Presentation on theme: "Measuring Market Opportunities: Forecasting and Market Knowledge"— Presentation transcript:
1 Measuring Market Opportunities: Forecasting and Market Knowledge 5Measuring Market Opportunities: Forecasting and Market Knowledge
2 Key Questions Before Making a Forecast. Purpose of the forecast?What specifically needs to be forecast?Importance of the past to the future?Method(s) to be used for forecasting?What could change the forecast?Forecast horizon? Long term ≥ 10 yrs; Medium Term: up to 5 yrs; Short term: up to 1 year.Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
3 Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. The Sales Forecast.Is based on a specific marketing plan.Stated as dollars or units.Estimate market and sales potential first.Establish marketing goals and broad strategies before making a sales forecast.Typically covers a 1-year period.Once made, the forecast becomes a key controlling factor in all operational planning throughout the company.Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
4 Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Forecasting.More than a “Sales” thing. Other organizational functions also forecasts variables that affect their operationsCommonly used methodsStatistical forecasting using high volumes of historical or collected dataExtrapolationsAnalogsExpert judgment/Delphi methodTop downBottom upMost companies use a combination of theseCopyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
5 Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Top Down vs. Bottom Up.Top Down: Assumption - international and national events affect the future behaviour of local variablesForecast of economic conditions and industry trends.Determine the product’s market potentialDetermine its sales potentialMeasure the firm’s current or desired market shareForecast sales for the firmBottom Up: Assumption - local events affect the future behaviour of global variablesDevelop customers/salespeople input for future demandCombine the estimates to get a total forecast.Adjust the forecast by managerial insights, competition, and general economic trends.Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
6 Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Discussion Question1. Of the two main approaches for sales forecasting - top-down and bottom-up - which is better? Why?Both approaches have merits:Each process typically has access to different information, and will likely result in different forecastsUsing both methods concurrently adds confidence to the forecast, if both methods produce similar resultsIf the results of the two approaches differ, useful discussions of the underlying assumptions will be surfacedCopyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
7 Forecast is Projecting Evidence. Evidence from:HistoryField/Market researchOther organizationsAlternative future possibilitiesPlans, strategies, and actions for futureIssuesChangesEtc.Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
8 How does one go from methods to math? Chain ratio method (how many total xxx?, how many fit yy criteria?, how many…?)Brand or category indices (e.g., best or worst regions, cities, months, circumstances, etc. for the occurrence of event xxx)What’s the logic behind the chain ratio method?# of households in target market times concept purchase intent = # of households that will try if aware# of households that will try if aware times awareness adjustment = # of households will try if they find product at their store# of households will try if they find product at their store times distribution adjustment = # who will try the productWhat’s the logic behind brand or category indices?Category Development Indices report the ratio of consumption in a certain category to population in a defined geographical area.Brand Development Indices compare sales for a given brand to population in a defined geographic areaCommonly used to assess whether a category or brand has above-average or below-average penetration in different geographic marketsCopyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
10 Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Discussion Question4. How fast will the adoption curve move for a particular innovation?Diffusion of innovation factors, in order of importance (Rogers 1983):(1) risk(2) relative advantage(3) relative simplicity(4) compatibility with current behavior(5) ease of small-scale trial(6) ease of communication of benefits.Then ask, “What are the implications of diffusion theory for forecasting new product market penetration?Diffusion theory suggests that high penetration levels are rare at the outset. Typically, first-year penetration levels include some but not all of the innovators, i.e., less than 2½ percent will likely adopt in year one.Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
12 Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Discussion Questions1. What’s a market?2. What’s a market segment?What’s a market?A group of individuals or organizations (i.e., buyers) having the willingness and ability to buy goods and services to satisfy a class of want or needWhat’s a market segment?A group of potential customers in a market who share similar wants and needs that are different from the wants and needs of consumers in other segmentsCopyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
13 Objectives of Market Segmentation Identify a homogeneous segment that differs from other segmentsSpecify criteria that define the segmentDetermine segment size and potentialCopyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
14 Defining Market Segments Three good ways to do it.Who the customers areWhere they areHow they behaveAsk, for each approach, “What tools do we have to define segments this way? Can you think of examples of markets typically segmented this way?”Who?Tools: demographic descriptors (age, income, gender, education, etc.): cereal, clothing, cosmetics, some magazinesWhere?Tools: geographic descriptors: suntan lotion, snow blowers, trade areas for retail storesHow they behave?Tools:Benefits sought: bicycles of various types, computers of various typesProduct usage: key accounts among organizational buyersLifestyle/psychographics: health clubs, automobiles/SUVsSocial class: jewelry, automobilesCopyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
