Chapters Four & Five Identifying & Analyzing Attractive Markets Macro Trend Analysis: A Framework for Assessing Market Attractiveness • • • • • • Demographic environment Sociocultural environment Economic environment Political/legal environment Technological environment Physical environment Threat Matrix Level of Impact on Company* Probability of Occurrence High Low High 4 1 Low 2 3 Compare weaknesses to threats Opportunity Matrix Attractiveness to Company* Compare strengths to opportunities *Profits or market share or both. Probability of Success High Low High 4 1 Low 2 3 Exhibit 5.2 The Major Forces that Determine Industry Attractiveness Threat of new entrants Bargaining power of suppliers Rivalry among existing industry firms Bargaining power of buyers Threat of substitute products Source: Adapted from Michael E. Porter, “Industry Structure and Competitive Strategy: Keys to Profitability,” Financial Analysts Journal, July-August 1980, p. 33. Segment Rivalry • The industry is less attractive if: – – – – – numerous strong competitors stable or declining market large capacity increments high fixed costs high exit barriers Threat of Substitutes • The industry is less attractive if: – numerous current substitutes – numerous potential substitutes Supplier Power • The industry is less attractive if: – – – – – suppliers are concentrated or organized suppliers are few in number providing critical component high switching costs exist forward integration is easy Buyer Power • The industry is less attractive if: – buyers are few, large or organized – your product is a large percentage of buyer’s total costs – your product is undifferentiated – switching costs are low – backward integration is easy – buyer profits are low Potential Entrants Exit Barriers Low High Entry Barriers Low Low Stable Returns Low Risky Returns High High Stable Returns High Risky Returns If alternative fuel vehicles are a major opportunity for the auto industry, how fast will customers adopt? Laggards and nonadopters Innovators 2.5% Early adopters 13.5% Early majority 34% Late majority 34% 16% Source: Adapted with permission from Marketing, 11/e, Acetate 8-8, by Michael J. Etzel, Bruce J. Walker, and William J. Stanton. The McGraw-Hill Companies, Inc. © 1997. All rights reserved. Exhibit 5.8 Profit per unit Product category sales (real dollars) (real dollars) Generalized Product Life Cycle Life cycle extension Profit/unit Sales Introduction Growth Maturity Decline or extension Competitive turbulence Time (years) Source: Reprinted with permission from p. 60 of Analysis for Strategic Marketing Decisions, by George Day. Copyright © 1986 by West Publishing Company. All rights reserved. Exhibit 5.9 Common Product Life-Cycle Curves I. Growth-decline-plateau Unit sales II. Cycle-recycle Unit sales Time Time Time Decline Unit sales Maturity Unit sales IV. Classical Growth III. Innovative-maturity Time Source: Adapted from J.E. Swann and D.R. Rink, “Effective Use of Industrial Product Life Cycle Trends,” in Marketing in the ‘80s (New York, American Marketing Association, 1980), pp. 198-99. Competitive Analysis • Identify & assess existing and potential competitors at all levels of competition – – – – product market: SUV’s (for all important segments) product category: Family Cars generic product: Automobiles budget category: Transportation