Lecture 3 Market Analysis Chapter 3

8/2/2019 Lecture 3 Market Analysis Chapter 3

http://slidepdf.com/reader/full/lecture-3-market-analysis-chapter-3 1/45

Chapter 3

Market Analysis



Steps in Market Analysis

1. Define Relevant Market

2. Analyze Primary Demand

3. Analyze Selective Demand

4. Define Market Segments

5. Identify Potential Target Markets



The Voice of the Customer

A thorough understanding of what customer requires inproducts or services to be satisfied is essential in

developing effective marketing strategies This position is consistent with market orientation.

Therefore the firm must listen to the voice of thecustomer.

The customers have, choice they will chose what theylike best

The firm‟s offering a product or service that most closelymatches the market‟s product/service will be the one‟sthat survive.

One process used to incorporate customer requirementsin marketing strategy is Quality Function Deployment



Quality Function Deployment (QFD)

Is a practical step by step method that incorporatescustomer needs into the design of new products and/ oraugmentation of existing products

Using QFD can:

Reduce the design time for new products by up to 60%

The quality of the product is not only maintained but

also enhanced• Four information sources are identified and integrated

1. Customer requirements

2. Engineering characteristics

3. Customer perceptions4. Objective characteristics comparison



1. Customer Requirements: Marketing research is used to interview

customers to determine what the customerswant and expect from the product

2. The engineering characteristics and designattributes:

Technical means available to the company to

satisfy the customer The relationship matrix addresses is based on

the association between the engineeringcharacteristics and customer requirements

The relationship matrix addresses theessential question : How are we fulfilling, orhow can we fulfill. customer needs?



3. Customer perceptions

Compares customers‟ perception of the firm‟s

product characteristics to those of competitionSecond comparison is between the customer

perception and the objective measures. This canhighlight image problem faced by the company

QFD is one technique used by managers todecide which needs of the buyers the firm hopesto satisfy

Understanding what the market demands and

what choices are available to the buyers, isintegral in the development of marketing strategy



Defining Relevant Markets

Relevant Market is the set of products and or

services (within the product/ market structure)consider it to be strategically important

A product mix strategy can change drasticallydepending on how the relevant market is

defined

Defining Relevant Market usually involves twosteps

1. How management describe the product marketstructure

2. The Relevant market boundaries within thatproduct market structure is defined



Describing the Product Market Structure

In order to define market both the needs of the buyersand the goods and services offered by sellers to meet

the need must be identified. A product market structure is a representation of the

degree of substitutability that exist among set ofproducts and or services that satisfy similar needs

Uncovers the hierarchical schemes of attributes used bythe consumers to partition the total set of brands intosmaller subsets

The brands in the subset are more similar and thereforemore competitive with each other than any other brand

in product class Market structure studies allow the marketing managers

understand which brands are similar and whichattributes are used to cluster the brands



Market Structure for soft drinks

Cola

Regular

CaffeineFree

CaffeineCaffeineFree

Caffeine

Diet

Brands Brands

Caffeine Caffeinefree

caffeine Caffeinefree

Brands Brands Brands Brands Brands Brands

Non Cola

Diet Regular



By defining product market structuremanagers can:

Identify the various ways in which a market orproduct might be defined Identify the type of products and services they

must compete with in various need-satisfactionsituations

• Managers could classify competingalternatives at three levels

i. Competing brands within a product formii. Competing product forms within a product

classiii. Competing product classes serving generic

needs



Immediate concern is to classify product form orclasses in order to identify possible ways ofdefining the market to be classified. WHY?

Brand or supplier competition could be bestanalyzed after the relevant market is defined.

Classification of alternative product form orclasses is based either on:

a) Similarity of characteristics or functions amongalternatives

b) Similarity of usage situation



Similarity of characteristics or functions

Managers classify products as highly similar if theyshare physical or chemical characteristics or if theyfunction technically in same way

Example: within the generic need “ breakfast food”

cereals, bread, pastries, and eggs would beconsidered as different classes based on thedifferences in their composition and in theprocesses used to prepare them

Cereals could be subsequently divided into product

form( nutritional cereals, presweetened cereals , soon) that share some technical characteristics butexhibit some differences



Similarity of Usage

Consumers do not always select the mostfunctionally similar alternatives when switchingfrom product forms or classes

Managers may want to obtain customer‟s judgments of similarity among alternatives,however when asking what products are mostsubstitutable, managers must attempt to accountfor usage situation.

