C H A P T E R 4 FOUR Understanding Market Opportunities McGraw-Hill/Irwin ©2008 The McGraw-Hill Companies, 1-1 All Rights Reserved Discussion Question 1.What’s a market? Discussion Question  A market is a group of individuals or organizations (i.e., buyers) having the willingness and ability to buy goods or services to satisfy a particular class of wants or needs Discussion Question 2. What’s an industry? Discussion Question  An industry is a group of organizations (i.e., sellers) offering goods or services that are similar and close substitutes for one another. Discussion Questions 3. Is the market vs. industry distinction important? Why or why not? Discussion Questions  • • The distinction is important because: Assessments of market and industry attractiveness differ, and use different analytical tools Companies need to account for sellers from other industries serving their target market Discussion Questions 4. Do macroenvironmental trends matter? What are their implications? Discussion Questions Unfavorable macro trends that negatively influence market demand can have a devastating effect on the performance of firms serving that market.  Similarly, favorable trends exert positive forces that make it easier for firms to perform well. Thus, the influence of macroenvironmental trends can be pervasive and powerful.  Macro Trend Analysis: Demographic environment Sociocultural environment Economic environment Regulatory environment Technological environment Natural environment Discussion Questions  Implications of macro trends: • Demographic trends can result in rapidly growing markets or on the flip side, can make markets less attractive than they once were. Sociocultural trends can result in changes of consumer tastes and behavior. Economic trends influence the level of demand in most markets, but they are particularly important in capital goods markets, real estate, and other markets where sensitivity to interest rates and the level of household or corporate income can be extreme. • • Discussion Questions • • • Regulation and deregulation in the political/legal environment can change the attractiveness of a market. Technological trends often create attractive new markets or change existing markets. Trends in the natural environment can affect market attractiveness. Discussion Question  Let’s identify a trend or two of each type and consider what businesses might be affected. Discussion Question  • •  • • Demographic trend examples/businesses affected: Graying of the population/nursing homes, hospitals Increase in ethnic population/food, clothing industries Sociocultural trend examples/businesses affected Evolution of the family structure (less traditional structure)/food, women’s apparel (business attire) Exercise for both genders is in/exercise clothing, sports beverages Discussion Question Economic trend examples/businesses affected • Increase or decrease of interest rates/capital goods, real estate • Free trade agreements/goods and services  Regulatory trend examples/businesses affected • Government regulation/food, drug • Government deregulation/airlines, trucking, railroads, telecommunications, and banking  Discussion Question Technological trend examples/businesses affected • Development of fiber-optic cables/telecommunications, computers • Production of more disease-resistant livestock and plants/farming and ranching, food  Physical/Natural trend examples/ businesses affected • Global warming/ ski resorts, winter tourism  Strategic Environmental Issue Management A system that enables a firm to identify, evaluate, and respond to environmental issues that may affect the firm’s longerterm profitability and market position  4 stages  > Environmental Scanning > Key Environmental Issue Identification > Impact Evaluation > Formulation of Response Strategy Discussion Question 5.What are the key questions a macro trends analysis should answer? Discussion Question • • • Are trends of each type generally favorable or unfavorable? Thus, how attractive is this market or this industry, now and in the future? Which specific trends merit strategic attention, so we can: • Take advantage: Do trends suggest customer needs that are poorly served? • Mitigate its effects Discussion Questions 6. Does industry attractiveness matter? Why or why not? Discussion Questions  • It makes sense to play in a game with more winners! Average firm profitability varies from industry to industry: • In some industries (e.g., pharmaceuticals) most firms are highly profitable. In others (e.g., restaurants) the failure rate is high and average returns on equity are low. • It’s easier to raise capital and acquire other resources in attractive industries . A Tool for Assessing Industry Attractiveness: Porter’s Five Forces [Exhibit 4.7] 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. Discussion Question 7. If you are preparing a marketing plan, where’s the best place to look for information about macro trends? Discussion Question  • • • • Info sources Trade associations Trade magazines General business and popular press The Internet Discussion Question 8. What’s the difference between the macro and the micro level of analysis? Discussion Question The macro level of analysis looks at aggregate markets – it takes the overall perspective on markets: their size; growth rates in terms of customer numbers and in value terms; etc.  The micro level of analysis looks at customers individually – whether trade customers, or end consumers or business users – to understand the attractiveness of the particular market segments.  The macro level assessment should be accompanied by a micro level assessment.  Understanding Markets at the Micro Level Involves looking individually at customers to understand the attractiveness of the target segment  Key questions:  > Is there a clearly identified source of customer pain? > Does the product offering provide customer benefits that other solutions do not? > Is the target segment likely to grow? Is it a springboard to other segments? Understanding Industries at the Micro Level  Involves looking at the company and whether it has a sustainable competitive advantage  Key question: > What is the basis of competitive advantage? »Proprietary technology, brand, etc »Superior organizational processes, capabilities or resources »Economically viable business model The Team Domains  Opportunities are only as good as the people who will pursue them  Key questions: > What are the missions, aspirations and risk propensity of the team? > Does the team have the ability to execute on the Industry’s Success Factors? > Is the team well connected up and down the Value Chain?