5
Measuring Market Opportunities:
Forecasting and Market Knowledge
Key Questions Before Making a Forecast.
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Purpose of the forecast?
What specifically needs to be forecast?
Importance of the past to the future?
Method(s) to be used for forecasting?
What could change the forecast?
Forecast horizon? Long term ≥ 10 yrs; Medium
Term: up to 5 yrs; Short term: up to 1 year.
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The Sales Forecast.
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Is based on a specific marketing plan.
Stated as dollars or units.
Estimate market and sales potential first.
Establish marketing goals and broad strategies
before making a sales forecast.
Typically covers a 1-year period.
Once made, the forecast becomes a key
controlling factor in all operational planning
throughout the company.
Copyright 2008 by The McGraw-Hill
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Forecasting.
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More than a “Sales” thing. Other organizational functions also
forecasts variables that affect their operations
Commonly used methods
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Statistical forecasting using high volumes of historical or collected
data
Extrapolations
Analogs
Expert judgment/Delphi method
Top down
Bottom up
Most companies use a combination of these
Copyright 2008 by The McGraw-Hill
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Top Down vs. Bottom Up.
Top Down: Assumption - international and national events
affect the future behaviour of local variables
Forecast of economic conditions and industry trends.
 Determine the product’s market potential
 Determine its sales potential
 Measure the firm’s current or desired market share
 Forecast sales for the firm
Bottom Up: Assumption - local events affect the future
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behaviour of global variables
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Develop customers/salespeople input for future demand
Combine the estimates to get a total forecast.
Adjust the forecast by managerial insights, competition, and
general economic trends.
Copyright 2008 by The McGraw-Hill
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Discussion Question
1. Of the two main approaches for
sales forecasting - top-down and
bottom-up - which is better? Why?
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Forecast is Projecting Evidence.

Evidence from:
 History
 Field/Market research
 Other organizations
 Alternative future possibilities
 Plans, strategies, and actions for future
 Issues
 Changes
 Etc.
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How does one go from methods to math?

Chain ratio method (how many total xxx?,
how many fit yy criteria?, how many…?)

Brand or category indices (e.g., best or
worst regions, cities, months, circumstances,
etc. for the occurrence of event xxx)
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Ideas for new products or new ventures:
How fast will customers adopt?
Laggards
and
Non-adopters
Innovators
2.5%
Early
adopters
13.5%
Early
majori
ty
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.
Discussion Question
4. How fast will the adoption curve
move for a particular innovation?
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Companies, Inc. All rights reserved.
6
Targeting Attractive Market Segments
Discussion Questions
1. What’s a market?
2. What’s a market segment?
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Companies, Inc. All rights reserved.
Objectives of Market Segmentation
Identify a homogeneous segment
that differs from other segments
 Specify criteria that define the
segment
 Determine segment size and
potential

