BUSINESS PLAN DEVELOPMENT
Industry Analysis, Marketing & Competition
Professor Alan L. Carsrud
The Center for Global Entrepreneurship & Innovation FLORIDA INTERNATIONAL UNIVERSITY
Remember Entrepreneurial Strategies and Business Plans build on a sound understanding of the external environment and the needs of customer groups in the market place.
An understanding of the competitive landscape and the strategies employed by others is critical to the success of your own firm’s entrepreneurial growth plans.
Defining The Firm’s Overall Business Plan Strategy
Opportunities
Turnaround
Competitive Position (Weak)
Aggressive
Competitive Position (Strong)
Defensive
Threats
Niche
Key Issues in the Industry Environment
• New Entrants • Bargaining Power of Suppliers • Substitute Products / Services • Bargaining Power of Buyers • Rivalry Among Existing Firms
(Yes this is Michael Porter of Harvard and yes you do need to use this as a way of looking at the competitive environment)
In other words, don’t forget what you have already been taught about strategy and competitive intelligence. For those of you who are not MBA students, lets quickly review.
New Entrants
– Will new technology or market demand enable competitors to minimize the impact of traditional economies of scale? – Will customers accept our claims of product or service differentiation? – Will potential new entrants be able to match capital requirements that currently exist? – How permanent are the cost advantages? – Will conditions change so that competitors have equal access to marketing channels? – Is government policy toward competition in the industry likely to change?
Bargaining Power of Suppliers
– How stable are the size and composition of our supplier group? – Are there any suppliers likely to attempt forward integration into the industry? – How dependent will our suppliers be in the future? – Are substitute suppliers likely to become available? – Could we become our own supplier?
Substitute Products / Services
– Are new substitutes likely? – Will they be price competitive? – Could we fight off substitutes by price competition or by advertising to sharpen product differentiation? – What actions could we take to reduce the potential for having alternative products seen as legitimate substitutes?
Bargaining Power of Buyers
– Can we break free of over commitment to a few large buyers? – How would our buyers react to attempts by us to differentiate our products? – What possibilities exist that our buyers might vertically integrate backward? – Should we consider forward integration? – How can we make the value of our components greater in the products of our buyers?
Rivalry Among Existing Firms
– Are major competitors likely to undo the established balance of power in our industry? – Is growth in our industry slowing such that competition is becoming fiercer? – What excess capacity exists in our industry? – How capable are our major competitors of withstanding intensified price competition? – How unique are the objectives and strategies of our major competitors?
TOWS Analysis Diagram
Environmental Opportunities
+1 0 Internal Weaknesses -10 -10
+1 0
Internal Strengths
Environmental Threats
Remember the Characteristics of an Effective Strategy
Know your Strengths. Know your Weaknesses. Understand where & how you
make money Know your Cash-Value chain. Know your distribution chain.
Trends
• Social • Political • Economic • Technological • Demographic • Global • Local
The External Environment
Macro-Environment
Economic
Industry Environment
Competition
Demographics
Customers
FIRM
Suppliers
Social
Substitutes
Global
Political/Legal Technological
... and don’t forget Counter-Trends
Strategically Important Environmental Factors
Economic Conditions GNP Trends Govt. Spending Interest Rates Unemployment Levels Income Levels Demographic Trends Population Growth Age Distribution Population Shifts Immigration Birth Rates Socio-Cultural Trends Lifestyle Changes Family Formations Health Trends Environmental Concerns Political/Legal Technological Legislation Welfare Housing Agriculture Education
Thinking Strategically
Environmental Analysis Organizational Assessment
External
Internal
Business Plan
Market Analysis
Purpose of a Market Analysis
Determining the size and growth potential of a market enables a firm to predict many things about the market, particularly with respect to competition.
From a venture capital perspective, large markets that are growing rapidly, or smaller untapped markets with great growth potential are ideal.
Market segmentation is useful in determining which segments and customers to serve.
What to Include in a Market Analysis
Estimates of the overall size of the market A description of the changes in the target market over the past 5-10 years A discussion of the likely effect of opportunities and threats on the number of customers
A discussion of applications or approaches that have the potential to redefine the company’s market
Market projections
Terminology
MARKET
The set of all actual and potential buyers of a product
POTENTIAL The set of consumers who profess a sufficient MARKET level of interest in the market offer AVAILABLE The set of consumers who have interest, income, MARKET and access to a particular market offer
TARGET MARKET
MARKET DEMAND
The part of the available market the company decides to pursue
The total volume of a product that would be purchased by a defined customer group in a defined geographical area in a defined time period in a defined marketing environment under a defined marketing program
Market Segmentation
Market Segmentation: Consumer Markets
Grouping customers is a more practical way of meeting needs than thinking of customers either as individuals or as one large mass. Groups should comprise those customers that respond to your products and services in similar ways. By planning a business around these customer groups, needs can be served effectively.
Geographic Demographic Psychographic Behavioral
Consumer Markets: Geographic Variables
Region City or metro size
Density
Pacific, Mountain, West North Central, West South Central, East North Central, East South Central, South Atlantic, Middle Atlantic, New England
Under 4,999; 5,000-19,999; 20,000-49,999 . . . 1,000,000-3,999,999; 4,000,000 and over
Urban, rural, suburban
Climate
Northern, southern
Consumer Markets: Demographic Variables
Age Gender Occupation Family size Education Nationality Religion Income Ethnicity
Consumer Markets: Psychographic Variables
Lifestyle Hobbies TV viewing habits Personality
Compulsive Outgoing Authoritarian Ambitious
Social activities Club memberships
Vacation preferences
Consumer Markets: Behavioral (Product Usage) Variables
Occasions Benefits
User status
Regular occasion, special occasion Quality, service, economy, speed Nonuser, ex-user, potential, first-time, regular
Light user, medium user, heavy user
Usage rate
Loyalty status
None, medium, strong, absolute Unaware, aware, informed, interested, intends to buy Enthusiastic, positive, indifferent, negative, hostile
Buyerreadiness stage Attitude toward product
Consumer Markets: Product Adoption
34%
Rate of adoption
34%
13.5% 16% 2.5%
Innovators
Early Early Late Laggards adopters majority majority
Market Segmentation: Business Markets
Business markets can be segmented with many of the same variables employed in consumer market segmentation, such as geography, benefits sought, and usage rate. Yet business marketers also use several other variables.
