Understanding Market Opportunities Chapter Four: Understanding Market Opportunities Opportunities in Markets and Industries at the Macro and Micro Levels Exhibit 4.1: The Seven Domains of Attractive Opportunities

A Framework for Assessing Market Attractiveness, Macro Level Macro Trend Analysis: A Framework for Assessing Market Attractiveness, Macro Level Response Strategies*: -Opposition -Adaptation -Offensive -Redeployment -Contingency -Passive

Response Strategies to Environmental Issues Opposition strategy: The effectiveness of this strategy is limited because environmental factors are largely beyond the control of a firm. In some situations, a firm may, however, try to delay, attenuate, or otherwise influence ann environmental force. Lobbying and corporate issue advertising are examples of opposition strategy used by some large firms. Adaptation strategy: Adaptations are often compulsory as, for example, is the case with legislation on product specifications, packaging, and labeling. Choices often exist, however, in the type and extent of adaptation. The danger is that if an adaptation strategy is pursued to the extreme, the environment (not management) sets the pace and scope of strategic change. Offensive strategy: Such a strategy uses the environmental issue to improve the firm’s competitiveness position. A key environmental issue may have a destabilizing effect on an industry, which may create opportunities for more aggressive firms. This was the type of strategy used by Merck in its offer to cut its prices to Medicaid programs. Merck’s discounts would be 7 to 13 percent less than the company’s wholesale prices. Redeployment strategy: Faced with major environmental issues in one market, a firm may decide to redeploy its resources in other, less exposed areas. For example, tobacco companies such as Philip Morris and R.J. Reynolds have diversified into other consumer goods because of the environmental pressures concerning the health effects of cigarette smoking. Contingency strategies: One such strategy decreases the risk of being exposed to potentially harmful environmental events. For example, a search may be launched for substitutes for raw materials with volatile prices. Another contingency strategy designs alternative courses of action corresponding to the different possible evolutions of the environment. This involves isolating discreet environmental scenarios the firm may have to face in the future and designing appropriate responses for each. For example, gasoline-fueled cars have been restricted in certain localities, and, thus, some automobile companies have experimented with alternative powered vehicles. Passive strategy: This strategy calls for not responding to an environmental threat or opportunity. For example, in the early days of modern consumerism, some corporations took major public action to oppose their critics- which only provided greater exposure to the issue and worsened their images. A better alternative would have been not to have taken any action until performing more complex analyses and formulating an appropriate response. (adapted from Irwin/McGraw Hill)

Market Attractiveness: Porter’s Five Competitive Forces

Understanding Markets at the Micro Level -Target Segment Benefits and Attractiveness, i.e., evaluating segments (from prior classes) Information sources: see Exhibit 4.10, p. 101 Understanding Industries at the Micro Level Sustainable Competitive Advantage? e.g., Proprietary asset, Superior and difficult to copy organizational processes/capabilities/resources, better business model

The Team Domains Does the opportunity fit what we want to do? (Mission and Goals) Do we have the people/resources who can execute on the CSFs? What are the CSFs (“Critical Success Factor Map”) What are the people/resource capabilities? Do we have access to external enabling resources? (Links to capital, information, people, technologies, etc.)

Opportunity Assessment SWOT Analysis conducted for the Saturn Ion; the ratings in each cell have their basis in a thorough analysis of the company and the industry. M = Magnitude of element; I = Importance of element; R = total rating of element Opportunities M * I = R Many buyers desire unique features 3 3 9 Ability to personalize cars is growing in popularity 3 3 9 Many buyers have limited budgets 3 3 9 Strengths M * I = R Unique rear-door design 3 3 9 Above average HP for its class 3 3 9 Available high-tech features 3 3 9 Handling/suspension 2 3 6 Comparable gas mileage 2 3 6 Threats M * I = R Competing cars flashy and exciting -3 3 -9 Competing cars have long-standing image of Japanese-built quality -3 3 -9 Growing impact of op culture and fashion on car buying -2 3 -9 Safety not a big concern for young -2 2 -4 Weaknesses M * I = R Weak image as a “hip” car -3 3 -9 Exterior design does not stand out -3 3 -9 Not as refined as the competition -3 2 -6 Lacks mainstream appeal -3 2 -6 Little or no prior advertising -2 2 -4 See also Opportunity/Threat Matrix, p. 105-106