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  1. 1. MODULE 2: PRODUCT CREATION Product Creation : Market Analysis Objectives of Market Analysis section: to provide participants an overview of marketing and its importance in the product innovation process examine external marketing environmental forces affecting marketing decisions expose participants to the concept of markets and markets segments Students completing this section should be able to: understand the market analysis process analyze environmental forces affecting the team idea under consideration identify market segment, and their potential for actual idea LECTURE NOTES: MARKET.DOC ENTREPRENEURSHIP
  2. 2. MODULE 2: PRODUCT CREATION Market Analysis1 2 Success is likely in markets that have high sales potential, can be easily entered and penetrated, require small investments for large rewards, and are low risk. These general criteria are shown in the following table along with some of the specific measures that can represent them. Desirable Characteristics of Markets General Characteristic Measure Potential Size of Market, Sales growth Rate Penetration Vulnerability of Competitors Scale Share of Market, Cumulative Sales Volume Input Investment in Dollars and Technology Rewards Profits Risk Stability, probability of Losses Potential Market potential is measured by size of the market in dollars' sales and the growth of the market. However, growth in potential is a key to identifying new opportunity. In stable market sales will have to be taken directly from competitors, and in a growing market is also one where prices and margins are higher and, therefore, more desirable. Penetration Although a market is growing, it may not be a good opportunity unless it can be pretended. Some vulnerability to product improvement should be evident. In some cases, vulnerability is so high that even a stable category can be attractive. Scale Potential and penetration are critical to achieving a large-scale operation both in terms of market share and sales volume. Market share is important because of its 1 USE TRANSPARENCIES SLIDES MARKET.PPT 2 Urban, Glen, and J.H. Hauser, Design and Marketing of New Products (Pretince- Hall., Englewood, NJ) 1980 MARKET.DOC ENTREPRENEURSHIP
  3. 3. MODULE 2: PRODUCT CREATION relationship to profitability. Large share in market gives a firm relative strength and dominance in that market hence control over strategy in market. Input The more investment required by a market for entry and penetration, the less attractive it is. For a given level of sales volume, a larger financial investment makes a market potentially less profitable. The stakes are higher and a failure is more desisting to an organization. Large market entry costs act as barriers to discourage competitive entry and as a result could lead to long-term profitability. Those who pay the entry costs may find a more stable price environment in their market. Reward Large scale is not enough to select a market. An organization may reject a market with a low investment requirement if it cannot achieve a good return on that investment-especially if the administrative overhead of entering a market makes the profit insufficient. Risk Markets characterized by instability of demand and uncertainty of supply can be very risky. In markets vulnerable to rapid competitive entry or subject to changes in government regulation, risk will be high and it may be difficult to maintain a profitable product. MARKET.DOC ENTREPRENEURSHIP
  4. 4. MODULE 2: PRODUCT CREATION SOME FACTORS TO BE CONSIDERED IN MARKET ANALYSIS3 Market Characteristics Sales potential Input Size of Market Investment Required Growth rate of sales Raw Material Availability Length of life Cycle Technological Advancement Penetration Reward Cost of Entry Margin Size Time of Become Established Competitiveness of Pricing Vulnerability of Competition Structure Potential Users Advantages Return on Investment Scale Risk Potential of Market Share Stability Likelihood of Competitive Entry Probability of Retaliation Significance of Experience Chances of Failure Curve Patent Protection Rate of Technological Change Possibility of Adverse Regulation Match of Organizations’ Capabilities Have Financial Resources required Match Physical Distribution System Match to Marketing Capabilities Utilize Existing Sales Force Can Handle Technology, R&D Experience Know-How, Probability of Technical Completion Ability to Service Product Comparability of Other Products Management Skills and Experience in the Market MARKET ENVIRONMENT FACTORS 3 Urban, Glen, and J.H. Hauser, Design and Marketing of New Products (Pretince- Hall., Englewood, NJ) 1980 MARKET.DOC ENTREPRENEURSHIP
  5. 5. MODULE 2: PRODUCT CREATION REGULATION COMPETITION POLITICS MARKETING MIX SOCIETY TECHNOLOGY ECONOMIC CONDITIONS Market environment includes all the forces outside an organization that directly or indirectly influence its marketing activities. Any one of these forces can dramatically change the course of an organization. Competition refers to the rivalry among businesses for costumer dollars. Regulation consists in laws and regulatory agencies that influence the conduct of business. Politics are the policies and goals of the government and its elected officials, and regulations are closely related to forces of the marketing environment. Society includes all the individuals that make up the population of a country and their characteristics and values. Economic conditions are those forces in the economy, such as consumer buying power, consumer spending behavior, and the business cycle, that influence organization’s abilities to compete and consumer’s ability to purchase goods and services. Technology is the knowledge of how to accomplish tasks and goals. Its enables people to develop machines, materials, and processes that allow society to have a higher standard of living. MARKET SEGMENTATION4 The managerial concept underlying market segmentation is the identification of a group of consumers who have needs or reponses that are 4 Urban, Glen, and J.H. Hauser, Design and Marketing of New Products (Pretince- Hall., Englewood, NJ) 1980 MARKET.DOC ENTREPRENEURSHIP
  6. 6. MODULE 2: PRODUCT CREATION different from other consumers. A product intended for the total market may have only marginal success if consumers have different preferences. Identify a segmentation strategy, an organization must weigh consumer needs and desires with the current and potential segmentation strategies of the other firms in the product category. The best segmentation strategy will be one that identifies a group of consumers likely to purchase a new product at price and quantity sufficient to satisfy profit goals and one that is defensible against rapid competitive reponses. The following table gives various criteria that can be used to define segments and some measures that can be used to represent them. Criteria and Measures for Market Segmentation Criteria Measures Demographic & Socioeconomic Age, income, sex, race, martial status, family size, geographic, education, occupation, life cycle Attitudes Personality, life style, product perceptions Usage Rate Heavy/light; buying patterns Preference/Choice Elasticity to price, importance of product attributes, purchase vs. user MARKET.DOC ENTREPRENEURSHIP