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Defining Market Segments
Three good ways to do it.
 Who the customers are
 Where they are
 How they behave
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Companies, Inc. All rights reserved.
Segmentation variables.
Geographic: Region, country, population
density, climate…
Demographic: Age, gender, income,
occupation, What else???…
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Segmentation variables.
Psychographics: personality, lifestyles, values,
attitudes…
Behavioral: benefits sought, usage rate, brand
loyalty, end use, readiness to buy, decision
maker(s)…
(George Day, 1980) Top-down approach: start
with the total population and divide it into
segments. Bottom-up approach: start with a
single customer and build on that profile
Copyright 2008 by The McGraw-Hill
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Which Segments to Target? Constructing a Market
Attractiveness/Competitive-Position Matrix
1. Choose criteria to measure market attractiveness and
competitive
2. Weigh market attractiveness and competitive position factors to reflect
their relative importance.
3. Assess the current position of each potential target market on
each factor.
4. Project the future position of each market based on expected environmental,
customer, and competitive trends
5. Evaluate implications of possible future changes for business strategies and
resources requirements.
A Useful Tool for Assessing Market
Segments: Segment Rating Chart
WEIGHT
RATING (0-10)
TOTAL
Customer needs and behavior
.5
10
5.0
Segment size and growth rate
.3
7
2.1
Macro trends
.2
8
1.6
Market attractiveness factors
Total: Market attractiveness
1.0
8.7
Competitive position factors
Opportunity for competitive
advantage
.6
7
4.2
Capabilities and resources
.2
5
1.0
Industry attractiveness
.2
7
1.4
Total: Competitive position
1.0
6.6
Implications of Alternative Positions Within the
Market-Attractiveness/Competitive-Position
Matrix
Market Attractiveness
Weak
High
Med.
Low
Competitive Position
Medium
Build selectively:
• Spec. in limited strengths
• Seek to overcome weak.
• Withdraw if indications of
sustainable growth are
lacking
Limited expansion or
harvest:
• Look for ways to
expand w/out high risk;
otherwise min. invest.
and focus operations
Desirable Potential Target
Invest to build:
• Challenge for leadership
• Build selectively on
strengths
• Reinforce vulnerable areas
Manage for earnings:
• Protect existing strengths
• Invest to improve position
only in areas where risk is
low
Divest:
Manage for earnings:
• Sell when possible to
• Protect position
maximize cash value
• Minimize investment
• Meantime, cut fixed costs &
avoid further investment
Strong
Desirable Potential Target
Protect position:
• Invest to grow at max.
digestible rate
• Concentrate on
maintaining strength
Desirable Potential Target
Build selectively:
• Emphasize profitability by
increasing productivity
• Build up ability to counter
competition
Protect and refocus:
• Defend strengths
• Seek ways to increase
current earnings without
speeding market’s decline
Sources: Adapted from George S. Day, Analysis for Strategic Market Decisions (St. Paul: West, 1986), p. 204; D. F. Abell and J. S. Hammond, Strategic Market Planning Problems and Analytical Approaches (Englewood Cliffs, NJ: Prentice
Hall, 1979); and S. J. Robinson, R. E. Hitchens, and D. P. Wade, “The Directional Policy Matrix: Tool for Strategic Planning,” Long Range Planning 11 (1978), pp. 8-15.
7
Differentiation and Positioning
What is Positioning?
A couple of definitions
 Creating distinct and valued physical and
perceptual differences between one’s
product and its competitors, as perceived
by the target customer.
 The act of designing the firm’s market
offering so that it occupies a distinct and
valued place in the minds of its target
customers.
Copyright 2008 by The McGraw-Hill
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Other Positioning Strategies


