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

Probability of Occurrence

High LowLevel of Impacton Company*

High

Low

4

2

1

3

*Profits or market share or both.

Probability of Success

High LowAttractivenessto Company*

High

Low

4

2

1

3

Opportunity Matrix

Compare strengthsto opportunities

Compare weaknessesto threats

Exhibit 5.2

The Major Forces that Determine Industry Attractiveness

Rivalry among Rivalry among existing industry existing industry

firmsfirms

Threat of substitute Threat of substitute productsproducts

BargainingBargainingpowerpower

of buyersof buyers

Bargaining Bargaining powerpower

of suppliersof suppliers

Source: Adapted from Michael E. Porter, “Industry Structure and Competitive Strategy: Keys to Profitability,” Financial Analysts Journal, July-August 1980, p. 33.

Threat of newThreat of new entrantsentrants

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

Low Stable Returns

Low RiskyReturns

High StableReturns

High RiskyReturns

Entry Barriers

Exit Barriers

Low

High

Low High

If alternative fuel vehicles are a major opportunity for the auto industry, how

fast will customers adopt?

Earlymajority34%

Latemajority34%

Earlyadopters13.5% 16%2.5%

Innovators

Laggardsand nonadopters

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

Generalized Product Life Cycle

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.

Pro

du

ct c

ateg

ory

sal

es(r

eal

do

llar

s)P

rofi

t p

er u

nit

(rea

l d

oll

ars)

Profit/unitSales

Life cycleextension

GrowthCompetitiveturbulence

Maturity Decline orextension

Time (years)

Introduction

Exhibit 5.9

Common Product Life-Cycle Curves

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.

Unitsales

Unitsales

Unitsales

Unitsales

Time Time

Time Time

I. Growth-decline-plateau II. Cycle-recycle

IV. ClassicalIII. Innovative-maturity

Intr

o. Gro

wth

Mat

uri

ty

Dec

lin

e

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