Industry/Market Potential

Understanding Segmentsand

Exploiting Gaps

Mapping the Industry or Market

Key Questions:– What products are in the industry?– Which markets or customers are served?– Who are the current competitors?– Where are the competitors found?

THE BASIS FOR SEGMENTATION: CUSTOMER AND PRODUCT CHARACTERISTICS

BUYERS

Industrial Buyers

Household Buyers

Distribution Channel

Geographic Region

Size

Industry

Technical Sophistication

OEM/ Replacement

Demographics

Lifestyle

Purchase Occasion

Distributor/ Broker

Size

Exclusive/ Non-exclusive

General/ Special List

PRODUCTS

Physical Size

Price Level

Features

Technology/ Design

Imports Employed (e.g., Principal Raw Material)

Performance

Bundled/ Unbundled

Segment of the U.S. Beer Market

Distribution channel

Customer Type (Geographic Region)

Product Type

Supe

rmar

kets

Inde

pend

ent

food

stor

es,

conv

enie

nce

stor

es Liqu

or

Stor

es

Bars

&

Res

taur

ants

Malt liquor

Popular budget-priced

Light beers

Premium beers (except light)

Super premium

Luxury-priced imports

North-eastMidwest

South-east

South-west

West

INDUSTRYRIVALRY

BARRIER TO ENTRY / EXIT

BUYERSSUPPLIERS

SUBSTITUTES

NICHE MARKET

CORE MARKET OLD RULES

NEW RULES

DEVELOP A PRODUCT-MARKET MATRIX

- List products on the vertical axis.

- List markets on the horizontal axis.

- List competitors in each product market.

Market 1 Market 2 Market 3 Market 4Product 1 Competitor1

Competitor3Competitor1 Competitor1 Competitor1

Product 2 Competitor3 Competitor5Competitor5

Competitor5Competitor6

Competitor2

Product 3 Competitor3 Competitor1Competitor3

Competitor1

Advantages:

- We begin to understand the product-markets evolution of the industry.

- We identify sequence of new entrants.

- We identify products and markets that are under-served = GAPS

Core

Which are the Biggest, Fastest Growing, and Most Profitable Customer Segments?

SEGMENTPROFITABILITY

High

Low

Low High

Segments to Focus On

CUSTOMER SEGMENTS

Data Needed

Identification of customer segments (according to needs, behaviors, and key characteristics)Current size and value of each customer segmentProbability of each customer segments

Circle size represents millions spend

Analyzing segment alternatives: Applying the five forces of competition.

Suppliers

Threat of mobility

Segment Rivalry Substitute

Buyers

Buyer types

Prod

uct t

ypes

Two-Dimensional Niche Space for Two Competitors, A and B

a

aa

a

b

b

b

a

a

b

bA*

Income

$ 40,000

35 years Age

Competitor A’sNiche Boundary

Niche Centroid

Competitor B’sNiche Boundary

Fringe Customers

B

B B

B

B

B

B

A

A

A

AA

A

A

A

A A

Core Customers

Brand A Brand BCore Customers 11 7Niche Potential 15 11Niche Share 11/15 = 73.3% 7/11 = 63.6%Market Potential 29 29Market Share 17/29 = 58.6% 12/29 = 41.4%Competitive Niche Share 3/15 = 20.0% 4/11 = 36.4%

Outcomes of Segmentation Analysis

• Who buys our product and why° (buyer profiles-psycho/socio/geo/demographic)° Need or function fulfilled° Problems solved

• Who does not buy our product (light users—non-buyer profiles)° When purchased° Where (channel) purchased

•Rivals & Substitutes

° Which competitors are selling what and to whom

° What alternatives are buyers purchasing to satisfy the need/function/problem for which our product competes

• Segment Attractiveness° Current size-revenue/profit potential° Demand penetration/growth° Competition° Compatibility with strategy/supply/distribution chain

Segmentation Gap Analysis Allows Managers to:Divide the market into meaningful and measurable segments according to customers’ profiles (needs, attitudes, behaviors, attributes) and products offered (existing or new).