Re-positioning: changing the identity of a
product, relative to the identity of competing
products, in the collective minds of the target
market.
De-positioning: attempting to change the
identity of competing products, relative to the
identity of your own product, in the collective
minds of the target market.
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Positioning Concepts
three types:
 Functional positions
 Solve problems
 Provide benefits to customers
 Get favorable perception by investors and lenders
 Symbolic positions
 Self-image enhancement
 Ego identification
 Belongingness and social meaningfulness
 Affective fulfillment
 Experiential positions
 Provide sensory stimulation
 Provide cognitive stimulation
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Physical vs. Perceptual Positioning Analysis
Exhibit 7.3
Physical positioning
• Technical orientation
• Physical characteristics
• Objective measures
• Data readily available
• Physical brand properties
• Large number of dimensions
Perceptual positioning
• Consumer orientation
• Perceptual attributes
• Perceptual measures
• Need for marketing research
• Perceptual brand positions
and positioning intensities
• Limited number of dimensions
• Represents impact of product • Represents impact of product
specs and price
specs and communication
• Direct R&D implications
• R&D implications need to be
interpreted
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Product Mix Strategies
Market penetration versus market skimming
High
Premium Penetra- Super
Goods
tion
Bargain
Quality
Medium
OverPricing
Average
Bargain
Quality
Low
Hit and
Run
Shoddy
Goods
Cheap
Goods
High
Medium
Low
Price
Copyright 2008 by The McGraw-Hill
Companies, Inc. All rights reserved.
Generic Competitive Strategies
Exhibit 7.1
Competitive Advantage
Broad Target
Lower Cost
Differentiation
Cost
Leadership
Strategy
Differentiation
Strategy
Competitive
Scope
Narrow
Target
Focus
Strategy
Focus
Strategy
(Differentiation
Based)
Source: Adapted from Michael Porter, Competitive Advantage,New York: The Free Press, 1985, p. 12.
Steps in the Positioning Process
Exhibit 7.4 (1 of 2)
1. Identify a relevant set of competitive products serving a
target market.
2. Identify the set of determinant attributes that define the “product
space” in which positions of current offerings are located.
3. Collect information from a sample of customers and
potential customers about perceptions of each product on the
determinant attributes.
4. Determine product’s current location (positioning) in the product
space and intensity thereof.
Copyright 2008 by The McGraw-Hill
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Steps in the Positioning Process
Exhibit 7.4 (2 of 2)
5. Determine customers’ most preferred combination of
determinant attributes.
6. Examine the fit between preferences of market segments and
current position of product (market positioning).
7. Write positioning statement or value proposition to guide
development and implementation of marketing strategy.
8. Position
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Some Key Questions Concerning
Positioning Decisions
For whom are they written?
 In what sort of language?
 Should they focus on features or
benefits?
 How many differentiating attributes
should anchor them?

Copyright 2008 by The McGraw-Hill
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8
Marketing Strategies for
New Market Entries
Marketing Strategy: Introduction Stage.
Most important attributes at this stage are: Price & Promotion
Price
High
Low
Promotion
High
High-Profile
Strategy
Preemptive
Penetration
Strategy
Low
Selective
Penetration
Strategy
Low-Profile
Strategy
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Companies, Inc. All rights reserved.
Marketing Strategy: Introduction Stage.
1.High-Profile Strategy (High price-High Promotion)
When? - High control over offering
- Low fear of competition
2. Selective Penetration Strategy (High Price-Low Promotion)
When? - High profitability
- High fear of competition
3. Preemptive Penetration Strategy (Low Price-High Promotion)
When? - Strongly felt buyer need
- Easy competitive entry
4. Low-Profile Strategy (Low Price-Low Promotion)
When? - Current Production constraints
- Large potential market
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Profit per unit
(real dollars)
Product category sales
(real dollars)
How do opportunities evolve
over time?
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.
Categories of New Products Defined According to
Their Degree of Newness to the Company and
Customers in the Target Market (Exhibit 8.4.)
Newness to the company
High
20%
10%
New product
lines
26%
New-to-the
world products
Revisions/
improvements to
existing products
11%
Low
Cost
reductions
Low
Additions to
26% existing product
lines
7% Repositionings
High
Newness to the market
Source: New Products Management for the 1980s (New York: Booz, Allen & Hamilton, 1982).
Business Analysis for New Product.
Product’s
relationship to
existing line
Development
Costs
Available
Personnel and
facilities
Competition and
Market
acceptance
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Companies, Inc. All rights reserved.
Discussion Question
1.Is it better to be a market pioneer,
or a follower?
Copyright 2008 by The McGraw-Hill
Companies, Inc. All rights reserved.
Some Advice for Would-Be Pioneers

Being a pioneer without the basis for
sustainable competitive advantage is a trap!

First mover advantage is trumped by
pioneers who are better. Best beats first.
Concentrate on being best.
Copyright 2008 by The McGraw-Hill
Companies, Inc. All rights reserved.
Discussion Question
2. When, and for whom, does it
make sense to pursue a pioneer
strategy?
Copyright 2008 by The McGraw-Hill
Companies, Inc. All rights reserved.
Discussion Question
3. When, and for whom, does it
make sense to pursue a follower
strategy?
Copyright 2008 by The McGraw-Hill
Companies, Inc. All rights reserved.
9
Strategies for Growth Markets