Chapter 3
Understanding
Market
Opportunities
McGraw-Hill/Irwin
Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
Markets and Industries:
What’s 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:
What’s 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
3-9
Your Market Is Attractive:
What About Your Industry?
• Porter’s 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
one’s 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, there’s the question of
how narrowly or broadly to define one’s
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:
– There’s 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.
– It’s 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 Industry’s
Critical Success Factors
• Two key questions to ask in identifying
one’s 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?
3-17
It’s 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, you’ll face tough
sledding.
• The seven domains are not additive.
• Opportunities don’t 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
firm’s 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.
3-20
Opportunity/Threat Matrix for a Telecommunications
Company in the U.K. in 2008
3-21
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 company’s 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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