2017

Market analysis

INNOVATION AND NEW PRODUCT DEVELOPMENT

KRISTINA ZHELIBA 2014432106

DIANA MOLDOZHANOVA 2500432026

AYAZ AKYUZ 2500432004

ILAYDA VARDAR 2500432017

I.Introduction

The main aim of market analysis is to determine the attractiveness of a market and to understand

its evolving opportunities and threats as they relate to the strength and weakness of the company.

Market analysis help you plan your marketing strategy. You need to understand what customers

want and how they behave. You might use consumer research or industry analysis to reach

which factors influence purchasing decisions. Researching the competitors area and what they

offer can help you identify where the best opportunities are and how you can differentiate your

product or service.

II.Industrial analysis

Industry analysis has two primary objectives:

1. To determine the attractiveness of various markets

2. For better understanding the dynamics of the market so that underlying opportunities and

threats can be detected and effective strategies adopted (Aaker 1995)

A thorough industry analysis will include the following four components:

1. Major market trends. Events or patterns that are changing in the marketplace (Naisbitt 1982)

2. Key success factors. Those factors that are the building blocks for success in your industry

(Thompson and Strickland 2001)

3. Competitive forces. These forces help explain the potential for profit (or lack thereof) in a

particular industry, including the threat of entry, supplier and buyer power, the availability of

substitutes, and the intensity of rivalry within the industry (Porter 1980)

4. Change forces. these are events outside your organization that shape the way you conduct

business, including government regulations, product and marketing innovations, economic

issues, consumer trends, and information needs (Lehmann and Winer 1994)

A. Dimensions of an industry analysis

The nature and content of an analysis of an industry and its relevant product-markets will depend

on the context. However, it will often include the following dimensions:

1. Actual and potential industry size.

2. Industry structure.

3. Cost structure.

4. Distribution channels

5. Trend and developments in industry

6. Industry growth and the product life-cycle

Each of these dimensions will be discussed in turn. The final dimension, industry growth, has

long been a central construct in strategy development. The nominal strategy implication is to

invest in growing situations and disinvest in declining ones. Here you can conclude with an

examinations of ways to compete successfully in declining situations and an examination of

conditions under which growth contexts may not be attractive investment areas

B. Actual and potential industry size

A knowledge of industry is important because its help you not only to evaluate investment

decisions, but also serves to define market share of the various competitors, by considering

industry size it can be important to distinguish that portion of the market that is represented by

captive buyers. Estimation of industry can be based on government sources or trade associations,

also estimation of competitor sales can also be obtained from sources of financial information or

by talking to large customers or knowledgeable distributors. When there are many customers and

other sources are inadequate, it can be worthwhile to survey customers about their usage and

applications project the results to the industry and its submarkets.

C. Industry structure

The industry structure attractiveness as measured by the long-term return on investment depends

in large measure on the industry structure. The industry structure have five components that

indicates: competitors, potential competitors, substitute products, customers, and suppliers. Each

has a role to play in determining the intensity of competition and in explaining why some

industries are historically more profitable than others are. An understanding of the structure can

also suggest which key success factors are necessary to cope with the competitive forces.

Exhibit 1. Porter’s 5 forces scheme. (Porter, 1980)

1. Competitors.

Level of competition depend from competitors and their intensity, commitment to the industry,

the differentiation of product, existence of high fix cost, exit barriers. If the industry is

strategically important to several competitors, their level of commitment will be high and they

will tend to compete more vigorously.

2. Potential competitors.

Whether potential competitors identified or not, actually do enter depends in large part on the

size and nature barriers to entry. Thus an analysis of barriers to entry is important in projecting

the likely competitive intensity and profitability levels in the future. Entry barriers include:

1. Capital investment required.

2. Economies of scale.

3. Distribution channels.

4. Product differentiation.

3. Substitute products.

Substitute products are represented by those sets of competitors that are identified as competing

with less intensity than the primary competitors. They are still relevant and influence the

profitability of the industry. Thus plastic, glass, fiber-foil products exert pressure on the metal

industry. Electronic alarm systems are substitutes for the security guard industry. Particular

interest are substitutes that show a steady improvement in relative price and performance and for

which the customers cost of switching is minimal.

4. Customer power.

When customers have relatively more power than sellers, they can force prices down or demand

more services, so that profitability is affected. A customers power will be stronger when its

purchase size is a large proportion of the sellers business, when alternative suppliers are

available, and when the customer could integrate backward and make all or part of the product.

5. Supplier power.

When the supplier industry is concentrated and sells to a variety of customers in diverse

industries, it will have relative power that can be used to influence prices. Power also tend to be

enhanced when the costs of customers to switch suppliers are high. Thus the oil industry in many

contexts is powerful enough to influence profits in customer industries.

D. Cost structure.

The cost structure of the industry and understanding of it can provide insights into present and

future key success factors. A first step is to conduct an analysis to determine where value is

added in the product or service.

