Business Market Management
MARKET SENSING
Class # 2
Instructor: Joydeep Bhattacharya
Praxis Business School, Bakrahat Road, P.O. Rasapunja, 24 Parganas (South), Kolkata- 700104
What is Market Sensing?
For success as a business marketer ability to sense events ahead of competitors is vital
Why is it Vital?
For:
1. Retaining and attracting customers
2. Improving channel performance
3. Thwarting competition
4. Understanding regulatory issues
How to achieve this?
a) Open minded inquiry
b) Information distribution and willingness to use the available information
c) mutually informed interpretation
d) ability to access information from past memory
Market Sensing is the process of generating knowledge about the marketplace that
individuals in the firm, such as business market managers, salespersons, and senior
executives use to inform and guide their decision making. The process of learning about
your competitors, resellers, customers, and regulators. Understanding the trends in
technology, society and even cultures.
Praxis Business School
2
How do you do Market Sensing?
1. Market Research
2. Interaction amongst supplier firm employees and representatives of customers,
regulators, competitors, resellers in the course of
i.
Day-to-day business
ii.
Various industry and professional association forums, trade fairs, seminars etc.
iii. Social Media forums like Linkedin
iv. Social interactions in private parties, clubs, dinners etc
e.g. Supplier and customer firm engineers interacting at a professional association
forum ; a buying firm manager talking with equipment supplier to know what
machinery competitors are buying
Praxis Business School
3
How to make the Generated Knowledge available company-wide?
It is a big challenge!
 Individual employees across the company acquire knowledge overtime while discharging
their job functions on a day-to-day basis
 In the absence of a formalized process, individuals possessing knowledge will find it
difficult to express it and put it in a form that is easily retrievable and useful to others
e.g. a seasoned salesman may subtly tweak his pitch/presentation which interacting with
a prospective customer; a production worker may make minor variations to the input
recipe of a chemical process based on trial-and-error learning
 “If Siemens only knew what Siemens knows”
Individuals in a department or functional area or a particular location of a firm may have
generated knowledge that could guide decision making of individuals in another part of
the firm
 Traditionally reports, plans, written policy & procedures, manuals are used to disseminate
information across an organization. Training sessions and topical workshops are organized
Praxis Business School
4

IT based solutions are available nowadays. Knowledge Management Systems create
relational databases, link multiple disparate databases, provide decision support tools
Web-based Intranet solutions with decision support tools are also available
 Firms must refresh, update, and assess the continued accuracy of information
 Processes must be in place to ensure whatever finally get uploaded on to the
Knowledge Management System is accurate, relevant, non-repetitive, easily understood
Centralized audit processes are put in place for the purpose
 Willingness to use the available information by other employees depends directly on
the reliability and usefulness of the information. Users trust is very important. Hence
the integrity and image of the researcher/uploader plays an important part
 Facilitation of direct informal and formal communication (e-mails, chats, conference
calls) between the originator and the user of the information helps significantly
 Informal communication is more open and interactive. But formal communication is
more credible and verifiable
Praxis Business School
5
Market Sensing – Facets
Defining the Market
• Market Segmentation
• Determining segments
of interest
Monitoring Competition
• Competitor Analysis
• Improving Monitoring
Performance
Market Sensing
• Formulate and test market views
• Inform and guide decision making
Assessing Customer Value
• Value Assessment
Methods
• Customer Value
Management
Gaining Customer
Feedback
• Customer satisfaction
measurement
• Customer value analysis
Praxis Business School
6
Defining the Market
 Marketers use descriptors to characterize and delimit a market
 Intention is to pin-point customer groups with sufficiently similar requirements and
preferences
 Why? Because it improves targeting and prospecting efficiency; i.e. it enhances
probability of success. It determines which customer groups to pursue and even more
importantly which groups not to pursue!
 These descriptors significantly affect the way a supplier firm chooses its marketing mix –
a more fine-tuned market offering (Product); appropriate communication (Promotion);
the distribution strategy to follow (Place); Value based pricing (Price)
A possible definition of Market Segmentation: The process of partitioning a market into
groupings of firms what have relatively similar requirements and preferences for market
offerings of the supplier.
Praxis Business School
7
 Any kind of segmentation requires data-based information support. Otherwise
descriptors may be incorrect.
Example: An industrial tools company designed a downhole drill that could drill
measurably faster and deeper than competitor offerings. The manufacturer
grouped strip mines (iron ore, coal) and quarries (limestone) as a single segment.
