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Chapter02

  1. 1. Business Market Management 3 rd edition Market Sensing Chapter 2
  2. 2. Section II: Understanding Value Chapter 2- Business Market Management, 3 rd edition Chapter 2-
  3. 3. Chapter 2: Market Sensing <ul><li>Overview </li></ul><ul><ul><li>Defining the Market </li></ul></ul><ul><ul><li>Monitoring Competition </li></ul></ul><ul><ul><li>Assessing Customer Value </li></ul></ul><ul><ul><li>Gaining Customer Feedback </li></ul></ul><ul><ul><li>Summary </li></ul></ul>Chapter 2- Business Market Management, 3 rd edition
  4. 4. Overview <ul><li>Market-Driven Firms </li></ul><ul><ul><li>Ability to sense events and trends of ahead of competition </li></ul></ul><ul><ul><li>Anticipate more accurately responses to actions designed to retain or attract customers </li></ul></ul><ul><ul><li>Act on information in a timely, coherent manner </li></ul></ul>Chapter 2- Business Market Management, 3 rd edition
  5. 5. Overview <ul><li>Market Sensing: generating knowledge about the market that individuals in business use to inform and guide their decision making </li></ul>Chapter 2- Business Market Management, 3 rd edition
  6. 6. Overview <ul><li>Knowledge Management : processes and supporting systems firms use to gather know-how , best practices , and learning that potentially has value elsewhere in the firm, convert them into a form that can be readily found and understood, and then made accessible for reuse more broadly within the firm </li></ul>Chapter 2- Business Market Management, 3 rd edition
  7. 7. Chapter 2- Business Market Management, 3 rd edition Guiding Principles Crafting Market Strategy Understanding Firms as Customers Marketing Sensing Managing Market Offerings New Offering Realization Business Channel Management Gaining New Business Sustaining Reseller Partnerships Managing Customers Regard Value as the Cornerstone Accentuate Working Relationships & Business Networks Focus on Business Market Processes Stress Doing Business Across Borders Understanding Value Creating Value Delivering Value Business Market Processes
  8. 8. Market Sensing: Process for Learning About Markets Chapter 2- Business Market Management, 3 rd edition Further Inquiry Evaluation Of Outcomes Information Utilization Interpretation Information Distribution Information Acquisition Inquiry Initiated or Continued Augmentation of Memory Organization Memory
  9. 9. Chapter 2- Business Market Management, 3 rd edition <ul><li>Defining the Market </li></ul><ul><li>Market segmentation </li></ul><ul><li>Determining segments of Interest </li></ul><ul><li>Monitoring Competition </li></ul><ul><li>Competitor analysis </li></ul><ul><li>Improving monitoring performance </li></ul><ul><li>Assessing Customer Value </li></ul><ul><li>Value assessment methods </li></ul><ul><li>Customer value management </li></ul><ul><li>Gaining Customer Feedback </li></ul><ul><li>Customer satisfaction measurement </li></ul><ul><li>Net promoter score </li></ul><ul><li>Market Sensing </li></ul><ul><li>Formulate and test market views </li></ul><ul><li>Inform and guide decision making </li></ul>Substantive Facets of Market Sensing
  10. 10. I. Defining the Market Chapter 2- Business Market Management, 3 rd edition
  11. 11. Defining the Market <ul><li>Market Segmentation: Partitioning a market into groupings of firms that have similar requirements and preferences for market offerings within each grouping and relatively different requirements and preferences between groupings </li></ul>Chapter 2- Business Market Management, 3 rd edition
  12. 12. Criteria for Judging Validity of Segmentation Chapter 2- Business Market Management, 3 rd edition Measurable? Can the size, growth, and market potential of a segment be measured? Profitable? How profitable is the marketing effort likely to be? What is the payoff from each segment? Accessible? Can segments be identified and reached successfully? Actionable? Can effective marketing and sales programs be formulated for attracting and serving the segment?