Estimate the size and profit potential of each segment by analyzing the revenue and cost impacts of serving each segment.

Target segments according to their potential (profit, entry, defensive) and to the company’s ability to serve them in a proprietary way.

Invest resources to tailor product, service, marketing, and distribution programs to conform to the needs of each targeted segment.

Continuously monitor each segment (customer/product shifts, competition, penetration) and adjust the approach over time as conditions change.

Before Entry - Some Important Questions to Ask

• What gaps will you fill? And why does that gap exist?• Will your entry give rise to a new product market?• How will your entry affect current product markets?• How might current competitors respond to your entry?• How will targeted customers respond to your entry?• What competitive advantage (if any) will you possess?• What might be your major vulnerabilities?• What can your firm do to preempt and respond to

competitors?

Identify Potential Market Gaps

Potential No. of

Customers

Untapped Market Demand

Current Business Segment

60%Personal Users

40%

Price/cost

Competitive Gap

Usage vs. Needs

Compatibility

Performance, speed, features,

etc.

Distribution gap

Usage Gap

Can’t afford at this price

Competitor’s products satisfy

Product does not fit

customer’s needs or situation

Noncustomers cannot obtain

Noncustomers unaware

Expand the product linea. Fill out existing product lineb. Add product line elements Expand distributiona. Broaden distribution coverageb. Increase distribution intensityc. Improve distribution exposure Stimulate heavier usea. Find new users by1  1.Stimulating nonusers to use2  2.Stimulate light users to use more3  3.Increase amount used each occasion b. Find new uses for the product c. Promote product usage at new timesPenetrate competitors’ positionsa. Direct assault on competitorsb. Attack substitutes Defend your present position

Price/Product line gap

Distribution gap

Usage gap

Competitive gap

Your sales

Three Different Types of Distribution Gaps1. Distribution COVERAGE Gap Firm fails to distribute its products in all geographic regions2. Distribution INTENSITY Gap Firm has an inadequate number of outlets to distribute its products

3. Distribution EXPOSURE Gap Firm has poor or inadequate shelf space, location,

displays, etc. within outlets

DEVELOP A PRODUCT-MARKET MATRIX

- List products on the vertical axis.

- List markets on the horizontal axis.

- List competitors in each product market.

Market 1 Market 2 Market 3 Market 4Product 1 Competitor1

Competitor3Competitor1 Competitor1 Competitor1

Product 2 Competitor3 Competitor5Competitor5

Competitor5Competitor6

Competitor2

Product 3 Competitor3 Competitor1Competitor3

Competitor1

Advantages:

- We begin to understand the product-markets evolution of the industry.

- We identify sequence of new entrants.

- We identify products and markets that are under-served = GAPS

Core

Analyzing segment alternatives: Applying the five forces of competition.

Suppliers

Threat of mobility

Segment Rivalry Substitute

Buyers

Buyer types

Prod

uct t

ypes

MarketPenetrationStrategy

Product DevelopmentStrategy

MarketDevelopmentStrategy

Product/MarketDiversificationStrategy

New ProductsExisting Products

ExistingMarkets

New Markets

Levi’s possible growth modes

Repositioning Levi’s

Lewis has figured out that kidsdon’t wear the same jeans theirparents do and that trendy retailers don’t stock the same lines as J.C.Penny. So it’s creat-ing a portfolio of dozens of brandsand sub-brands, from cheapbasics to high-priced fashion

Dockers K-1 $65

Slates Collection$60Red Tab Dry Good

$45

Red Tab Elesco$60

Red Line$100

Vintage $125+

Silver Tab$45

Sta-Prest$75

L2$30

DockersEquipmentFor legs$100+

Slates$65

DockersPremium$50

501$35

Red TabBasics$30

DockersClassic$30

Low Price

High Price

ClassicDesigner