Market Analysis - AREC 323 - University of Alberta - PDF

Market Analysis AREC 323: Introduction to Management for Agri-Food, Environmental, and Forestry Businesses. Douglas Mugabe [email protected] Outline Announcements and Recap What is Market Analysis Conducting marketing analysis (Industry Analysis)...

Market Analysis AREC 323: Introduction to Management for Agri-Food, Environmental, and Forestry Businesses. Douglas Mugabe [email protected] Outline Announcements and Recap What is Market Analysis Conducting marketing analysis (Industry Analysis) Past Performance; The Market; Competition; Customers; Target Market Marketing Mix: The 4 P’s Product & Service; Price; Promotion; Place  Market Analysis Past Performance How did the business perform; Products sold and Prices; Profits made etc (if existing business) What is/are the target market(s)? Understand the market, its The Market size, dynamics, characteristics; Are there enough buyers?; Limits and constraints; How is the market affected by social, (define!) economic, technical, environmental conditions? Competition What’s competition level? Who are the major competitors? What are their market share, strengths and weaknesses? (who, where, when, how) What are competitors offering? How to counter competition? Customers How many customers? What do they need? How often do they buy? Where and when will they buy? Their (who, where, when, how) preferences? What influence their decisions to buy? Target (Your) Market(s) Most attractive market; Market with a competitive advantage: Do product features, presentation, distribution, pricing (etc.) (define, describe, study) match with costumer needs? Past Performance Example Santa Fe Food Company (www.santafefoodcompany.com) Marketed 8,000 bottles of sauce & 6,000 bottles of cherry juice in last 12 months Sold to retailers at a wholesale cost of $7.00 per bottle Gross profit = $56,000 Sold at numerous retail locations across Saskatchewan, Manitoba, Alberta, and at trade shows Will have the potential to produce 75,000 bottles of product in a year Example: Rippling Hill Farms (Goat Cheese) Goat milk production was estimated at over 62.2 million liters in 2018 Production has increased by approximately 280% since 2007 Consumption of (specialty) cheese has increased from 8 lb./person/yr in 1980, to 16lb. in 2006. In 2007 Saskatchewan residents consumed 7330 tonnes of specialty cheese Currently there is no goat milk production in Saskatchewan (All imported) Studies show 45% of Canadians make an effort to buy local (Mintel) Rippling Hill Farms’ potential market size could 210,285 units in SK Sources of Market Information What sources of information are available about the market? Statistics Canada, Canadian Industry Statistics Mintel, Consumer & Market Intelligence, Food/Beverage UofA lib access AB Canola Producers Commission AB Ministry of Agriculture and Forestry NPD Group, Market Research, Canadian Apparel Industry Example Competition: Bridge City Stables’ Competitors Attractions Price(Cdn $) Grass Woods Stables: N/A N/A South of Saskatoon on Hwy 16 North Fork Equestrian Centre: -Adult only riding facility; -Warm indoor arena Box stall $300/month 3 Miles West of Martinsville -¾ Mile oval exercise track; Summer horse pasture Sandhills Stables: -Riding programs for children & adults Outside stall $278/month 7 Miles South on Hwy 219 -Summer camps Lessons $137/month Stoney Gates Stables; -Indoor and outdoor arena Box Stall $255/month 4 miles North of Saskatoon -Year-round boarding Lessons $25/hr. Willow Ridge Stables: -Arena rental;-Heated indoor arena Box Stall $400/month 1 Miles South on Hwy 219 -Lessons, shows, clinics Lessons $25/hr. Ebon Stables: -Heated arena; -Breaking and re-breaking Box Stall $450/month 10 Miles south east. -Summer camps; -Show and clinic facility Lessons $40/hr. Outdoor riding ring Bridge City Stables: - State of the art facilities Box stall $400/month 3 miles East of Sutherland - Lessons, clinics, Lessons $25/hr. -Heated arena Weekend clinics $100 - English & western riding styles Class activity Question: What is the main goal of studying markets & competition? Goal = understand the underlying competitor behaviours, strategies, advertising, and (fixed) conditions such as taxes, tariffs, etc. What is your rival(s) price? – Range, discounts, … How do your rivals determine their prices? Are the prices regulated? Is there a segment/market leader? – Dominant brand (e.g. Kellogg's in RTE) Is every firm a price taker? – Market power? Are there any type of taxes, fees, tariffs that may affect pricing to customers/consumers? Target Market Food Company should target…. More specifically: Condiment market Federated Co-op Locally focused market Farmers markets Health-conscious consumer markets Health food stores Trade shows Trade shows (?) The Marketing Mix (4 Ps) Product and Service Explain exactly what you are selling; use pictures; description of the product/service You need to design a product/service that; 1. Consumers want/need 2. Competitors are not offering 3. You have a relative advantage producing it (e.g. cost advantage) 4. Has a good match between the design, features and the needs of the customers. In groups – take some time to brainstorm about a product or service your are considering for the group assignment. Can you give a description of the product or service?  Pricing What is pricing? ○ 1. Cost-based approach (competitive pricing or cost leadership): Consider total costs, minimum profit requirement, and competitors’ prices, ○ 2. Market-based approach (premium pricing or benefit leadership) You can use this when your product is positioned as vertically or horizontally differentiated. Price = What the market will bear - set at a level that a customer perceives as having substantial value.  Why is the relationship between price, quantity of sales & profit important to managers?  What price strategy can be employed to increase profits? What is your group’s price strategy?  