The proportion of value added attributed to one production stage becomes an important indicator

that a key success factor is associated with that stage. It may be possible to develop control over

a resource or technology, as the OPEC cartel did. Competitors will aim to be the lowest-cost

competitor in the highest value-added stage of production. Advantages in lower value-added

stages will simply result in less leverage. Thus in the metal can business transportation costs are

relatively high and a competitor that can locate plants near customers will have a significant cost

advantage. Of considerable importance, especially in fast-moving growth industries, is the ability

to anticipate changes in the key success factors.

For example, the cement industry, when restricted to rail or truck transportation, was very

regional. However, with the development of specialized ships and production scale.

E. Distribution Systems

An Analysis of the distribution systems should include 3 questions:

1. What are the alternative distribution channels?

2. What are the trends? What channels are growing in importance? What new channels have

emerged or are likely to?

3. Who has the power in the channel and how is that likely to shift?(Aaker, 1995)

Companies use different types of channels accordingly to the industry and what service and

product they provide to customers. One of the channel characteristics is degree of directness.

Firms like Amway, Oriflame, Avon use their own forces for distributing their products; firms

like Nivea, Colgate, and many other distribute their goods through plenties of retailers. The firms

that are the closest to the end user will have the greatest control over the marketing effort but

will also usually assume the great risk. Distribution channels include wholesalers, e-commerce

websites, catalog sales, consultants, a direct sales force who sell over the phone, in person or

both, dealers, home shopping networks and retailers. The distribution channel or channels

selected can dictate what the rest of the marketing strategy would be, as they influence the buyer

directly. While doing industry channels analysis, it is useful to consider not only existing

channels but potential ones.

F. Industry Trends and Developments

An industry analysis to be most useful should be forward looking, projecting industry

attractiveness and its key success factors in the future. What are the emerging trends or events

that could suggest new growth directions or change the assessment of the key success factors?

All of the marketing efforts should be performed accordingly to trends and innovation in the

industry. That's why research is always very important for growth of sales and brand. For

example, in skin-care industry new trends are: naturality of components used and ease-of-use. If

company tries to compete in an industry with rapidly changing trends without being aware of

these trends, this can be disastrous.

G. Industry Growth and The Product Life Cycle

It is generally assumed that a growth industry, all else being equal, will have greater opportunity

and potential payoff than an industry in decline. Key success factors often change as the industry

goes along its life cycle. (Aaker, 1995)

a. The product life-cycle concept.

Life cycle has 4 stages, they are: introduction, growth, maturity and decline. There are different

marketing strategies that firms force for renewing the industry. While analyzing industry

lifecycle it is important to remember that none of the periods of industry are exact. For example,

maturity may be increasing, when distribution channels become saturated, stable, when market

penetration is achieved and product is well recognized, and decreasing, when substitute products

are becoming part of the market. (Aaker, 1995)

b. Detecting Maturity and Decline.

Detecting when life cycle entering new stage is crucial for developing the strategy, it can be

identified by sales and profits. Often, it is not easy to forecast or even determine the stage; thus,

the analysis should be based on class of product, its form, its application, its brand. Even if stage

is certainly identified, it does not mean that strategy is obvious.

II. Competitive analysis

A. Definition of Competition The term competition can be understood differently by the view of competition held by different

groups varies. Most accurate way to define competition is to analyse in different titles.

Competition is the race that businesses have made to other businesses to sustain their assets and

capture success. Competition is best understood by separating "natural" and "strategic"

competition from each other. According to the natural competition, the strongest in the current

environment remains. The ability of businesses to sustain their assets depends on how they will

provide different advantages over other businesses. Natural competition is, in other words,

competition in which low-risk trial and error movements are found and applications that are

deemed useful are placed over time. It is universal in this state. But strategic competition is

evolutionary, and pursues major changes that will change the competitive relationships required

by its structure. For this reason, nothing in strategic competition is left to chance. Natural

competition is evolutionary. Strategic competition is revolutionary.

B. Classifying Competitors Different industries aims to meet different customer needs and demands; existing, latent and

incipient. Existing demand is that people that already satisfied with your product or service,

whether it is from you or a competitor. According to Jain, S.C. (2000), latent demand refers to a

situation where a particular need has been recognized, but no products have yet been offered to

satisfy the need. Incipient demand occurs when certain trends lead to the emergence of a need of

which customer is not yet aware. (Jain, S.T., 2000)

Product lines are grouped into three categories; a me-too product, an improved product, or a

breakthrough product. Me-too product is a product introduced by a company after it has been

successfully introduced by other companies, and already have a significant market share. An

improved product is generally outstanding to many existing brands while not unique.

Breakthrough products are better than existing products with their technology.

Seeking Competitive Advantage

Porter’s Five Forces

Your ability to make a good profit in your business depends on the strength of your position in

the market. For instance are there any competitors offering similar products? Is it easy for other

organizations to enter your market if they see you are making a profit? On the other hand, can

customers force you to lower your prices? If you do not think about your position carefully, you

can easily find that you are working hard and still struggling to stay afloat. This is where to like

Porter’s Five Forces is useful. It helps you discover who has the most power in a given situation.

