1. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Understanding Market Opportunities 4 C H A P T E R FOUR

2. 4-2 Exhibit: 4.1 The Seven Domains of Attractive Opportunities Macro Level Micro Level Market Domains Industry Domains Mission, Ability to Aspirations, Execute Propensity on CSFs for Risk Connectedness up and down Value Chain Team Domains Market Attractiveness Target Segment Benefits and Attractiveness Industry Attractiveness Sustainable Advantage

3. 4-3 Difference between Markets and Industries ‡A market is a group of individuals or organizations having the willingness and ability to buy goods or services to satisfy a particular class of wants or needs ‡An industry is a group of organizations offering goods or services that are similar and close substitutes for one another

4. 4-4 Macro Trend Analysis oThe macroenvironment can be divided into six major components: oDemographic oSociocultural oEconomic oRegulatory oTechnological oNatural

5. 4-5 Macro Trend Analysis (continued) oDemographic trend examples/businesses affected: oGraying of the population/nursing homes, hospitals oIncrease in ethnic population/food, clothing industries oSociocultural trend examples/businesses affected: oEvolution of the family structure/food, women’s apparel oExercise for both genders is in/exercise clothing, sports beverage

6. 4-6 oEconomic trend examples/businesses affected: oIncrease or decrease of interest rates/capital goods, real estate oFree trade agreements/goods and services oRegulatory trend examples/businesses affected: oGovernment regulation/food, drug oGovernment deregulation/airlines, trucking, railroads, telecommunications, and banking Macro Trend Analysis (continued)

7. 4-7 oTechnological trend examples/businesses affected: oDevelopment of fiber-optic cables/telecommunications, computers oProduction of more disease-resistant livestock and plants/farming and ranching, food oPhysical trend examples/businesses affected: oGlobal warming/ ski resorts, winter tourism Macro Trend Analysis (continued)

8. 4-8 The Major Forces that Determine Industry Attractiveness Exhibit 4.7 The Major Forces that Determine Industry Attractiveness Threat of substitute products Bargainingpower of suppliers Threat of new entrants entrants Bargainingpower of buyers Rivalry among existing industry firms

9. 4-9 Porter’s Five Competitive Forces oRivalry among present competitors oRivalry is greater under the following conditions: oThere is high investment intensity oThere are many small firms in an industry or no dominant firms exist oThere is little product differentiation oIt is easy for customers to switch from one seller’s products to those of others

10. 4-10 Porter’s Five Competitive Forces (continued) oThreat of new entrants oEntry is more difficult under the following conditions: oWhen strong economies of scale and learning effects are present oWhen the industry has high capital requirements oWhen strong product differentiation exists among current players oIf gaining distribution is particularly difficult

11. 4-11 oBargaining power of suppliers oTheir power is increased under the following conditions: oIf the cost of switching suppliers is high oIf prices of substitutes are high oIf suppliers can realistically threaten forward integration oWhen the supplier’s product is a large part of the buyer’s value added Porter’s Five Competitive Forces (continued)

12. 4-12 oBargaining power of buyers: oThe extent to which buyers succeed in their bargaining efforts depends on several factors: oThe extent of buyer concentration oSwitching costs that reduce the buyer’s bargaining power oThe threat of backward integration oThe product’s importance to the performance of the buyer’s product oBuyer profitability oThreat of substitute products Porter’s Five Competitive Forces (continued)

13. 4-13 Information Sources for Macro-Level Analyses oTrade associations oTrade magazines oGeneral business and popular press oThe Internet

14. 4-14 Understanding Markets at the Micro Level oOpportunities are attractive when market offering meets most/all of the following tests: oThere is a clearly identified source of customer pain, for some clearly identifiable set of target customers, which the offering resolves oThe offering provides customer benefits that other solutions do not oThe target segment is likely to grow oThere are other segments for which the currently targeted segment may provide a springboard for subsequent entry

15. 4-15 Understanding Industries at the Micro Level oOpportunities are attractive when the company itself meets most/all of the following tests: oIt possesses something proprietary that other companies cannot easily duplicate or imitate oThe business has or can develop superior organizational processes, capabilities, or resources that others would find it difficult to imitate or duplicate oThe company’s business model is economically viable

16. 4-16 The Team Domains oOpportunities are only as good as the people who will pursue them oKey questions: oWhat are the missions, aspirations and risk propensity of the team? oDoes the team have the ability to execute on the industry’s critical success factors? oIs the team well connected up and down the value chain?

17. 4-17 Opportunity/Threat Matrix for a Telecommunications Company in the U.K. in 2007 Exhibit 4.15 Opportunity/Threat Matrix for a Telecommunications Company in the U.K. in 2007 Probability of Occurrence (2012) Level of Impact on Company* 41 23 High Low 1. Wireless communications technology will make networks based on fiber and copper wires redundant. 2. Technology will provide for the storage and accessing of vast quantities of data at affordable costs. 3. The prices of large-screen (over 36-inch) digitalized TV sets will reach mass-market prices. 4. Voice-over-Internet Protocol (VoIP) will emerge as a dominant force in the telecommunications industry. *Profits or market share or both. High Low

18. 4-18 Anticipating and Responding to Environmental Change oImpact and timing of event oMany environmental events that could have an impact on the firm can be detected oProbability of events occurrence and the degree of impact can be determined by using opportunity/threat matrix.