15 Segmentation variables. Geographic: Region, country, populationdensity, climate…Demographic: Age, gender, income, occupation, What else???…Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
16 Segmentation variables. Psychographics: personality, lifestyles, values,attitudes…Behavioral: benefits sought, usage rate, brandloyalty, end use, readiness to buy, decisionmaker(s)…(George Day, 1980) Top-down approach: startwith the total population and divide it intosegments. Bottom-up approach: start with asingle customer and build on that profileCopyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
17 1. Choose criteria to measure market attractiveness and competitive Which Segments to Target? Constructing a Market Attractiveness/Competitive-Position Matrix1. Choose criteria to measure market attractiveness and competitive2. Weigh market attractiveness and competitive position factors to reflect their relative importance.3. Assess the current position of each potential target market on each factor.4. Project the future position of each market based on expected environmental, customer, and competitive trends5. Evaluate implications of possible future changes for business strategies and resources requirements.7
18 A Useful Tool for Assessing Market Segments: Segment Rating Chart WEIGHTRATING (0-10)TOTALMarket attractiveness factorsCustomer needs and behavior.5105.0Segment size and growth rate.372.1Macro trends.281.6Total: Market attractiveness1.08.7Competitive position factorsOpportunity for competitive advantage.64.2Capabilities and resources5Industry attractiveness1.4Total: Competitive position6.6Where does the necessary data come from to support the factor ratings?Primary and secondary marketing researchAnalytical frameworks from earlier chapters
19 Implications of Alternative Positions Within the Market-Attractiveness/Competitive-Position Matrix WeakMediumStrongBuild selectively:Spec. in limited strengthsSeek to overcome weak.Withdraw if indications of sustainable growth are lackingDesirable Potential TargetInvest to build:Challenge for leadershipBuild selectively on strengthsReinforce vulnerable areasDesirable Potential TargetProtect position:Invest to grow at max. digestible rateConcentrate on maintaining strengthHighLimited expansion or harvest:Look for ways to expand w/out high risk; otherwise min. invest. and focus operationsDesirable Potential TargetBuild selectively:Emphasize profitability by increasing productivityBuild up ability to counter competitionManage for earnings:Protect existing strengthsInvest to improve position only in areas where risk is lowMed.Market AttractivenessDivest:Sell when possible to maximize cash valueMeantime, cut fixed costs & avoid further investmentManage for earnings:Protect positionMinimize investmentProtect and refocus:Defend strengthsSeek ways to increase current earnings without speeding market’s declineLowSources: Adapted from George S. Day, Analysis for Strategic Market Decisions (St. Paul: West, 1986), p. 204; D. F. Abell and J. S. Hammond, Strategic Market Planning Problems and Analytical Approaches (Englewood Cliffs, NJ: Prentice Hall, 1979); and S. J. Robinson, R. E. Hitchens, and D. P. Wade, “The Directional Policy Matrix: Tool for Strategic Planning,” Long Range Planning 11 (1978), pp14
20 Differentiation and Positioning 7Differentiation and Positioning
21 Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. What is Positioning?A couple of definitionsCreating distinct and valued physical and perceptual differences between one’s product and its competitors, as perceived by the target customer.The act of designing the firm’s market offering so that it occupies a distinct and valued place in the minds of its target customers.Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
22 Other Positioning Strategies Re-positioning: changing the identity of a product, relative to the identity of competing products, in the collective minds of the target market.De-positioning: attempting to change the identity of competing products, relative to the identity of your own product, in the collective minds of the target market.Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
23 Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Positioning Conceptsthree types:Functional positionsSolve problemsProvide benefits to customersGet favorable perception by investors and lendersSymbolic positionsSelf-image enhancementEgo identificationBelongingness and social meaningfulnessAffective fulfillmentExperiential positionsProvide sensory stimulationProvide cognitive stimulationCopyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
24 Physical vs. Perceptual Positioning Analysis Exhibit 7.3 Physical positioningTechnical orientationPhysical characteristicsObjective measuresData readily availablePhysical brand propertiesLarge number of dimensionsRepresents impact of product specs and priceDirect R&D implicationsPerceptual positioningConsumer orientationPerceptual attributesPerceptual measuresNeed for marketing researchPerceptual brand positions and positioning intensitiesLimited number of dimensionsRepresents impact of product specs and communicationR&D implications need to be interpretedCopyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.2
25 Product Mix Strategies Market penetration versus market skimming PremiumGoodsPenetra-tionSuperBargainHighQualityOver-PricingAverageQualityBargainMediumHit andRunShoddyGoodsCheapGoodsLowHighMediumLowPriceCopyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
26 Generic Competitive Strategies Exhibit 7.1Competitive AdvantageLower CostDifferentiationBroad TargetCost Leadership StrategyDifferentiation StrategyNarrow TargetFocus Strategy(Differentiation Based)CompetitiveScopeSource: Adapted from Michael Porter, Competitive Advantage,New York: The Free Press, 1985, p. 12.
