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Capturing Insights About Market

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Capturing Insights About Market. Marketing Management (MAR4803) By Kanghyun Yoon ... issues to understand how to capture the marketing insights about the market. ... – PowerPoint PPT presentation

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Title: Capturing Insights About Market


1
Topic 3
Marketing Management (MAR4803) By Kanghyun Yoon
  • Capturing Insights About Market

2
Issues To Be Discussed
  • Consider the following equation to estimate
    company demand
  • Di company is demand in product class,
  • Si company is share of market,
  • D total market volume.
  • Lets consider the following issues to understand
    how to capture the marketing insights about the
    market.
  • Issue 1 How to define the market or industry?
  • The important concepts for this issue are ….
  • Issue 2 How to evaluate the attractiveness of
    the market or market opportunity?
  • The important concepts for this issue are ….

3
Issue 1 How to Define the Market?
4
Defining the Industry or the Market
  • Importance of defining an industry or a market
  • Ambiguous definition of the industry or the
    market creates uncertainty and ambiguity in both
    market-related statistics such as market share,
    but more importantly provides problems in
    identifying who are competitors.
  • Two examples
  • Assume that an objective for a notebook computer
    is to gain 10 percent market share. How to
    calculate the market share? Who are our
    competitors?
  • Example of Coca Cola
  • How to define an industry or a market?
  • Industry is defined as ….
  • Market is defined as ….
  • Several different terms in defining a market
  • Product-industry hierarchy
  • Two types of approaches in identifying market
    structure
  • Supply-based approach
  • Demand-based approach

5
Supply-Based Approach
  • Key idea of using supply-based approach
  • It is based on the objective attributes of the
    firms in the perspective of product substitution.
  • As an indicator of substitutability.
  • Useful tool North American Industrial
    Classification (NAIC).
  • Main factors determining industry structure (IO
    analysis, Scherer 1980)
  • Number of sellers and degree of differentiation
  • Entry, mobility, and exit barriers
  • Cost structure
  • Degree of vertical integration
  • Degree of globalization
  • Five competitive forces useful for assessing the
    industry structure (Porter 1985)
  • Threats of intense segment or intra-category
    rivalry
  • Threats of new entrants
  • Threats of substitute products
  • Threats of buyers bargaining power
  • Threats of suppliers bargaining power

6
Demand-Based Approach
  • Key idea of using demand-based approach
  • It is based on the customers attitudes and
    behaviors in the customers needs viewpoint.
  • Companies are competitors if they are trying to
    satisfy the same customer need or serve the same
    customer group.
  • Four types of market for identifying competition
    structure
  • Product form or product type competition
  • Product class or product category competition
  • Generic competition
  • Budget competition
  • Importance of calculating cross-elasticity of
    demand
  • As an indicator of substitutability.

7
Market Structure Map
  • To succeed in competitive marketplace, companies
    should win customers from competitors, by keeping
    and growing them with the deliver of greater
    value.
  • However, remember that consumers are different in
    terms of their needs.
  • Companies can only serve some segments in which
    they are in better position than competitors.
    Therefore, each company must divide up the total
    product market, choose the best segments, and
    design strategies for profitability serving
    chosen segments.
  • Market structure map allows companies to identify
    possible segments to serve customers who have
    similar needs in this segments.
  • Benefits of market structure map
  • Be able to segment the total product market.
  • Be able to identify consumers needs in the
    chosen segment.
  • Be able to identify names of competing brands and
    its current market position (e.g., market leader,
    challenger, follower, and nicher)
  • Be able to understand the product line strategy,
    including new product idea.

8
Market Structure Map
  • The Carbonated Soda Product Market
  • Divide it into small segments, using proper
    segmentation criterion.
  • Select the target segment for your chosen brand.
  • Identify customers needs and your competitors
    in that segment

My brand
9
Market Structure Map
10
Sources of New Product Idea
Type One
Type Two
Type Three
White color current situation Yellow color New
situation
11
Issue 2 How to Measure its Attractiveness?
12
Why to Measure Market Demand?
  • Once several market opportunities are identified,
    the company must measure or forecast the size,
    growth, and profit potential of each market
    opportunity.
  • Why to measure demand size of the market (e.g.,
    market demand)?
  • With optimistic estimates, what happens ….
  • With underestimates of the market demand, what
    happens ….
  • Consider its major uses of the market demand
    estimate
  • To answer what if questions
  • To help set budgets
  • To make resource allocation decisions over the
    product life cycle
  • To set objectives and evaluate performance
  • To make market entry/exit decision.
  • An important thing to realize
  • Total market demand is not a fixed number, but a
    function of marketing expenditure in a given time
    period.
  • The market demand function or market response
    function.

