The Stage-Gate Model
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The Stage-Gate Model

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The Stage-Gate Model The Stage-Gate Model Document Transcript

  • Marketing Analysis Learning Objectives By the end of this chapter, you should: Understand which aspects define a market analysis. Understand the purpose of analysis in each aspect. Be able to analyze each aspect so that it is relevant to your product. Introduction Market analysis is a process that seeks to identify and quantify the features of the market by using a range of Market Research techniques. Based on a clearer understanding of consumers, customers, competitors, distribution channels etc., the business is then able to market more effectively. The goal of a market analysis is to determine the attractiveness of a market and to understand its evolving opportunities and threats as they relate to the strengths and weaknesses of the firm. In business the most commonly considered dimensions of a market are: Market size (current and future). Market segmentation. Market share. Market growth rate. Distribution channels. Market Size Perhaps the most important question confronting anyone thinking about creating a start up company, or marketing any product for that matter, is how do you determine the size of the potential market? The size of the market can be evaluated based on present sales results and on the potential sales if the use of the product were expanded. It is measured by the total volume and or value of all sales in the market. Sales volume is measured in terms of the Page 1 of 9
  • Marketing Analysis number of units of goods purchased, whilst sales value measures the total amount spent by the customers on the volume of goods sold. Estimating market size is an essential first step to calculating the market share of a business, and of its competitors. Some useful information sources for determining market size are: Government data. Trade associations. Financial data from major players. Customer surveys. Determining the Future Market Size The first thing to note about almost all methods for estimating market size is that they are based on deconstructing the larger question into smaller problems, and then building the results of these smaller problems into an estimate. The best way to see this approach is by estimating the market size as follows: [1] m=nxqxp where m = market size. n = number of buyers in the market. q = quantity purchased by an average buyer in the market per year. p = price of an average unit. This is a common technique used by many companies, with the major difference being how they break the problem down and how they build it back up. For example, an Internet Service Provider may think of the number of buyers at the level of a household - since a household buys the Internet service, not an individual. In contrast, an application service provider (ASP) selling to corporations would likely focus on the employees in the company who will use the service, rather than the company itself. Chain Ratio Method The art of breaking down a problem and then building it back up is also at the heart of the chain ratio method, but it is more focused on the size of the market in term of number of customers. Think of Page 2 of 9
  • Marketing Analysis this as trying to determine the value of the ‘number of buyers in the market’ in the simple equation above. This method can be used by either breaking down the problem into smaller problems, then building up, or estimating (really almost guessing) the size of the total market and then doing some fine tuning. Consider how you could use this to determine the size of your own market. Start with the universe of all possible buyers. Then systematically use percentages to fine tune the problem. The important thing is to do this in a logical manner, and clearly state your assumptions as you go along. Some of the assumptions can verify the data, others will not verify, but for those that do not verify you can do sensitivity analysis – change the numbers and see how much of a change you have in the final result – to see if the assumption is really that critical or not. [1] Market Segmentation Attractiveness of a Market Segment The following are some examples of aspects that should be considered when evaluating the attractiveness of a market segment [2]: Size of the segment, i.e. the number of customers and/or the number of units. Growth rate of the segment. Competition in the segment. Brand loyalty of existing customers in the segment. Attainable market share given promotional budget and competitors’ expenditure. Required market share to break even. Sales potential for the firm in the segment. Market research and analysis is instrumental in obtaining this information. For example, buyer intentions, sales force estimates, test marketing, and statistical demand analysis are useful for determining sales potential. Page 3 of 9
  • Marketing Analysis Suitability of a Market Segment Market segments also should be evaluated according to how they fit the firm’s objectives, resources, and capabilities. Some aspects of fit include [2]: Whether the firm can offer superior value to the customers in the segment. The impact of serving the segment on the firm’s image. Access to distribution channels required to serve the segment. The firm’s resources vs. capital investment required to serve the segment. The better the firm’s fit to a market segment and the more attractive the market segment, the greater the profit potential to the firm. Target Marketing Target marketing is the process of selecting one or more market segments and then developing a product and offer which is aimed specifically at these segments. The process involved is: Select market segment. Identify key attributes of customers towards product. Ensure product is appropriate. There are several different target marketing strategies, including: Single segment strategy: Here, one marketing mix is offered to a single market segment, rather than the entire market. This strategy is also referred to as a concentrated strategy. Smaller companies, with limited resources often favour this approach. Selective specialization: Various different marketing mixes are offered to different segments in this strategy. However, it is not always necessary to change the product itself here, simply varying the promotional message or distribution channels can be sufficient. This multiple segment strategy is also know as a differentiated strategy. Page 4 of 9