Subsequently they found that for strip mines the product was quite successful but
for quarries it was a failure. Both mines and quarries use downhole drills to create
blastholes in which explosives are packed to blow the “face” off a production wall.
Why? Because of capacity constraint in crushing operations w.r.t. quarries.
 Four criteria to test validity of a proposed segment:
 Measurable: Can the size, growth, market potential be measured?
 Profitable: How profitable will the particular segment be?
 Accessible: Can the segment be clearly identified and successfully reached?
 Actionable: Can effective marketing programs be formulated to serve the segment?
Praxis Business School
8
Conventional Ways to Segment
 Industry:
Agriculture, Forestry & Fishing; Mining; Manufacturing; Construction;
Transportation; Communication; Public Utilities; Banking; Finance;
Insurance; Distribution; Services
Task: Name 2 Indian companies for each of these 12 broad segments
and write approximately 50 to 100 words description for each of those
companies. All companies named should be listed in either NSE or BSE
 Customer size: when it is believed that firm size is a strong proxy for demand of a
particular market offering. Total sales, number of employees, locations
 Customer behavior:
o First time purchaser
o Existing customers; sub-segments – heavy, medium and light users
o Previous customers – not buying any more
o Not purchased ever
 Geography:
Zones, divisions, states, domestic, international
Praxis Business School
9
Progressive Bases of Segmentation
*
*
Conventional methods of segmentation may be a good starting point
For superior understanding of how customer requirements and preferences vary
progressive bases are more useful:
- Application: same core offering may be used differently – acrylic woven fabric
used for both covering boats as canopies and for seat covers inside boats;
Exide selling the same car battery to OEMs (Maruti, Hyundai) and MROs
(battery resellers)
- Customer Capabilities: some customers with superior technical skills,
competence & knowledge may just want the core-market offering. Others
focusing on their strategic capabilities/core competencies may require
significant technical hand-holding in the form of designing, supervision, etc.
Construction companies like Shapoorji Pallonji, L&T Construction provide
turnkey construction solutions with single-source responsibility from concept
to commissioning. They also take up projects where they only construct as per
design of an architect, structural engineers and under supervision of an
independent Project Management Consultant (PMC)
- Usage Situation: purchase of scheduled maintenance parts by truck fleet
operators has longer delivery periods, larger quantities and bargain price
whereas emergency parts require immediate delivery, small quantities and
higher price.
Praxis Business School
10
Progressive Bases of Segmentation …contd.
Customer Business Priorities :
Price
-
Highest
Profit
Lowest
Profit
Service
-
Profitability and Profits: how much profit a particular customer provides.
Measures like cost to service a customer, customer’s willingness to pay,
credit worthiness – bad debt, delays in payment
Determining Segments of Interest
1.
Estimate an identified segment’s size and growth – how may firms in segment,
how much will they purchase, how will it change with time
Concepts of Market Potential and Market Demand
2.
Assess sales and profits – Concepts of Sales potential and Sales forecast
Praxis Business School
11
What is Market Potential?
* Maximum units of a defined market offering (product/service) that could potentially
be purchased in a certain geography within a certain period of time when supported by
a realistic level of marketing activity.
What is total market demand?
* Prediction of actual number of units that will be purchased within a period of time
How can market potential be estimated?
* Secondary research, primary research, econometric forecasts, discussion with
knowledgeable persons of the industry
* Precise estimates are not possible.
* Quality of assumptions are very important
Total market demand may be roughly estimated by:
1. Defining the market
2. Identifying the various segmental demand
3. Forecasting the demand drivers in each segment and projecting how they
could change over time.
4. Conducting sensitivity analysis
Praxis Business School
12
 Can be specially challenging when new categories of market offerings come to fore:
o e.g. Univac, the pioneer of commercial computers, predicted in 1950 that by
2000 there would be about 1000 computers the world over!
 For any innovative market offering, the functionality and performance over all the
existing alternatives should be carefully examined.
 Sales potential identifies what a particular firm could sell if it applied maximum
marketing effort.
 Sales forecast, typically with a shorter term focus, predicts the actual number of units
that will be sold with a defined commitment of marketing and sales resources
 How to estimate sales forecast:
1. Sales force composite
2. Regression – past year’s sales with macroeconomic variables and industry
drivers
3. Share of customer’s business - %age supplied of the particular customer’s total
purchase requirement of all the items that the supplier could fulfill.
 Typically a supplier relies on their sales force for data on supplier’s share of
customer’s business.
