Market Analysis: Sales and Profitability Factors

Category and Market Analysis

• Category size is a key data point, measured in units and monetary value.
• Market growth is an important market factor

Sales Patterns

• Sales cyclicity refers to inter-year demand variations.
• Capital-intensive businesses are often tied to GDP.
• Seasonality refers to intra-year sales cycles, which are generally viewed negatively.
• Most products are seasonal to some extent, like cold remedies, needing price wars to promote sales

Profitability Factors

• Profitability varies across both products/brands and industries.
• Inter-industry differences are based on production factors, manufacturing technology, and competitive rivalry.
• Product categories with chronically low profitability are less attractive.
• Variance in profitability over time is often used as a measure of industry risk.
• Product managers evaluate expected returns against variability, trading off risk and return.

Porter's Five Factors

• This model assesses industry structure:
  • Threat of new entrants
  • Bargaining power of buyers
  • Bargaining power of suppliers
  • Intensity of intracategory rivalry
  • Threat of substitute products or services

Threat of New Entrants

• A high threat reduces category attractiveness.
• Economies of scale is a plant's ability to operate effectively and obtain quantity discounts on raw materials.
• Economies of scale is a barrier to entry, especially in industries like automobiles.
• Small manufacturers may focus on high-priced market segments.
• Economies of scale apply outside manufacturing, improving profit margins on larger hospital supply orders due to fixed costs.
• Large advertisers get quantity discounts on media time.

Competitive Advantages

• Product differentiation, such as established brands and company reputations, can deter new entrants.
• Switching costs are expenses when changing from one supplier to another.
• Switching costs are applicable in business-to-business and end-customer contexts.
• New products may struggle to secure shelf space and will need slotting allowances
• Distribution is the idea that new products find it difficult to obtain shelf space

Bargaining Power

• Buyers include distributors, OEMs, and end customers.
• Suppliers are any institution that supplies labor, capital, raw materials, and machinery.
• High buyer bargaining power negatively impacts industry attractiveness, forcing down prices and intensifying competition.
• Buyer power is high when:
  • The product is a large percentage of the buyer's costs
  • The product is undifferentiated
  • Buyers earn low profits
  • Buyers threaten to backward integrate
  • Buyers possess full information
  • When substitutes exist for the seller's product/service

Supplier Power

• High supplier power is unattractive, allowing suppliers to control prices and terms.
• Supplier power is high when:
  • Suppliers are concentrated
  • No substitutes exist for the supplied product
  • Suppliers have differentiated products or built-in switching costs
  • Supply is limited

Category Rivalry

• Intensive rivalries are exhibited when:
  • There are many or balanced competitors
  • There is slow growth
  • High fixed costs
  • Lack of product differentiation
  • Personal rivalries exist

Capacity Considerations

• Chronic overcapacity is a negative sign for long-term profitability.
• Operating at capacity keeps costs low and bargaining power high.
• Monitoring the tendency to operate at or under capacity is key to assessing category health.

Environmental Analysis

• Environment refers to factors outside the firm and industry's control.
• External factors unrelated to the product's customers/competitors affect marketing strategies.

Environmental Factors Affecting Product Categories

• Technological: Vulnerability to competition from new products or foreign firms
• Political: Sensitivity to political factors, especially in foreign markets
• Economic: Sensitivity to interest rate fluctuations (capital goods), currency exchange (foreign markets), employment conditions (service businesses), and GDP growth (consumer durables)
• Regulatory: Impact of government and agency regulations on category attractiveness, media restrictions
• Social: Trends in demographics, lifestyles, attitudes, and personal values

Key Forces Driving Consumerism

• Shrinking day
• Connectedness
• Emphasis on body versus soul
• Individualism

Secondary Information Sources

• Use these sources to begin competitor analysis to keep costs down
• They are generally less expensive and easier to obtain than primary data
• Internal sources like company divisions
• Local newspapers
• Annual reports (use with scrutiny) and 10K statements
• Patent/Trademark filings

Information from Publications

• General business publications include Business Week, Fortune, Forbes, and The Wall Street Journal.
• News releases
• Promotional literature
• Trade Press
• Consultants
• Employee Communications
• Trade Associations
• Government Sources