  13. 13. Market Segmentation <ul><li>Conventional Bases </li></ul><ul><ul><li>Industry </li></ul></ul><ul><ul><li>Customer size </li></ul></ul><ul><ul><li>Customer behavior </li></ul></ul><ul><ul><li>Geography </li></ul></ul><ul><li>Progressives Bases </li></ul><ul><ul><li>Application </li></ul></ul><ul><ul><li>Customer capabilities </li></ul></ul><ul><ul><li>Customer business priories </li></ul></ul><ul><ul><li>Contribution to profitability </li></ul></ul>Chapter 2- Business Market Management, 3 rd edition
  14. 14. <ul><li>Gaining understanding occurs in: </li></ul><ul><ul><li>Obtaining estimates of each defined market segment’s size and growth </li></ul></ul><ul><ul><li>Assessing its sales and profit potential </li></ul></ul>Determining Market Segments of Interest Chapter 2- Business Market Management, 3 rd edition <ul><ul><li>“ I will know when our businesses are doing </li></ul></ul><ul><ul><li>a good job when they can articulate who we </li></ul></ul><ul><ul><li>should not sell to.” --Chuck Lillis </li></ul></ul><ul><ul><li>(former CEO of US WEST Media Group) </li></ul></ul>
  15. 15. <ul><li>Market Potential: identifies the maximum units of a defined product or service capable of being purchased within a geographic area during a designated time period </li></ul><ul><li>Total Market Demand: a prediction of the actual number of units that will be purchased </li></ul>Market Segment Size and Growth Chapter 2- Business Market Management, 3 rd edition
  16. 16. Estimating Market Potential for a Segment Chapter 2- Business Market Management, 3 rd edition Buildup Method Market potential estimates for subsegments, using available secondary research or conducting primary research, and combining them to reach an estimate for the segment Chain Ratio Method Begins with a large number of prospective customers. This number is multiplied by a series of percentages that correspond to the assumptions made (e.g. percent of potential customer that use a certain technology to arrive a market estimates) Index Method Ties the estimates to a single factor affecting the market, such as the number of new housing starts, or to multiple factors, obtained from an econometric forecasting service
  17. 17. Chapter 2- Business Market Management, 3 rd edition Four Steps to Forecast Total Market Demand <ul><li>Define the market </li></ul><ul><li>Divide total industry demand into its main components </li></ul><ul><li>Forecast the drivers of demand in each segment and project how they are likely to change </li></ul><ul><li>Conduct sensitivity analyses to understand the most critical assumptions and to gauge risks to the baseline forecast </li></ul>Source: Barnett, “Four Steps to Forecast Total Market Demand,” p. 28)
  18. 18. <ul><li>Sales Potential: identifies what one firm could sell if it applied maximum marketing effort </li></ul><ul><ul><li>Sales Force Composites </li></ul></ul><ul><ul><li>Regression Analyses </li></ul></ul>Sales and Profit Potential Chapter 2- Business Market Management, 3 rd edition
  19. 19. II. Monitoring Competition Chapter 2- Business Market Management, 3 rd edition
  20. 20. Monitoring Competition <ul><li>Knowledge about competitors used in: </li></ul><ul><ul><li>Crafting their own market strategy </li></ul></ul><ul><ul><li>Anticipating competitor’s reactions to their strategy </li></ul></ul><ul><ul><li>Deciding what reactions to make in response to competitor's action in the market </li></ul></ul>Chapter 2- Business Market Management, 3 rd edition
  21. 21. Monitoring Competition <ul><li>R&D monitor advances in technology outside the industry </li></ul><ul><li>Monitor mergers and acquisition activities </li></ul><ul><li>IBM’s Crow’s Nest </li></ul><ul><li>GE’s “DestroyYourOwnBusiness.com” </li></ul>Chapter 2- Business Market Management, 3 rd edition
  22. 22. Framework for Competitor Analysis Chapter 2- Business Market Management, 3 rd edition Future Goals Assumptions <ul><li>Understand competitor’s financial and market performance goals </li></ul><ul><li>Know management compensation plans </li></ul><ul><li>Be aware of competitor’s corporate training programs </li></ul><ul><li>Understand the assumptions competitor makes about itself </li></ul><ul><li>Recognize blind spots identified by competitors as areas to exploit </li></ul>Current Strategy Capabilities <ul><li>Know competitor’s current market strategy </li></ul><ul><li>Discern competitor's selected target markets </li></ul><ul><li>Understand competitor’s positioning of market offerings </li></ul><ul><li>Be aware of their marketing mix selected in support of strategy </li></ul><ul><li>Investigate and understand competitor's capability to conceive and design, produce, market, finance, and manage </li></ul><ul><li>Estimate how quickly competitor can adapt to change </li></ul><ul><li>Gauge competitor’s strength of will to compete </li></ul>
  23. 23. Chapter 2- Business Market Management, 3 rd edition Figure 2.3 The Intelligence Pyramid
  24. 24. III. Assessing Customer Value Chapter 2- Business Market Management, 3 rd edition “ Everything is worth what its purchaser will pay for it.” --Publilius Syrus, first century, B.C.