27 Steps in the Positioning Process Exhibit 7.4 (1 of 2) 1. Identify a relevant set of competitive products serving a target market.2. Identify the set of determinant attributes that define the “product space” in which positions of current offerings are located.3. Collect information from a sample of customers and potential customers about perceptions of each product on the determinant attributes.4. Determine product’s current location (positioning) in the product space and intensity thereof.Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.3
28 Steps in the Positioning Process Exhibit 7.4 (2 of 2) 5. Determine customers’ most preferred combination of determinant attributes.6. Examine the fit between preferences of market segments and current position of product (market positioning).7. Write positioning statement or value proposition to guide development and implementation of marketing strategy.8. PositionCopyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.4
29 Some Key Questions Concerning Positioning Decisions For whom are they written?In what sort of language?Should they focus on features or benefits?How many differentiating attributes should anchor them?For whom are positioning statements or value propositions written?An internal audience: marketing decision makers and ad agenciesShould they be written in catchy consumer language or “plain prose?”Plain prose. The ad agency or other creative staff will develop the catchy consumer language, based on the chosen positioning. Can the class think of examples of catchy current tag lines and the positioning they represent?Should they focus on features or benefits? Why?Benefits, which are ultimately why people buy (e.g., safety, for Volvo, vs. side door airbags)What’s a feature?A physical attribute of the good or service itselfWhat’s a benefit?The end-use consequences that the user will experience by using the productOn how many attributes should one’s positioning be based?One, or perhaps two at most. No more. Why?Clear and simple communicationNo confusion about what the product stands for.Examples?Volvo: Safety. Note there’s more Volvo could say, but here’s where they focus. (One attribute)Miller Lite beer: Tastes great. Less filling. (Two attributes)Domino’s Pizza: Originally, fast delivery. Later changed to hot delivery.Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
30 Marketing Strategies for New Market Entries 8Marketing Strategies forNew Market Entries
31 Marketing Strategy: Introduction Stage. Most important attributes at this stage are: Price & PromotionPriceLowHighHigh-ProfileStrategyPreemptivePenetrationStrategyHighPromotionSelectivePenetrationStrategyLow-ProfileStrategyLowCopyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
32 Marketing Strategy: Introduction Stage. 1.High-Profile Strategy (High price-High Promotion)When? - High control over offering- Low fear of competition2. Selective Penetration Strategy (High Price-Low Promotion)When? - High profitability- High fear of competition3. Preemptive Penetration Strategy (Low Price-High Promotion)When? - Strongly felt buyer need- Easy competitive entry4. Low-Profile Strategy (Low Price-Low Promotion)When? - Current Production constraints- Large potential marketCopyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
34 Categories of New Products Defined According to Their Degree of Newness to the Company and Customers in the Target Market (Exhibit 8.4.)High20%10%New productlinesNew-to-theworld productsNewness to the companyAdditions toexisting productlines26%26%Revisions/improvements toexisting products11%7%RepositioningsCostreductionsLowLowHighNewness to the marketSource: New Products Management for the 1980s (New York: Booz, Allen & Hamilton, 1982).2
35 Business Analysis for New Product. Product’s relationship to existing lineDevelopment CostsAvailable Personnel and facilitiesCompetition and Market acceptanceCopyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
36 Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Discussion Question1.Is it better to be a market pioneer, or a follower?What are the advantages for pioneers?First choice of market segments and positionsDefines the rules of the gameDistribution advantagesEconomies of scale and experienceHigh switching costs for early adoptersPossibility of positive network effectsPossibility of preempting scarce resources to suppliersWhat are the advantages for followers?Ability to take advantage of pioneer’s positioning mistakesAbility to take advantage of pioneer’s product mistakesAbility to take advantage of pioneers marketing mistakesAbility to take advantage of pioneer’s limited resourcesCopyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
37 Some Advice for Would-Be Pioneers Being a pioneer without the basis for sustainable competitive advantage is a trap!First mover advantage is trumped by pioneers who are better. Best beats first. Concentrate on being best.Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
38 Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Discussion Question2. When, and for whom, does it make sense to pursue a pioneer strategy?A pioneering firm stands the best chance for long-term success in market-share leadership and profitability when:The new product-market is insulated from the entry of competitors, at least for a while, by strong patent protection, by proprietary technology (such as a unique production process), by substantial investment requirements, or by positive network effects.The firm has sufficient size, resources, and competencies to take full advantage of its pioneering position and preserve it in the face of later competitive entries.Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
39 Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Discussion Question3. When, and for whom, does it make sense to pursue a follower strategy?A follower will most likely succeed when:There are few legal, technological, or financial barriers to inhibit entry.It has sufficient resources or competencies to overwhelm the pioneer’s early advantage.Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
40 Strategies for Growth Markets 9Strategies for Growth Markets