©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ANALYZING THE INDUSTRY AND MARKET 5

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objectives  Explain the difference between an industry and a market.  Discover effective ways to research and analyze an industry.  Determine first customer and the characteristics of the market.  Understand anthropological techniques for understanding customers.  Gather competitive intelligence.

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Definitions  Industry: a grouping of businesses that interact in a common environment as part of the value chain or distribution channel  Market: a grouping of customers that an entrepreneur targets  First customer: represents that segment of the marketplace that needs the product or service most

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. An Overview of Industry Analysis  Data collected should answer the following key questions: What does the industry look like? Is the industry growing? Where are the opportunities? What is the status of any new technology? How much do industry companies spend on research and development? Who are the opinion leaders in the industry? Are there young, successful firms in the industry? What does the future look like? Are there any threats to the industry? What are the typical margins in the industry?

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Gathering Secondary Sources of Industry Information  Common broad industries are easier to research using online and library resources.  Tips for researching smaller industries: Check the business press Talk to trade associations Consult trade association journals Check organizations that list government and agency resources Look at blogs, wikis, websites, and social networking sites

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Primary Industry Data  Secondary industry data needs to be validated by talking with people in the industry (primary data): Industry observers Suppliers and distributors Customers Employees of key firms in the industry Professionals from service organizations Trade shows

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Understanding Industry Life Cycles  Industries and products move through a life cycle that includes: Birth Growth and adaptation Differentiation and competition Shakeout Maturity and decline

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Industry Life Cycles Figure 5.1

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Industry Trajectories Figure 5.2

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Porter’s Five Forces Model  Barriers to entry: Economies of scale Brand loyalty Capital requirements Switching costs for the buyer Access to distribution channels Proprietary factors Government regulations

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Porter’s Five Forces Model (cont’d)  Threats from substitute products: Products/services which accomplish the same function in a different way or at a different price  Threats from buyers’ bargaining power: The more large buyers understand the nature of the industry and the more products are standardized, the greater the likelihood that these buyers will have significant bargaining power.

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Porter’s Five Forces Model (cont’d)  Threats from suppliers’ bargaining power: If the number of these suppliers is few relative to the size of the industry or the industry is not the primary customer of the suppliers, the suppliers’ potential power to raise prices or change the product quality of goods/services supplied to manufactures and distributors is greater.  Competitive rivalry among existing firms: In general, a highly competitive industry will drive down profits and ultimately the rate of return on investment.

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. PEST Analysis Figure 5.4

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Characterizing the Target Market  Key questions to answer : What are the potential markets for the product or service? Of these potential markets, which customers are most likely to purchase the product or service at market introduction? How much do these customers typically buy, how do they buy, and how do they hear about the product or service? How often do they buy? What is their buying pattern? How can the new venture meet these customers’ needs?

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Characterizing the Target Market (cont’d)  Goals in market research: 1.Identify and profile the first customer 2.Estimate potential demand from that customer 3.Identify subsequent customer segments and needs to grow the company

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Targeting the First Customer  Steps in market research: 1.Assess your information needs 2.Research secondary sources first 3.Measure the target market with primary research 4.Forecast demand for the product or service

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exploring the Market with Primary Data  Primary research techniques: Anthropological techniques Structured interviews Informal focus groups (group interviews) Survey techniques Online In-person Phone

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Customer Matrix  Segment the market with a customer matrix to determine primary or first customer. CustomerPainBenefitDistributionCompetition Hospital Administration – customer who pays Need to increase productivity and reduce risk in patient procedures Save money and decrease potential for litigation Medical equipment distributor Siemens (Acuson), General Electric, SonoSite, Zonare, Pocketsonics, Signostics - Australia Table 5.4 (in part)

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Primary Customer Profile  Profile information is critically important to the eventual marketing strategy.  Profile information should include: Age Income level Education Buying habits – when, where, how much Where customer finds products/services How customer would like to purchase

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Gathering Competitive Intelligence  Identify the competition Three types of competitors for a product or service: Direct Indirect or substitute Emerging or potential

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Gathering Competitive Intelligence (cont’d)  Find information about competitors Visit competitors’ websites or outlets where product is sold Buy competitors’ products Use internet search engines to read what customers are saying Find information on public companies to serve as benchmarks for the industry  Deal with competition

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. New Venture Action Plan Identify the NAICS code for the new venture industry. Collect secondary data on the industry. Conduct field research. Develop an industry profile. Define the target market and first customer. Gather primary data to develop customer profile. Gather competitive intelligence and determine the impact on the new venture launch strategy.