Measuring Market Opportunities: Forecasting and Market Knowledge 5.

Measuring Market Opportunities: Forecasting and Market Knowledge

5

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.

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.


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.


Forecasting. More than a “Sales” thing. Other organizational functions also

forecasts variables that affect their operations Commonly used methods

Statistical forecasting using high volumes of high volumes of historical or collected data

Extrapolations Analogs Expert judgment/Delphi method Top down Bottom up

Most companies use a combination of these


Top Down vs. Bottom Up.

Top Down: Assumption - international and national events affect the future behaviour of local variables

Forecast of economic conditions and industry trends. Determine the product’s market potential Determine its sales potential Measure the firm’s current or desired market share Forecast sales for the firm

Bottom Up: Assumption - local events affect the future behaviour of global variables

Develop customers/salespeople input for future demand Combine the estimates to get a total forecast. Adjust the forecast by managerial insights, competition, and

general economic trends.


Discussion Question

1. Of the two main approaches for sales forecasting - top-down and bottom-up - which is better? Why?


Forecast is Projecting Evidence. Evidence from:

History Field/Market research Other organizations Alternative future possibilities Plans, strategies, and actions for future Issues Changes Etc.


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)

Ideas for new products or new ventures: How fast will

customers adopt?

Earlymajority34%

Latemajority34%

Earlyadopters13.5% 16%

2.5%

Innovators

Laggardsand Non-adopters

Source: Adapted with permission from Marketing, 11/e, Acetate 8-8, by Michael J. Etzel, Bruce J. Walker, and William J. Stanton. The McGraw-Hill Companies, Inc. © 1997. All rights reserved.


Discussion Question

4. How fast will the adoption curve move for a particular innovation?

Targeting Attractive Market Segments

6


Discussion Questions

1. What’s a market?

2. What’s a market segment?


Objectives of Market Segmentation Identify a homogeneous segment

that differs from other segments Specify criteria that define the

segment Determine segment size and

potential


Defining Market SegmentsThree good ways to do it.

Who the customers are Where they are How they behave


Segmentation variables.Geographic: Region, country, population

density, climate…

Demographic: Age, gender, income, occupation, What else???…


Segmentation variables.Psychographics: personality, lifestyles, values,

attitudes…

Behavioral: benefits sought, usage rate, brand

loyalty, end use, readiness to buy, decision

maker(s)…

(George Day, 1980) Top-down approach: start

with the total population and divide it into

segments. Bottom-up approach: start with a

single customer and build on that profile

Which Segments to Target? Constructing a Market

Attractiveness/Competitive-Position Matrix

1. Choose criteria to measure 1. Choose criteria to measure market attractiveness and market attractiveness and

competitivecompetitive2. Weigh market attractiveness and 2. Weigh market attractiveness and

competitive position factors to reflect their competitive position factors to reflect their relative importance.relative importance.

3. Assess the current position of each 3. Assess the current position of each potential target market on each factor.potential target market on each factor.

4. Project the future position of each market based on 4. Project the future position of each market based on expected environmental, customer, and competitive expected environmental, customer, and competitive

trendstrends

5. Evaluate implications of possible future changes 5. Evaluate implications of possible future changes for business strategies and resources for business strategies and resources

requirements.requirements.

A Useful Tool for Assessing Market Segments: Segment Rating Chart

WEIGHT RATING (0-10) TOTAL

Market attractiveness factors

Customer needs and behavior .5 10 5.0

Segment size and growth rate .3 7 2.1

Macro trends .2 8 1.6

Total: Market attractiveness 1.0 8.7

Competitive position factors

Opportunity for competitive advantage

.6 7 4.2

Capabilities and resources .2 5 1.0

Industry attractiveness .2 7 1.4

Total: Competitive position 1.0 6.6

Implications of Alternative Positions Within the

Market-Attractiveness/Competitive-Position Matrix

High

Low

Med.

Mar

ket

Att

ract

iven

ess

Competitive PositionStrongMediumWeak

Desirable Potential TargetProtect position:• Invest to grow at max.

digestible rate• Concentrate on

maintaining strength

Desirable Potential TargetInvest to build:• Challenge for leadership• Build selectively on

strengths• Reinforce vulnerable areas

Build selectively:• Spec. in limited strengths• Seek to overcome weak.• Withdraw if indications of

sustainable growth are lacking

Desirable Potential TargetBuild selectively:• Emphasize profitability by

increasing productivity• Build up ability to counter

competition

Manage for earnings:• Protect existing strengths• Invest to improve position

only in areas where risk is low

Limited expansion or harvest:

• Look for ways to expand w/out high risk; otherwise min. invest. and focus operations

Protect and refocus:• Defend strengths• Seek ways to increase

current earnings without speeding market’s decline

Manage for earnings:• Protect position• Minimize investment

Divest:• Sell when possible to

maximize cash value• Meantime, cut fixed costs &

avoid further investment

Sources: 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), pp. 8-15.

Differentiation and Positioning

7


What is Positioning?

A couple of definitions Creating 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.


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.


