Chapter 3

Understanding Market Opportunities

McGraw-Hill/Irwin

Copyright 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

Markets and Industries: Whats The Difference?

A market is composed of individuals and organizations who:
Are interested in and willing to buy a good or service to obtain benefits that will satisfy a particular need or Who want and have the resources to engage in such a transaction.

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Markets and Industries: Whats The Difference?

An industry is a group of firms that offer a product or class of products that are similar and are close substitutes for one another. Markets are comprised of buyers; industries are comprised of sellers.

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The Seven Domains of Attractive Opportunities

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Assessing Market and Industry Attractiveness

Macro-level
The analyses are based on environmental conditions that affect the market or industry, respectively, as a whole.

Micro level
The analyses look not at the market or the industry overall but at individuals in that market or industry.

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Macro Trend Analysis

The demographic environment
Aging AIDS Imbalanced population growth Increased Immigration Declining Marriage Rates

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Macro Trend Analysis

The sociocultural environment
Sociocultural trends are those that have to do with the values, attitudes, and behavior of individuals in a given society. Two trends of particular relevance today are:
Greater interest in ethical behavior by businesses Trends toward fitness and nutrition.

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Macro Trend Analysis

The economic environment
Among the most far-reaching of the six macro trend components. Economic trends often work, to pronounced effect, in concert with other macro trends.

The regulatory environment

Political and legal trends, especially those that result in regulation or deregulation, can have powerful impact on market attractiveness.
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Macro Trend Analysis

The technological environment
Convergence of the telecommunications, computing, and entertainment industries.

The natural environment

Turning problems into opportunities:
Finding ways to save energy. Finding new energy sources. Seeking market solutions.

Opportunities in developing green products Impact of depletion of natural resources

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Your Market Is Attractive: What About Your Industry?

Porters Five Competitive Forces
Threat of new entrants

Bargaining power of suppliers

Rivalry among existing industry firms

Bargaining power of buyers

Threat of substitute products

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Challenges In Macro-level Market And Industry Analysis

In order to analyze the attractiveness of ones market or industry, one must first identify exactly which market or industry is to be analyzed.
On the market side, the challenge often lies in sizing the relevant market. On the industry side, theres the question of how narrowly or broadly to define ones industry.
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Challenges In Macro-level Market And Industry Analysis

Information sources for macro-level analyses
Trade associations and trade magazines. Web sites of local, state, and federal governments. Almost all sources of information are now readily available on the Web.

The key outputs of a competent macro trend analysis should include both quantitative and qualitative data.
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Understanding Markets at the Micro Level

Some tests to be met for the market offering to be attractive:
Theres a clearly identified source of customer pain, for some clearly identifiable set of target customers, which the offering resolves. It provides customer benefits that other solutions do not. The target segment is likely to grow. There are other segments for which the currently targeted segment may provide a springboard for subsequent entry.
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Understanding Industries at the Micro Level

Opportunities are attractive when the company itself meets most or all of the following tests:
It possesses something proprietary that other companies cannot easily duplicate or imitate. It has or can develop superior organizational processes, capabilities, or resources that others would find it difficult to imitate or duplicate. Its business model is economically viable.
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The Team Domains: The Key to the Pursuit of Attractive Opportunities

Some crucial questions:
Does the opportunity fit what we want to do? Do we have the people who can execute on whatever it takes to be successful in this particular industry? Do we have the right connections?

These questions address the remaining three of the seven domains in the opportunity assessment framework.
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Mission, Aspirations, and Risk Propensity

Everyone and every company has views on how much risk is acceptable. A particular opportunity must also measure up to the expectations of the people who will pursue it. Whatever the tests for a given individual or company, they must be met if an opportunity is to be deemed attractive.
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Ability to Execute on the Industrys Critical Success Factors

Two key questions to ask in identifying ones critical success factors, (CSFs):
Which few decisions or activities are the ones that, if gotten wrong, will almost always have severely negative effects on company performance? Which decisions or activities, done right, will almost always deliver disproportionately positive effects on performance?
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Its Who You Know, Not What You Know

The people who are the best connected will be the ones who are best placed to change strategy before others know the winds have changed. Having a well-connected team in place enhances the attractiveness of the opportunity itself.
The team is more likely to be able to ride out the inevitable winds of change.
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Putting the Seven Domains to Work

If your company chooses to pursue unattractive opportunities, youll face tough sledding. The seven domains are not additive. Opportunities dont just sit there; they change and may be further developed.

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Anticipating and Responding to Environmental Change

Impact and timing of event
Opportunity/threat matrix is relatively simple way to identify, evaluate, and respond to environmental events that may affect the firms longer-term profitability and position. It enables the examination of a large number of events in such a way that management can focus on the most important ones.

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Opportunity/Threat Matrix for a Telecommunications Company in the U.K. in 2008

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Swimming Upstream or Downstream: An Important Strategic Choice

Trends will always be present, whether marketing managers like them or not. The question is what managers can do about them.

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Take-Aways
Macro trends can and will profoundly influence the success of any business. Serving attractive markets, where trends are favorable is likely to bring more success than serving markets where trends are unfavorable. Competing in structurally attractive industries is likely to generate higher returns than in less attractive industries.
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Take-Aways
The degree to which a companys goods or services resolve genuine customer needs of a clearly defined target market and the degree to which its competitive advantage is sustainable over time are probably even more crucial to long-term success.

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Take-Aways
Understanding market opportunities is about more than understanding customers, competitors, and the environmental context. The capabilities and resources brought by the company itself are also important and are often overlooked.

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Take-Aways
The seven domains are not additive. Strong scores, especially at the micro level or on the team domains, can outweigh the effects of flat or declining markets or structurally unattractive industries.

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