July 31, 2006

11th Lecture

Actual and potential market size

• Starting point could be total sales level

• But to know the market share. It is important to know the total size
of the market
• Growth over previous m

Market Growth:
• Market Growth
o What will be the market size in the future and not just the
current market growth? For ex if the telephone industry if,
would have just seem the current market growth then today we
wouldn’t have reached today.
o If all else remains the same – growth means more sales and
profit even without increasing the market share
o Conversely, growth situation can involve substantial risks
because of importance of correctly assessing growth contexts.
o Successful companies would remain successful if and only if
have potential growth.
o Growth today has no meaning tomorrow. For example Maruti.
Earlier had mind blowing growth rate and market growth. If
they wouldn’t have projected the future market then they would
have been wiped off by the current market competition. Don’t
just take into consideration your growth
• Market Growth
o Forecasting growth
 Demographic data:
 Sales of related equipment: you need to know each and
every factors and information about your products and
your produce. For example if you are into Textiles, then
you don’t just need to focus on the ways to increase its
sales. You do need to focus on the quantum of textile
imports and exports. In India we see that the Arvind
Mills failed to do so. They didn’t see that the Levis and
other brands were entering into India and were being
 heavily imported. Thus today the arvind mills has to face
undue competition with levis. Same is the case with the
Titan and HMT.
o Detecting maturity and Decline stage:
 Price pressure caused by overcapacity and lack of
product differentiation.
 Buyers sophistication and knowledge
 Substitute products or technologies : for example the
sintex the manufacturer of plastic tanks. People earlier
just used to sell iron tanks and tanks made of cement. But
just as the sintex came out with plastic tanks it captured
the market hugely.
 Saturation
 No growth sources
 Customer disinterest: this was found in the case of
colgate. People didn’t even think of changing its
toothpaste. They were least important on thinking on it.
But when close up and other brand came out with new
USP like gel toothpaste and other related matters, the
colgate suffered a stiff competition. They weren’t
prepared for it.

Market Profitability Analysis

1. The intensity of competition among existing competition:

• Intensity of competition among existing competitors depends
on several factors as under-
o The number of competitors, their size and their
commitments
o Whether their products offerings and strategies are similar to
those offered by us or other competitors. This can be
juxtaposed with the TATA Motors experience. It found that
its other competitors had used the same technology and
strategies. Thus it wasn’t able to make its product
outstanding. TATA motors identified this at early stage and
they went to Germany and did collaboration with german
company to design its engineering and this worked out for
TATA motors.
o The existence of high cost
 o The size of exit barriers: if the exit barriers are too strong
then the existing companies wouldn’t leave the market
easily. This would either lead to increase in competition as
each company would do something to increase their market
share or the competition would continue as it is.
2. The existence of potential competitors who will enter if profits are
high:
• The potential competitors are likely to enter the market under
the following conditions:
o The capital initial required is high- in automobile or tires or
mining large investment are required thereby increasing the
risk
o Environment of scale: a firm may find it difficult to achieve
economies of scale in the short run.
o Distribution channel: Gaining distribution channels may be
costly also gaining shelf space fast enough is not easy.
o Product differentiation: may be difficult to achieve as
loyalty, levels of existing brands could be very high.

3. Substitute Product: Substitute product will attract customers if prices

become high:-
a. They can influence profitability of the market and can become a
major threat or problem
b. Example:
i. Plastic glass, fiber foil products can exert pressure on metals
ii. Electronic alarms are substitute for the security guards
iii. Emails could be a threat to FedEx and UPS and other related
couriers.

4. Customer Power: In oligopolistic buying conditions can become

extremely powerful.
5. Suppliers powerful: they can affect your profit hugely

COST STRUCTURE
• In the metal business, transportation cost are very high
• A competitor can locate plants near customer to enjoy
significant cost advantages.
Distribution Systems

An analysis of the distribution system should include three types of

questions:-
• What are the alternative distribution channels
o Sometimes establishing a unique distribution channels can
give a sustainable competitive advantage. It can be found in
the case of DELL computers. They have unique distribution
channel. And this has created a challenge for IBM.
• What are the Trends?
o Missing or misinterpreting trends can spell disasters.
o Between 1994, and 1999 there was a shift in mobile
technology from analog to digital
o Motorola missed it and Nokia capitalized on the same.
• Who has the power in the channel and who is driving it?
o