 Knowing the share of total customer requirements supplied does not enlighten
regarding which are the most profitable prospects for growth
 Across multiple locations of a customer firm, cost to serve a customer (cost of sales
calls, logistics, credit, handling etc.) firm and the customer’s total cost of ownership
can vary significantly
Praxis Business School
13
Monitoring Competition
Why monitor competition?
To be a successful marketer, you have to:
i. Know your market offering – their functionalities and performance
ii.
Know the requirements and preferences of the segments you indentify to serve
iii. Also, you must know your competitors because your customers are always evaluating
all the market offerings in the categories you have identified to serve
iv. Knowledge of competition helps to formulate your own marketing strategy, anticipate
competitors’ reaction to your market actions, how to react to marketplace actions of
your competitors
v.
Not only existing competitors, but also potential competitors, new competition with
new technology, disruptive technologies that can completely change the market place
and merger & acquisitions that could significantly strengthen your comptetitor should
also be monitored.
Praxis Business School
14
How to Monitor Competition?
Michael Porter’s framework is effective and has four diagnostic components:
1. Future Goals: financial goals like increasing profitability & reducing cost of sales;
market performance goals like market share, growth of new products, corporate
goals, SBU goals, compensation plans of senior management, money being spent
on training
2. Assumptions: What assumptions the competitor is making about itself, other firms
in the industry, and its views on the overall market scenario.
e.g. – DEC’s over reliance on highly successful VAX mini computer with its
proprietary system failed to see market migrating to open systems. Identifying a
competitor’s biases and blind-spots can be very helpful.
3. Current Strategy: Competitors market strategy must be understood w.r.t.:
a. Selected target markets
b. Positioning of its market offerings
Praxis Business School
15
How to Monitor Competition?....contd.
c. Marketing mix to support its strategy
 Which trade journals and magazines are being used for advertising
 Study of the websites
 Content of its ads
 Sales force gets to know the promotions that are being run by
competitors
 Visit booths of competitors at trade shows
 Encourage sales force to collect competitor literature
 Whenever possible buy competitors offerings and understand its
elements
 Learn from sales persons if competitor is exploring new channels
4. Capabilities:
• What are the core competencies and capabilities of the competitors
• Capability to conceive and design, produce, market, finance, manage
• Recent history of the competitors reaction time to market events
*
*
*
To effectively monitor competitors a process based approach should be there to seek,
collect, analyze and interpret competitor data and disseminate the information
Creativity and investment in resources also required
An Intranet based Knowledge Management System like Lotus Notes helps
Praxis Business School
16
Competitor Intelligence System
Improved monitoring performance would require implementation of an organized approach
for seeking, gathering, analyzing, and interpreting competitor data and for disseminating
the resulting information to guide decisions.
Sources
Preparation
 Use intelligence checklists
 Prepare interview guides
 Milk articles
 Learn the industry
 Consult Libraries
 Setup search strategies
 Assemble a research team
 Debrief client regularly
• Industry experts and analysts
• Internal experts, professional colleagues
• Customer networking
• Supplier/Vendor networking
• Tradeshows & conferences
• Sales Trip records
• University research centres
• Databases – internal and external
• Market and Brokerage reports
• Credit reports
• Buyer guides
• Association directories, impex statistics
• Right to Information Act
• Local newspapers
• Recruitment Advertisements
• Annual & quarterly reports
• Brochures & advertisements
•Court documents
Praxis Business School
17
Techniques
 Benchmarking
 Porter Model
 Ratio analysis
 Patent analysis
 Scenario building
 Personality profiling
 Pricing models
 Trend analysis and timelining
 Cost analysis
 Regression analysis
Focus
• Review critical uncertainties
• Craft cohesive, convincing report
• Point to opportunities
• Warn of threats
• Anticipate Objections
• Identify hot buttons
• Create a presentation library
• Prepare questions
• Ensure credibility – seek disconfirming as
well as confirming evidence
• Balance graphics and data
Praxis Business School
18
Assessing Customer Value
 Assessing value in monetary term is a challenging task
Present or potential market offering
Value w.r.t.
Present or potential customer
 Since it is difficult, most B2B firms do not even attempt to do it
 But as more of these exercises are done, the easier they become. Experience and
learning come handy
 Value assessment skill can provide a firm with a competitive edge in the market place
→ Often customer firms do not recognize or even understand the value of a supplier’s
market offering
→ Value assessment exercises enable both suppliers and customers to better understand
the customer’s business requirements and preferences
→ Without value assessment sketchy decisions are always made
There will always be a tussle between a customer’s perception of the monetary worth of a
market offering and supplier’s assessment of the monetary worth of the functionalities and
performance of the same offering
 How B2B firms assess value in business markets?