Electronic Data Services

• Hoover's Online
• Dun & Bradstreet's Online Access
• NewDirectory's 24-Hour Newsstand
• American Demographics
• Competitive Intelligence Guide

Primary Sources of Information

• Sales force and Customers
• Employees
• Suppliers
• Consultants and Specialized Firms
• Investment Bankers
• Other Sources such as help-wanted ads, trade shows and plant tours

Analyzing Competitors Through Engineering and Observation

• Reverse Engineering
• Monitoring Test Markets
• Hiring Key Employees

Ethically Questionable and Illegal Sources

• Aerial Reconnaissance
• Buying/Stealing Trash
• Bribing Printers
• Running Phony Want Ads
• Snooping on Airplanes

Product Feature Mix Factors

• Basic feature information with relative importance weights to provide information on strengths and weakness relative to the competition

Competitor Analysis: Objectives and Strategies

• Assess competitor's current objectives to determine future aggressiveness.
• Determine competitor's past and current marketing strategies.

Marketing Strategy Components

• Marketing strategy comprises target market selection, core strategy, and implementation.
• Core strategy hinges on differential advantage, influencing the brand's positioning or value proposition.
• The marketing mix then supports the overall strategy and tactical decisions.

Competitor's Marketing Mix Elements

• Pricing: Questions pricing strategies
• Promotion: Evaluates sales management, advertising media, and sales promotion activities
• Distribution: Analyzes channel shifts and brand emphasis
• Product/Service Capabilities: Assesses short-term capabilities based on product or service makeup.
• Technology Strategy: It can be broken down using the following criteria:
  • Technology selection or specialization.
  • Level of competence.
  • Sources of capability: internal versus external.
  • R&D investment level.
  • Competitive timing: initiate versus respond.
  • R&D organization and policies.

Competitor Capabilities Framework

• Includes:
  • Abilities to conceive and design
  • Produce
  • Market
  • Finance
  • Manage

Assessing Competitive Behavior

• Assessement of will and continued interest involves evaluating product importance, market commitment, and managerial aggressiveness.

Predicting Future Strategies

• Understand competitors' objectives, strategy, and resources.
• Predict their strategies over the planning horizon.

Segmentation Demographics

• Identify initiators, influencers, deciders, purchasers, and users.
• The most obvious and popular basis for describing consumers is their general characteristics. The key categories are:
• Demographics include age, sex, geographic location, and life cycle stage.
• Socioeconomic factors, such as income, education, occupation, and social class.
• Personality is use to base segmentation.
• Psychographics and values

Consumer Values

• Self-respect
• Security
• Relationships
• Sense of Accomplishment
• Self-fulfillment
• Sense of belonging
• Respect from Others
• Fun and Excitement

Variables: Industrial Products

• Same type of variables use to describe consumers (see Figure 6.5 for a list of some useful variables)

Customer Actions

• The identity, amounts, brands and benefits and features chosen are all important considerations to understand in customer buying.
• Segmentation depends on Recency, Frequency and Monetary Value

Potential Customer Range

• Unaware
• Aware
• Accepting
• Attracted
• Active
• Advocates

Use Factors

• Use must be understood for the analysis
• Channels of distribution
• Timing

Customer Processes

• How to collect information
• Consideration set

The Multiattribute Model

• Used to determine preferred option in a product category

Attribute Considerations

• Cannot base on managerial process alone

Perception Determinations

• Marketing research methodology and multidimensional scaling is used to determine perceptions among brands

Combining Customer Information

• A compensatory rule must be applied

Customer Problems, Satisfaction and Segmentation

• Assess the difficulty of the customers problem.
• In order to retain customer quality programs must satsify customer needs.

Three keys to Customer Satisfaction

• Expectations of performance/quality.
• Perceived performance/quality.
• The gap between expectations and performance.

Intention Information Uses

• Intentions are imprecise predictors of future purchase

Segmentation Overview

• Mass marketing is typically inefficient
• The Desirable Criteria that help make a good segmentation are:
  • Sizable
  • Indentifiable
  • Reachable
  • Respond differently
  • Coherent
  • Stable

Methods for Market Segmentation

• Cluster analysis
• Tabular analysis
• Regression analysis
• Latent Class Analysis
• Judgement-Based Segmentation