  25. 25. Value Assessment Methods <ul><li>Value Assessment: work process of obtaining an estimate of the worth in monetary terms of some present or proposed market offerings or elements of it </li></ul>Chapter 2- Business Market Management, 3 rd edition
  26. 26. Value Assessment Methods Chapter 2- Business Market Management, 3 rd edition Internal Engineering Assessment Focus Group Value Assessment Benchmarks Field Value-in Use Assessment Direct Survey Questions Compositional Approach Indirect Survey Questions Conjoint Analysis Importance Rating
  27. 27. Customer Value Management <ul><li>Goals: </li></ul><ul><li>Deliver superior value to targeted market segments and customer firms </li></ul><ul><li>Get an equitable return on the value delivered </li></ul>Chapter 2- Business Market Management, 3 rd edition To gain an equitable return on value, suppliers must be able to persuasively demonstrate and document superior value relative to next-best alternative
  28. 28. Customer Value Models <ul><li>Data-driven estimates of what a present or prospective market offering is worth in monetary terms to targeted customers relative to the next-best-alternative offering for those customers </li></ul>Chapter 2- Business Market Management, 3 rd edition -
  29. 29. Customer Value Models <ul><li>Five phases: </li></ul><ul><ul><li>Translating business issues into projects </li></ul></ul><ul><ul><li>Customer value workshop </li></ul></ul><ul><ul><li>Customer value research </li></ul></ul><ul><ul><li>Constructing a business case for change </li></ul></ul><ul><ul><li>Value realization </li></ul></ul>Chapter 2- Business Market Management, 3 rd edition -
  30. 30. Translating Business Issues into Projects Chapter 2- Business Market Management, 3 rd edition - <ul><li>Phase I </li></ul><ul><ul><li>Senior managers review significant business issues facing business </li></ul></ul><ul><ul><li>Forms a team to examine where greater knowledge of customer value is needed to make more profitable decisions </li></ul></ul><ul><ul><li>Active support of senior management is crucial </li></ul></ul>
  31. 31. Customer Value Workshop Chapter 2- Business Market Management, 3 rd edition - <ul><li>Phase II </li></ul><ul><ul><li>Teams come together in a Customer Value Workshop </li></ul></ul><ul><ul><li>Define value elements in a comprehensive and elemental way </li></ul></ul><ul><ul><li>Form list of value elements and hypothesize what customers types would receive the greatest or least value from the offering </li></ul></ul><ul><ul><li>Determine customer characteristics that best capture hypothesized differences in value offerings </li></ul></ul><ul><ul><li>Consider next-best-alternative offering for each segment </li></ul></ul><ul><ul><li>For each value element, team decides whether there is a difference to its offering’s functionality or performance relative to the next-best alternative </li></ul></ul><ul><ul><ul><li>Points of Parity </li></ul></ul></ul><ul><ul><ul><li>Points of Difference </li></ul></ul></ul><ul><ul><ul><li>Value Word Equation </li></ul></ul></ul><ul><ul><li>Team focuses on points of difference. Points of contention may surface. </li></ul></ul>
  32. 32. Customer Value Workshop Chapter 2- Business Market Management, 3 rd edition - (Value f – Price f ) > (Value a – Price a ) ( Value f – Value a ) > (Price f – Price a )  Value f, a > (Price f – Price a )
  33. 33. Customer Value Research Chapter 2- Business Market Management, 3 rd edition - <ul><li>Phase III </li></ul><ul><ul><li>Gain initial customer cooperation (incentives to participate) </li></ul></ul><ul><ul><ul><li>Low-cost resource to better understand their business </li></ul></ul></ul><ul><ul><ul><li>Opportunity to benchmark </li></ul></ul></ul><ul><ul><ul><li>Earlier access to new product or service </li></ul></ul></ul><ul><ul><ul><li>Desire for a lower price </li></ul></ul></ul><ul><ul><li>Gather data </li></ul></ul><ul><ul><li>Analyze data </li></ul></ul>