Demographic variables Operating variables Purchasing approaches Personal characteristics
Situational factors
Business Market Segmentation
Demographic Variables
Industry Company size Location
Operating Variables
Technology
User status Customer capabilitie s
Business Market Segmentation
Purchasing Approaches
Purchasing-function organization
Power structure Nature of existing relationships General purchase policies
Purchasing criteria
Business Market Segmentation
Situational Factors
Urgency
Specific application
Size of order
Personal Characteristics
Buyerseller similarity
Attitude toward risk Loyalty
Industry Analysis
Checklist For The Marketing Plan
1. List information on the industry that the business will compete in
–Current Size –Growth Potential –Geographic Locations –Industry Trends –Seasonal Factors –Profit Potential –Sales Patterns (single, bulk, direct, etc.)
Development of New Product / Customers/Markets
Nature of Technology
Customers or Markets
Old New Promising
Old
“No Brainer” Great Potential
New
Risky
Checklist For The Marketing Plan
2. What is the profile of the customer or various customer groups?
–Include age, sex, profession, income, geographic location and other demographics.
3.
Describe the benefits provided to the customer?
–What problems are you solving?
Checklist For The Marketing Plan
4. Describe the customer’s need for the product / service.
– How much will they save? – What return will the customer receive on the dollars they spend? – Will they have to change their ways of doing things? – Will they be required to purchase other goods / services to utilize yours? – Will they have to change their work habits?
Checklist For The Marketing Plan
5. Describe the new venture’s market niche.
–A particular appeal, identify, or place in the market that the product / service has.
Checklist For The Marketing Plan
6. Describe the target market(s) and the potential dollar volume of each that the business has selected for penetration
–Prioritize the list by naming the best target markets first. –Note that your target market might not be the end user but instead your distribution channels.
Checklist For The Marketing Plan
7. Describe approach for selling the product / service to the end user.
–Distribution channels, sales representatives, direct sales force, direct mail, telemarketing
8.
List the costs for penetrating each target market
–Dollars and Time (sales, lead time needed, etc.)
Checklist For The Marketing Plan
9. What advertising / promotion media will be used for the distribution system and for the end users?
–Address each area that will be used: • radio, newspaper, trade journals & magazines, and /
or television advertising
–Include a sample of the advertising (if possible) and list costs.
Checklist For The Marketing Plan
10. How will the packaging and labeling enhance name identification and brand loyalty?
–If possible, include sample of packaging
11. What kind of service, warranties, and guarantees will be offered?
–How will these be promoted? –How many of these will affect profits?
Checklist For The Marketing Plan
12. What are the reactions to the product / service from prospective customers?
–Include any testimonials, market surveys, focus group studies, etc.
13. State why the market efforts are unique or different from competitors
–Avon pioneered door-to-door cosmetics
Checklist For The Marketing Plan
14. What is the role of trade show?
–Which trade shows will be best for exhibiting the product / service? –Give name, location, date, booth size, etc
15. Explain opportunities in future markets.
–Include size, method of penetration, costs, etc.
Checklist For Competition
1. List direct competition by product and geographic market.
–Who is directly seeking the same money you are? –Specialty retail stores compete with specialty stores, not department stores
2.
List the indirect competitors by product and geographic market.
–Movie theaters are indirect competitors of video stores
Checklist For Competition
3. List emerging competitors entering the industry or market.
–Video rental stores, supermarkets entering video business.
4.
Describe the competitors’ strengths and weaknesses by product and market segment
–List in chart form, tie these back to your strengths and weaknesses.
Checklist For Competition
5. Describe the competitors’ share of the market by product.
–List by percentages or in unit or dollar volume
6.
Discuss relevant background information concerning major competitors
–Include profiles of their management team, company history, financials –Show where they are strong or weak
Checklist For Competition
7. On what basis will the product / service compete with them?
–Product superiority, price, advertising, etc.
8.
How is this venture superior to that of the competition?
–Operations, management, product / service, price, service, delivery, etc.
Checklist For Competition
9. How does this product / service compare with the competition in the eyes of customers?
–Include some customer reactions from a small sample you have taken
10. Does this venture threaten the major strategic objectives or self-image of the competition?
–Will they attempt to destroy the venture at any cost?
Checklist For Competition
11. If the competition tries to destroy your position in the marketplace, how will you retaliate?
–What marketing exclusionary tactics can you anticipate?
12. List sources to evaluate product / services against competition
–Agencies, ind. firms, publications, etc. –Include statements and testimonials
Checklist For Competition
13. What is the basis upon which the industry competes?
–Price, quality, promotion, personal selling, innovation, legal, franchises, etc.
14. What has been the history of the industry treatment of new enterprises?
–How easy is it to enter the industry?
Checklist For Competition
15. What has been the fate of new firms in the industry?
–Have other new firms successfully entered the industry?
16. What are the entry barriers?
- What keeps others out?
17. What are the exit barriers?
- What will keep you and others from leaving