13
Important Underlying Concepts
  • What do they mean by market demand?
  • The concept of market demand consists of ….
  • Depending on the components of market demand,
    five types of demand estimates are worthwhile to
    mention
  • Potential market
  • Available market
  • Qualified available market
  • Target market
  • Penetrated market
  • Three important measures for market (or company)
    demand
  • Market (or company) potential
  • Market (or company) forecast
  • Market (or company) minimum
  • So, marketers should measure current market size
    and forecast future demand.

14
Measuring Market Demand
  • Estimating current market potential
  • Total market potential method (Kotler and Keller
    2006 Lilien and Kotler 1983)
  • Chain-ratio method (Ackoff 1970)
  • Forecasting future demand
  • Types of forecasting methods (Lilien and
    Rangaswamy 2007)
  • Judgmental method
  • Market survey or product analysis
  • Time-series method
  • Causal method
  • Types of information (Kotler and Keller 2006)
  • Using info of what people say
  • Using info of what people do
  • Using info of what people have done

15
Estimating Current Market Potential
  • Both methods depend on the number of potential
    users or buyers of the product.
  • Step 1 Determine the potential buyers or users
    of the product.
  • Step 2 Estimate the purchasing or usage rate.
  • Step 3 Find the average price of a unit of the
    product.
  • Total Market Potential Method
  • Q n X q X p
  • Q total market potential, n number of buyers
    in the market, q quantity purchased by an
    average buyer per year, and p average price of
    one unit.
  • Chain-Ratio Method
  • Q Total number of U.S. households
  • X the percentage of U.S. households
    containing one or
  • more serious amateur photographers
  • X the percentage of these household owning a
    personal computer
  • X the percentage of PC-owning households
    with enough discretionary
  • income to buy Sonys new digital camera.

16
Forecasting Future Demand (I)
  • Moving Average Method
  • Key assumption There is some pattern in the
    values of the variable(s) to be forecast, which
    is represented in the past observations, along
    with random fluctuations or noises.
  • Purpose of this smoothing method
  • To distinguish the underlying pattern from the
    random noises.
  • One way is to average several of the past values
    for this method.
  • Historical data are required for the variable(s).
  • Appropriate for forecasting only one period in
    advance.
  • Forecasting with moving averages can be
    represented as
  • Steps for using Moving Average Method
  • Step 1 Determine how many past values will be
    used (e.g., N).
  • Step 2 Calculate the average of the N past
    values and use it as the forecast.

17
Forecasting Future Demand (II)
  • Regression Method
  • Key assumption There is a causal relationship
    between demand as a dependent variable and some
    independent variables.
  • Purpose of this smoothing method
  • To identify an explanatory or causal model that
    facilitates a better understanding of the
    situation (i.e., underlying structure of the
    causal relationship).
  • Using the causal model, provide the forecast of
    the demand.
  • Historical data are required for all the
    variable(s).
  • Appropriate for providing longer-term prediction.
  • An example of linear regression equation form

18
Forecasting Future Demand (III)
  • Steps for Using Regression Method
  • Step 1 Plot demand values over time to identify
    the trend of past demand performances.
  • Step 2 Specify a causal relationship with the
    identified relevant variables linear or
    non-linear relationship.
  • Identify independent variables such as
    advertising, sales promotion, direct mail
    activities, and so on.
  • Step 3 Gather the historical data for both
    dependent and independent variables.
  • Step 4 Use the regression command in Excel or
    any statistical program (i.e., SPSS or SAS) to
    estimate the values of the parameters ( a and bs)
    in regression equation.
  • Step 5 Prepare the estimated equation - Y â
    b1X1 b2X2.
  • Step 6 Prepare the values of X variables and
    plug those into the regression equation to get
    the forecast of Y.

19
Reference
  • Lilien, Gary L and Arvind Rangaswamy (2007),
    Marketing Engineering Computer-Assisted
    Marekting Analysis and Planning, 2nd ed.,
    Institute for the Study of Business Markets.
  • Kotler, Philip and Kevin Lane Keller (2007),
    Marketing Management, 12th ed., Pearson
    Prentice-Hall, New Jersey.
  • Kotler, Philip and Gary Armstrong (2004),
    Principles of Marketing, 10th ed., Prentice Hall.
  • Lehmann, Donald R. and Russell S. Winer (2005),
    Analysis for Marketing Planning, 6th ed.,
    McGraw-Hill.
  • Winer, Russell S. (2007), Marketing Management,
    3rd ed., Pearson Prentice-Hall, New Jersey.
  • Zikmund, William G. (2003), Essentials of
    Marketing Research , 2nd ed., Thomson
    South-Western.
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