It can also show you if a product or service is likely to be profitable. The tool assumes that five

forces that determine competitive power in a business situation. These forces are supplier power,

buyer power, and competitive rivalry, threat of substitution and threat of new entry. Any of them

can work for or against you so it is important to understand them. To use porter’s five forces as

an analysis tool you need to look at each one individually. For example, with supplier power you

examine how easy it is going to be for your suppliers to drive up prices. If you have several to

choose from you can switch to a cheaper alternative if prices are too high. However, you have

fewer options if your choice is limited, which means that individual suppliers hold more power

over you. Next thing is a buyer power. How easy is it for your customers to drive down prices, if

there are only a handful of them in your market they have more control. If there are many more

your power increases. Then consider competitive rivalry. How many competitors do you have?

Are their products or services as good as yours are? If so, how can you establish a strong

advantage over them? There is the threat of substation. How easy is it for your customers to find

another way to get what you are offering? The easier it is, the less power you have. Finally,

identify how likely it is for competitors to enter the market. The easier it is for them to swoop in,

the harder it is for you to make a profit. Once you have completed a five forces analysis, you will

be able to see clearly, where you are at risk, so you can overcome any obstacles. In addition, if

you are thinking about entering a new market, you can see at a glance how profitable you are

likely to be.

III. Customer Profiling

A. What is customer profiling? Customer profiling defined as customers characteristics including demographics,

socioeconomic, personality and psychographics and values. Similar types of customers are

grouped and targeted based on who they are and what they are interested in. Marketers use

customer profiling to identify the best customers for defining their target markets. This study

help marketers will asist to make informed targeting decisions based on customer profiling

analysis by providing an overview of key characteristics and needs. Marketers will be able to

decide on the right strategies and tactics to meet the needs according to customer profiling. True

defining customer profile one of major step to marketing analysis.

The most obvious and popular basis for describing consumers is their general characteristics;

demographic,socioeconomic,personality,psychographics and values.(Lehmann and Winer

,2002).When we analyzed in detail demographics are the statistical data of target group. It

included age, sex, customers location and stage in the family life cycle stage. That are provided

to identify markets also help to identify who your customers are and how likely they are to

purchase the product you are selling .Secondly socioeconomic variables are factors of a social

and economic resources which indicate a person's status within a community including income,

degree of education, occupation and social class. As a personality, demographic and

socioeconomic variables are not enough criteria for create customer profile so marketers need to

analyze customers personality. Psychographics and values basically represent an evolution from

general personality variables to attitudes and behaviors more closely related to consumption of

goods and services. (Lehmann and Winer ,2002) and this category analyzed three major part:

activities, interest and opinions.

B. How collect customer data? Collecting and storing information about customers is provide your customer service program

and create customer profile but there are legal requirements regarding what you can do with the

information you have collected. Collecting information about customers, there are some specific

important points. For example, what your customers are buying, why they are buying, and how

often they are buying also potential customers be encouraged to participate this process to the

most accurate customer profiles. Customer data collecting provides to create private and quality

customer service. There are many way to collect customer information: order forms, surveys,

complaints, customer satisfaction surveys, feedback cards, and your website.

Order forms provides to learn customers previous order a specific product or service that your

business is unable to supply immediately.

Surveys is good business practice to record the details of any customer surveys so you can

follow them up. It is one of the known methods can be given various awards to encourage the

customers.

Recording complaints customer complaints as a way to collect customer information because

evaluating the complaints will show you what you lack and you will find the contribution to your

development and help you to solve problems.

Customer satisfaction surveys collect information on customer satisfaction; you could use

survey cards where customers rate, for example, aspects of your service out of five also back of

this survey can be used for customers' personal information.

Feedback cards can also be used to collect information like customer satisfaction surveys you

can ask for feedback on specific aspects of your business or leave it open-ended, like a

suggestion box. Again, the back of the card can request personal details.

Your website you can use a business website to collect customer information through a 'contact

us' form for general enquiries, or by allowing customers to sign up to a mailing list (if you have

regular news or updates).

IV. Summary In market analysis, it is extremely important to understand the competitive nature, the competitive

nature, the composition of operational costs, the pricing practices and other competitive activities, and

the factors influencing the over-all operation of the industry. In our work, we considered three

components of market analysis: industry analysis, competitive analysis, customer profiling. In industry

analysis we explained six dimensions, they are:

1. Actual and potential industry size

2. Industry structure

3. Cost structure

4. Distribution channels

5. Trend and developments in industry

6. Industry growth and the product life-cycle.

Competitive analysis gives firms the best opportunity for higher profitability and sustainability in

business environment. The most useful tool to seek competitive advantage is Porter’s Five Forces, that

helps firms to discover who is the most powerful force in the industry in given situation.

V. References

1. Aaker, David A, “Structured Analysis of Industry” . Developing business

strategy. New York : John Willey, 1998, 5th edition.

2. Lehmann Donald R.&Winer Russell S. “Analysis for Marketing

Planning”

New York:McGraw-Hill/Irwin Series in Marketing,2002, 5th edition.

3.Jain,C.Subhash”Marketing Planning & Strategy”.United States of America,1999,6th

edition.

4.Porter,E.Michael “Techniques for Analyzing Industries and

Competitors”Boston,1980, 7th edition.