 How to demonstrate and document the value of current and prospective market
offerings in business markets?
Praxis Business School
19
Value Assessment Methods:
1.
Internal Engineering Assessment:
 Supplier firm’s engineers/R&D team must have a detailed idea of the customer firm’s
production processes and the product itself, including application of the product
 Must understand /estimate the cost impact of the component on the customer firm
 Lab tests, observations, past knowledge helps to understand value
 e.g. : a newly designed hydraulic cylinder replacing a competitors offering to be
incorporated in a heavy duty crane
2.
Field Value in Use Assessment:
 Requires significant cooperation from customer firm
 Interviews are conducted with customer personnel across various departments and
usage data is collected
 Based on the above, a comprehensive list of benefits and usage costs are listed w.r.t.
the offering of the supplier and it is also compared with the existing solution that is
being used by the customer
 e.g. change of locomotive diesel engines at Tata Steel
Praxis Business School
20
Value Assessment Methods:…contd.
3.
Indirect Survey Questions:
 Supplier and customer firm sets up a joint team to observe how a supplier firm’s
market offering is performing within the customer firm’s usage system/process
 Try to ask questions and provide answers on what the effects of one or more changes
to the product/component/service will be on certain aspects of the customer firm’s
operations
 e.g. : handling wet coal slurry
4.
Focus Group Value Assessment:
 Particularly used for new market offerings
 Estimates of value are generated while gauging the perceptions and reactions of the
participants
 Participants are typically knowledgeable individuals from potential customer firms,
industry consultants, experts
 Product offerings, if possible with a prototype, are shown and then asked what value
these offerings would be having for their firms
•
Product/concept is first demonstrated by modulator and concept is explained
•
First impressions (written down) are requested and how much will they be
willing to pay
•
Modulator initiates detailed discussion
•
After an hour long (typical) discussion modulator requests participants to write
down their interest in the proposed offering
Praxis Business School
21
Value Assessment Methods:…contd.
5.
Direct Field Research Survey:
 The product concept / market offering is described and then questions asked
regarding price/value
 In B2B situation, one should be a little careful in using this technique. Unless the
person is knowledgeable enough to answer the question, it may lead to erroneous
conclusions
6.
Conjoint Analysis:
 Constituent attributes of a potential market offering are evaluated this way
 e.g. Titanium Dioxide is a white pigment, a coating agent used for paints, paper etc.
4 attributes: dispersibility (10 min or 30 min); gloss; tinting strength; price
Participants provide an estimate of the relative value of the attributes
7.
Benchmarks:
 In field research, participants are provided with a description of an industry standard
marketing offering
 Then participants are asked how much more they are willing to pay for selected
additional features
 Also they may be asked sometimes how much less they are expecting to pay for
selected reduction in features
 Less rigorous than conjoint analysis, lower cost to administer, lesser breadth of value
estimates
Praxis Business School
22
Value Assessment Methods:…contd.
Compositional Approach
•
In a field research survey, participants are asked to directly express the value they
place on each of a number of selected attributes, and their selected levels
8.
9.
Market Offering X
Level A
Level B
Level C
Attribute 1
V(1,A)
V(1,B)
V(1,C)
Attribute 2
V(2,A)
V(2,B)
V(2,C)
Attribute 3
V(3,A)
V(3,B)
V(3,C)
Sum A
Sum B
Sum C
Importance Rating
Praxis Business School
23
Customer Value Management
1. Deliver superior value to targeted segments / customer firms
2. Get an equitable return on value delivered
Suppliers must be able to demonstrate and document the value their offerings provide to
the customers relative to the nearest alternative for those customers (document the cost
savings and the incremental profits.
 Data driven (not assumption driven) Customer Value Models should be built.
Strictly avoid data-light assumption-heavy models
 These models estimate the monetary worth of a present or prospective offering
relative to the next-best-alternative offering
There are five phases of customer value management:
1. Translating business issues into projects
2. Customer value workshop
3. Customer value research
4. Constructing a business case for change
5. Value realization
A value element is either a cost saving or an incremental profit
 What matters is not the absolute value of an offering but the difference in value between
two offerings relative to the difference in their prices
Val(firm) – Price(firm) > Val(alt) – Price(alt)
Praxis Business School
24