Price discrimination  a market based approach. Price Discrimination  Charging different prices to different consumers for the same product or  Charging a price that varies depending on how many units the customer buys.  Conditions for price discrimination 1. Market power (ability to charge a price higher than competitive price) 2. Information of consumers’ willingness to pay 3. Market Segmentation (prevent resale, no arbitrage) Old Taxonomy Modern Taxonomy 1. First degree 1. Complete discrimination 2. Second degree 2. Direct segmentation 3. Third degree 3. Indirect segmentation 4. Two-part Tariff 1st degree (perfect) price discrimination AKA perfect price discrimination, Firm charges each consumer the maximum price they are willing to pay Monopolist earns the entire consumer surplus. Requires perfect info on consumers’ Maximum Willingness to Pay (MWTP) - Example: Car dealerships when price is negotiable  2nd degree price discrimination 2nd degree price discrimination: Larger quantities are sold at a lower unit price. - Non-linear pricing - In reality this might apply to quality as well. (e.g. airlines) - Example: Airlines: Economy and Business classes. - Example: Beer: 6-pack vs. larger  Third degree price discrimination Price varies by specific attributes or characteristics of their customers or market segments. Location, Income, Age, Gender, Marital Status, Education, Family size, Occupation, Member loyalty, Purchasing history, Time of purchase, accessibility needs, etc - Give examples of 3rd degree price discrimination you have experienced before Price discrimination: Modern Taxonomy 1. Complete discrimination: similar to 1st degree, sales occur upto when consumer surplus is fully extracted. 2. Direct segmentation: price depends on attributes that directly segment the buyers (income, age, gender, location). Example: Coffee shops in business centers/towers price higher. 3. Indirect segmentation: market is indirectly segmented using some proxy (e.g. package size). Example of indirect segmentation: Coupon (those who go through the trouble are more price sensitive so we charge them a lower price while we still get to price the price-insensitive buyers higher). 4. Two-Part Tariff: Initial (entry) fee + Secondary Fee (Initial fee: Fixed & Secondary fee: variable, depends on the quantity) Example: printer, razor, Costco (membership is fixed). Promotion What image do you want to project for your business? What do you want to promote? What is your advertisement strategy? What you want to promote is what you will advertise? What determines your advertisement program? The type of product/service being sold; The type of customer; The channels of distribution, and The role of the sales force. Promotion Promotion – Is linked with positioning strategy (what should the business project) What should a manager address inline with promotion strategy? What are the selling & advertising objectives (e.g. max profit, promote the product)? What roles will advertising and the sales play in the total selling effort ? What are the most effective media to use for the product/service (check rivals)? Will discounts need to be offered from time to time? Do you think trade shows are; (i) a good source of ideas for a new business? (ii) a good source for new business to get their product or service noticed? What is your promotion strategy, for your proposed business?  Place Place - Which market and what distribution method Where is your geographical target market? Why? Who are your customers? Why? What are your channels of distribution? There are many options for ‘moving’ the product/service to the customers, each of which has important implications affecting the pricing structure & advertising message. Sell direct to an end-user via direct mail, telemarketing, or online? Sell to a broker, a wholesaler, or a distributor? Some products are not well suited to certain distribution methods  Place = Channel How do you decide on the best channel/ method of distribution? What should a manager to pay particular attention on? Transaction Costs Search and info cost, bargaining cost, policing and enforcement costs Maintaining the quality of product Quantify impacts ($) of decision options for business. Use “measures: ROI, BCR, … 𝑩𝒆𝒏𝒆𝒇𝒊𝒕𝒔 Benefit/Cost Ratio= ($) 𝑪𝒐𝒔𝒕𝒔 Alternative Channels of Distribution Which channels do competitors use? will be most cost effective? can reach the target markets? require technical and sales support? best suited to the product/service? Which specific distributor is a good match for company & product  CH 2: Situation 2 page 46 Situation: Arvin Singh is a retired factory worker who invented a rectangular case with wheels on one end and a retractable handle on the other. The suitcase can hold about four days worth of clothes and be pulled easily down a narrow airplane aisles. It is both light and durable. An integral part of the design is the several internal separators that allow easy storage. Friends and family members who test drove the bag were enthusiastic about its practicality. Singh researched several potential manufacturers in China, and believed he could bring the luggage to market at a bargain price. Singh exhibited his new product at the luggage industry’s annual trade show. The bag created little excitement among buyers. They complained that the suitcase stood on its side, which looked unnatural. 1. What particular niche market, if any do you think Singh can successfully reach with this product? Why? 2. Do you think he will face an immediate challenge from local/global competitors? If so, how should he react? 3. What type of quality concerns should Singh have regarding the product? Marketing and Plan Budget Helps determine overall project costs. Budget includes money for people, advertising, travel, telephones, brochures, training, etc Table : Saskatchewan Pioneer Challenge: Marketing Budget Advertising Magazine Advertising $13,000 Brochures/Business cards $600 Total Advertising $13,600 Promotion & Development Web page $3,000 Travel expenses $20,000 Trade shows $2,000 Total Promotion $25,000 Total Marketing Expenses $38,600  Any Questions Next: Business and Capital Budgeting