  • Marketing Analysis Product specialization: A particular product is altered and varied making it more relevant to different market segments in this strategy. Market specialization: The company will specialize on serving a particular market segment, offering a variety of different products to that market. Full market coverage: A company that uses this strategy will attempt to serve the entire market. Either a mass marketing strategy can be used where a single undifferentiated marketing mix is offered or a differentiated strategy where separate marketing mixes are offered to each segment. [2] Market Share What is Market Share and Why is it Important? In marketing, market share is the percentage or proportion of the total available market or market segment that is being serviced by a company. It can be expressed as a company’s sales revenue from that market divided by the total sales revenue available. It can also be expressed as a company’s unit sales volume in a market divided by the total volume of units sold. Therefore, the two important measures are by: Sales revenue. Sales volume (the number of units sold). Market share analysis is an important part of market analysis and indicates how well a firm is doing in the marketplace compared to their competitors. The result of the analysis is very useful to help decide new strategies for an already released product. Page 5 of 9
  • Marketing Analysis Measuring Market Share An accurate measure of the market share is dependent on several factors [3]: A satisfactory definition of market. This would answer questions such as products to include, which geographical areas, which means of distribution? The availability of reliable, up-to-data information. Agreement on which measures of share are most relevant. For example, should market share be calculated on the basis of sales revenues, profits, units produced or some other measure that competitors in the market generally recognise as valid. Market Growth Rate Market growth rates are a key indicator of the health of your company. If your company sales growth is greater than or equal to market growth, your firm is comparatively healthy. If, however, your company’s growth in sales is less than market growth, it is very likely your firm is in trouble. The market growth rate is also a key indication of the product’s stage in the product life cycle. A high growth rate will usually indicate the market is in the growth phase, where growth is high and saturation is low. A lower, more-stable growth rate indicates product maturation and, of course, a negative market growth rate indicates the product decline stage. Methods of Measurement A simple means of forecasting the market growth rate is to extrapolate historical data into the future. While this method may provide a first-order estimate, it does not predict important turning points. A better method is to study growth drivers such as demographic information and sales growth in complementary products. Such drivers serve as leading indicators that are more accurate than simply extrapolating historical data. [4] Page 6 of 9
  • Marketing Analysis Important inflection points in the market growth rate sometimes can be predicted by constructing a product diffusion curve. The shape of the curve can be estimated by studying the characteristics of the adoption rate of a similar product in the past. Distribution Channels Distribution is all about getting your product/service to the right people at the right time with special consideration for profit and effectiveness. Successful marketing does not end when a business has developed a product/service and has found its appropriate niche. When a product/service is purchased by a consumer, it may have been bought directly from the business, or through a number of intermediaries (wholesaler, retailer, etc); these are known as distribution channels. There are several types of intermediaries as distribution channels: Direct (on-site): Very common for small business, products/services can be sold directly to the consumer on- site i.e. directly from your shop, office or home. This type if distribution works only when your target consumers are within the local region and not based on a wide geographical area. Direct Mail: Also known as a mail shot, this type of marketing can produce sales on local, national or even global scale. Your business would send out flyers, leaflets, brochures or catalogues (often targeted to particular consumers) selling your product/service. Although very effective, there is some cost involved but is considerably cheaper compared to other sources of marketing such as advertising. Small businesses need to acknowledge the different types of distribution channels to utilize sales potential. Distribution channels are influenced largely by the three types of factors – Market factors, producer factors and product factors Table 1 following, describes the factors that influence the distribution channel: Page 7 of 9
  • Marketing Analysis Influence Comments Buyer behaviour: How do buyers want to purchase the product? Do they prefer to buy from the retailers, locally, via mail order or over the internet? Buyers’ needs: For example, need for information, installation and servicing. Which channels are best served to Market provide the customer with the information they need? Does factors the product need special technical assistance either to install or service a product? Intermediary cost: Intermediaries typically charge a commission for participating in the channel. This might be deemed unacceptably high for the ultimate producer business. Resource availability: Whether the producer has the resources to perform the functions of the channel. For Producer example, a producer may not have the resources to recruit, factors train and equip a sales team. If so, the only option may be to use agents and/or other distributors. Product type: Large complex products are often supplied direct to customers (e.g. complex medical equipment sold to Product hospitals). By contrast, perishable products (such as fruit, factors meat, bread) require relatively short distribution channels – ideally suited to using intermediaries such as retailers. Table 1: Influential Factors Regarding the Distribution Channel Summary Analysing the market isn’t as clear cut as estimating who might want to buy your product with a view to shipping it out in their general direction. This chapter has introduced you to several Page 8 of 9
  • Marketing Analysis techniques for evaluating the market and covered a number of aspects that could be useful to think about when employing those techniques. References 1. “How to Size a Market - Part 1” http://www.marketingprofs.com/tutorials/marketsize1.asp (viewed August 2007, requires free membership subscription) 2. “Target Market Selection” http://www.netmba.com/marketing/market/target (viewed August 2007) 3. “Market Analysis – Measuring Market Share” http://www.tutor2u.net/business/marketing/market_analysis_mark etshare_measuring.asp (viewed August 2007) 4. “Market Analysis” http://www.netmba.com/marketing/market/analysis (viewed August 2007) 5. “Distribution – Channel Strategy” http://www.tutor2u.net/business/marketing/distribution_channel_st rategy.asp (viewed August 2007) Page 9 of 9