on a company’s ability to compete in a given market. The purpose of five-forces analysis is to diagnose.
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1 Chapter 2: The External Environment: Opportunities, Threats, Industry Competition and Competitor Analysis Overview: The firm’s external environment External.
Copyright © 2009 South-Western, a part of Cengage Learning All rights reserved. Power Point Presentation by Dr. Leslie A. Korb Georgian Court University.
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Chapter 1 introduction by Dr.Raafat Youssef Shehata.
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Copyright © 2005 Pearson Education Canada Inc. Concepts in ﴀ Strategic Management, Canadian Edition Wheelen, Hunger, Wicks 3-1 Chapter 3 Environmental.
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COMPETITIVE ADVANTAGE UNIT – II. EXTERNAL ENVIRONMENT Any organization before they begin the work of strategy formulations, it must scan the external.
1 Industry Analysis Basic econ conditions determine industry structure SCP model of firm performance Industry structure => firm conduct => Firm performance.
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SM Winter Industry Rivalry Entrants Substitutes SuppliersBuyers Porter.
Cola Wars Key Take-aways. How much does industry matter? n 10-20% of the variation in firms’ profits accounted for by the industry in which the firm competes.
Chapters Four & Five Identifying & Analyzing Attractive Markets.
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©2012 South-Western, a part of Cengage Learning External Analysis: The Identification of Opportunities and Threats Chapter 3 Essentials of Strategic Management,
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2 External Analysis: The Identification of Industry Opportunities and Threats.
Chapters Four & Five Identifying & Analyzing Market Opportunities.
The External Environment (Part Two) Porter’s Five Forces Industry Life Cycle.
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