  34. 34. Constructing a Business Case for Change Chapter 2- Business Market Management, 3 rd edition - <ul><li>Phase IV </li></ul><ul><ul><li>What specific actions does the team recommend? </li></ul></ul><ul><ul><li>What resources are needed to accomplish recommended changes? </li></ul></ul><ul><ul><li>What are the specific concerns in implementation? </li></ul></ul><ul><ul><li>What milestone can be charted for progress? </li></ul></ul><ul><ul><li>What would be the profitability impact if business change is approved? </li></ul></ul>
  35. 35. Value Realization Chapter 2- Business Market Management, 3 rd edition - <ul><li>Phase V </li></ul><ul><ul><li>Critical phase for realizing value and incremental profitability </li></ul></ul><ul><ul><ul><li>Create value-based sales tools </li></ul></ul></ul><ul><ul><ul><li>Develop sales force training </li></ul></ul></ul><ul><ul><ul><li>Formulate a method of feedback needed to document actual value </li></ul></ul></ul><ul><ul><ul><li>Create tracking system to document incremental profitability </li></ul></ul></ul><ul><ul><ul><ul><li>Value documenters </li></ul></ul></ul></ul>
  36. 36. IV. Gaining Customer Feedback Chapter 2- Business Market Management, 3 rd edition
  37. 37. Gaining Customer Feedback <ul><li>Role of Customer Feedback: </li></ul><ul><ul><li>Educates supplier where its offerings provided functionality and performance customer expected and where it fell short </li></ul></ul><ul><ul><li>Can remedy problems and retain a customer’s business </li></ul></ul><ul><ul><li>Provides early warning of changing customer requirements and preferences </li></ul></ul>Chapter 2- Business Market Management, 3 rd edition -
  38. 38. Gaining Customer Feedback <ul><li>Feedback from three distinct customers: </li></ul><ul><ul><li>New Customers </li></ul></ul><ul><ul><li>Established Customers </li></ul></ul><ul><ul><li>Customers that recently stopped doing business </li></ul></ul>Chapter 2- Business Market Management, 3 rd edition -
  39. 39. American Customer Satisfaction Index (ACSI) <ul><li>Overall Customer Satisfaction: represents a cumulative evaluation of a firm’s market offering, rather than a person’s evaluation of a specific transaction </li></ul><ul><ul><li>Overall Satisfaction Measure </li></ul></ul><ul><ul><li>Measure to the extent that offering’s performance falls short or exceeds </li></ul></ul><ul><ul><li>Offering’s performance relative to customer’s ideal product or service </li></ul></ul>Chapter 2- Business Market Management, 3 rd edition -
  40. 40. Chapter 2- Business Market Management, 3 rd edition Perceived Quality Customer Expectations Perceived Value Overall Customer Satisfaction (ACSI) Customer Complaints Customer Loyalty + + + + + + + - The American Customer Satisfaction Index Perceived Value Perceived Quality Customer Expectations Overall Customer Satisfaction (ACSI) Customer Complaints Customer Loyalty + + + + + + + -
  41. 41. Customer Satisfaction Findings <ul><li>Findings: </li></ul><ul><ul><li>Significant predictor of economic returns to the firm </li></ul></ul><ul><ul><li>Significant positive relationship between customer satisfaction and shareholder value </li></ul></ul><ul><ul><li>Significant positive relationship between customer satisfaction and market value of equity </li></ul></ul>Chapter 2- Business Market Management, 3 rd edition -