Positioning Concepts three types: Functional positions

Solve problems Provide benefits to customers Get favorable perception by investors and lenders

Symbolic positions Self-image enhancement Ego identification Belongingness and social meaningfulness Affective fulfillment

Experiential positions Provide sensory stimulation Provide cognitive stimulation


Physical vs. Perceptual Positioning Analysis

Exhibit 7.3

Physical positioning• Technical orientation• Physical characteristics• Objective measures• Data readily available• Physical brand properties

• Large number of dimensions

• Represents impact of product specs and price

• Direct R&D implications

Perceptual positioning• Consumer orientation• Perceptual attributes• Perceptual measures• Need for marketing research• Perceptual brand positions

and positioning intensities• Limited number of dimensions

• Represents impact of product specs and communication

• R&D implications need to be interpreted


Product Mix StrategiesMarket penetration versus market skimming

PremiumGoods

Penetra-tion

SuperBargain

Over-Pricing

AverageQuality

Bargain

Hit andRun

ShoddyGoods

CheapGoods

Medium

High

Low

Qu

ality

Price

High Medium Low

Generic Competitive StrategiesExhibit 7.1

Lower Cost Differentiation

Broad TargetCost

Leadership Strategy

Differentiation Strategy

Narrow Target

Focus Strategy

Focus Strategy

(Differentiation Based)

Competitive Advantage

CompetitiveScope

Source: Adapted from Michael Porter, Competitive Advantage,New York: The Free Press, 1985, p. 12.


Steps in the Positioning Process

Exhibit 7.4 (1 of 2)

1. Identify a relevant set of competitive products serving a 1. Identify a relevant set of competitive products serving a target market.target market.

2. Identify the set of determinant attributes that define the “product 2. Identify the set of determinant attributes that define the “product space” in which positions of current offerings are located.space” in which positions of current offerings are located.

3. Collect information from a sample of customers and 3. Collect information from a sample of customers and potential customers about perceptions of each product on the potential customers about perceptions of each product on the

determinant attributes.determinant attributes.

4. Determine product’s current location (positioning) in the product 4. Determine product’s current location (positioning) in the product space and intensity thereof.space and intensity thereof.


Steps in the Positioning Process

Exhibit 7.4 (2 of 2)

5. Determine customers’ most preferred combination of 5. Determine customers’ most preferred combination of determinant attributesdeterminant attributes..

6. Examine the fit between preferences of market segments and 6. Examine the fit between preferences of market segments and current position of product (market positioning).current position of product (market positioning).

7. Write positioning statement or value proposition to guide 7. Write positioning statement or value proposition to guide development and implementation of marketing strategy.development and implementation of marketing strategy.

8. Position8. Position


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?

Marketing Strategies for

New Market Entries

8


Marketing Strategy: Introduction Stage.

Price

High Low

Pro

mo

tion High

Low

High-Profile Strategy

Preemptive Penetration

Strategy

Selective Penetration

Strategy

Low-Profile Strategy

Most important attributes at this stage are: Price & Promotion


Marketing Strategy: Introduction Stage.1.High-Profile Strategy (High price-High Promotion)When? - High control over offering - Low fear of competition

2. Selective Penetration Strategy (High Price-Low Promotion)When? - High profitability - High fear of competition

3. Preemptive Penetration Strategy (Low Price-High Promotion)When? - Strongly felt buyer need - Easy competitive entry

4. Low-Profile Strategy (Low Price-Low Promotion)When? - Current Production constraints - Large potential market

How do opportunities evolve

over time?

Source: Reprinted with permission from p. 60 of Analysis for Strategic Marketing Decisions, by George Day. Copyright © 1986 by West Publishing Company. All rights reserved.

Time (years)

Pro

du

ct c

ateg

ory

sal

es(r

eal d

olla

rs)

Pro

fit

per

un

it(r

eal d

olla

rs)

Profit/unitSales

Life cycleextension

GrowthCompetitiveturbulence

Maturity Decline orextension

Introduction

Categories of New Products Defined According to Their Degree of Newness to the Company and Customers in the

Target Market (Exhibit 8.4.)

High

Low

Low HighNewness to the market

Source: New Products Management for the 1980s (New York: Booz, Allen & Hamilton, 1982).

New

nes

s to

th

e co

mp

any

26% 26%

20%

New productlines

Revisions/improvements to existing products

11%Cost

reductions

7%

Additions to existing product

lines

Repositionings

10%New-to-the

world products


Business Analysis for New Product.

Product’s Product’s relationship to relationship to

existing lineexisting line

Product’s Product’s relationship to relationship to

existing lineexisting line

Development Development CostsCosts

Development Development CostsCosts

Available Available Personnel and Personnel and

facilitiesfacilities

Available Available Personnel and Personnel and

facilitiesfacilities

Competition and Competition and Market Market

acceptanceacceptance

Competition and Competition and Market Market

acceptanceacceptance


Discussion Question

1.Is it better to be a market pioneer, or a follower?


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.


Discussion Question

2. When, and for whom, does it make sense to pursue a pioneer strategy?


Discussion Question

3. When, and for whom, does it make sense to pursue a follower strategy?

Strategies for Growth Markets

9

Measuring Market Opportunities: Forecasting and Market Knowledge 5.

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