  42. 42. Customer Satisfaction Findings Chapter 2- Business Market Management, 3 rd edition - Customer Loyalty Feeling of attachment or affection toward company’s people, products, or services. Ultimate measure of loyalty: is share of purchases in the category Supplier’s Share of Customer Business The percent of a customer’s total purchase requirement for a market offering that the supplier obtains Customer Delight <ul><li>Exceeds rather than simply meets customer requirements and preferences. </li></ul><ul><li>Caution warranted: </li></ul><ul><li>Increasing performance level is costly </li></ul><ul><li>Exceeding expectation raises customer's expectations </li></ul><ul><li>Suppliers may not be able to delight or even completely satisfy certain customers </li></ul>
  43. 43. Chapter 2- Business Market Management, 3 rd edition - Overall Quality Drivers Category Importance US WEST Score Primary Competitor Score US WEST Ratio Best In Class Voice Reliability 30.0 9.0 9.0 1.00 Company A Repair Service 20.0 8.0 8.5 .94 Company B Data Reliability 20.0 8.0 7.0 1.14 US WEST Account Relationship 10.0 7.2 8.5 .85 Company C Installation Service 10.0 7.0 7.5 .93 Company C Billing Service 10.0 6.8 6.5 1.05 Company A Customer Satisfaction Score 8.0 8.1 Market Perceived Quality Ratio: 99.9 Source: Renee Karson, Formerly Director Customer Value Measurement, Market Intelligence and Decision Support, US WEST Communications.
  44. 44. Net Promoter Score (NPS) <ul><li>How likely is it that you would recommend [company x] to a friend or colleague? </li></ul><ul><ul><li>10-point scale: 10 = extremely likely; 5 = neutral; 0 = not at all likely </li></ul></ul>Chapter 2- Business Market Management, 3 rd edition
  45. 45. Top 10 Reasons that Satisfaction Surveys are a Joke <ul><li>#10: Too many surveys, too many questions </li></ul><ul><li>#9: The wrong customers respond </li></ul><ul><li>#8: Employees don’t know how to take corrective action </li></ul><ul><li>#7: Too many surveys are marketing campaigns in disguise </li></ul><ul><li>#6: Survey scores don’t link to economics </li></ul><ul><li>#5: Plain-vanilla solutions can’t meet companies’ unique needs </li></ul><ul><li>#4: There are no generally accepted standards </li></ul><ul><li>#3: Surveys confuse transactions with relationships </li></ul><ul><li>#2: Satisfaction surveys dissatisfy customers </li></ul><ul><li>#1: Gaming and manipulation wreck their credibility </li></ul>Chapter 2- Business Market Management, 3 rd edition
  46. 46. V. Summary Chapter 2- Business Market Management, 3 rd edition
  47. 47. Summary <ul><li>Market Sensing is the process of generating knowledge about the marketplace that individuals in the firm use to inform and guide their decision making. </li></ul><ul><ul><li>Market driven process </li></ul></ul><ul><ul><li>Market sensing allows managers to test, revise, update, and refine their market views </li></ul></ul><ul><li>Four substantive facets of market sensing : </li></ul><ul><ul><ul><li>Defining the market </li></ul></ul></ul><ul><ul><ul><li>Monitoring competition </li></ul></ul></ul><ul><ul><ul><li>Assessing customer value </li></ul></ul></ul><ul><ul><ul><li>Gaining customer feedback </li></ul></ul></ul><ul><li>Market segmentation and determining market segments of interest are fundamental to defining the market. </li></ul><ul><li>Customer judgments about the value of the firm’s market offerings takes place within the context of market offering of other firms. </li></ul><ul><li>Customer value assessment is the work process of obtaining an estimate of the value in monetary terms of some present and proposed market offerings </li></ul>Chapter 2- Business Market Management, 3 rd edition Chapter 1-
  48. 48. Chapter 2- Business Market Management, 3 rd edition All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2009 Pearson Education, Inc.   Publishing as Prentice Hall

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