Example: Hot cereal and cold cereal may besimilar to each other than frozen waffles,consumers may elect to substitute frozen waffles(rather than oat meals) for cold cereals if theusage situation calls for fast preparation



Defining Broad Relevant Market

Generally top management will be concerned

with identifying long run growth opportunities(especially, via product development) and withidentifying potential threats to the firm‟s growth

due to changing environment.

Taking broad view of the market often leads afirm to shift in and out of product categories

Top management define the relevant market

broadly when the following conditions occur



Defining Broad Relevant Market

Regulatory and technological changes areexpected to create new alternatives on theseller‟s side of the market

Economic, demographic, and or social andcultural changes are likely to change the type orfrequency of usage on the buyer‟s side of the

market A company‟s sales gains and losses are coming

increasingly from alternative forms and classes (rather than merely from brand competitors)

Competitors do not exist at the product- formlevel ( often because the product is an innovativeform)



Defining Narrow Relevant Market Middle level managers are more likely to define the

relevant market in terms of product form rather than aproduct class

The focus is most likely to be appropriate to the extentthat the planning focus in on short run decision and in thefollowing situation

Brand or company competition is far more significantthan competition among form or classes

Major environmental changes are not anticipated or arenot expected to lead to changes in alternative form or inusage situation( this assumption is only for short run)

The product form or the product class is used for aunique set of usage situation so that there is no easilysubstitutable products



Elements and implications of the process of defining the relevant market

Describe Product Market Structure

Identify Potential Competitors

Classify competitors in terms of similarity

Define Relevant Market

BroadRelevant

Market

NarrowRelevant

Market

Primary

Demand

Selective

Demand



Analyzing Primary and Secondary Demand

Define Relevant Market Boundaries

Primary Demand Selective Demand

Identify buyers of productform and product class

Factors impacting thewillingness and ability tobuy the product form/ class

Type of buyer decisionprocess

Identification ofdeterminant attribute



Analyzing Primary Demand Primary demand is the demand for product form

or product class that has been identified as therelevant market

By analyzing primary demand managers can

learn:

Why and how customers buy a product form orclass

Who are the buyers in the relevant market

ey emen s n na yz ng r mary



ey emen s n na yz ng r maryDemand

The most reason for analyzing primary demandis to identify the growth opportunities for theproduct form or class

This information is of special importance tomanagers of new product forms in the initial

stages of the product life cycle This is also important for managers of products

in low growth markets to be able to identifypossible ways of boosting and revitalizing sales

These questions will fall into two categoriesBuyer Identification QuestionsWillingness to buy and ability to buy questions



Buyer Identification By identifying the existing buyers of a product form or

class managers can obtain insights about the growth

opportunities in a market and about appropriate means ofcommunicating to the market

Specifically by identifying the current buyers, managerscan learn which type of buyers are likely to have a needfor product form or class

To the extent that these buyers can be described in termsof age, location, and similar characteristics managers canproject changes in primary demand based on populationtrends for different groups

By identifying the heavy users in a product category,managers can select communication media that areefficient in reaching buyers or can identify the individualssales force should call on

1 B U Ch t i ti



1. Buyer or User Characteristics

Three kinds of characteristics are useful for describingbuyers of product class or product form

i. Location: Rates of purchase of various product forms may be

influenced by climate, population density, culturaltraditions, and other factors that vary according toregion or urban-suburban –rural distinctions

ii. Demographics Age, sex, education, occupation, and family size are

among the characteristics that may typify buyers of aproduct form.

Demographics are useful because most advertising

media measure these characteristics in describingtheir audience and make this information available toprospective advertisers

Believe is that buyers will buy from some one who isviewed similar in education, age, or otherdemographic traits



iii. Life style:

Measures of life style or psychographics attempt to

reflect the way in which products fit into consumer‟snormal pattern of living by examining how people spendtheir time, what things are important to them, whatopinions they have about themselves and the worldaround them ( AIO)

Life style measures primarily reflect the influence ofsocial forces on consumption process

Life styles may provide clues about why people do or donot use a product regularly

The media advertising setting will be most effective inreaching buyers if it is at least some what consistent withcustomer lifestyles



Add advertisement showing life style



2. Buying Center Consists of all individuals who are involved in the

buying decision

In fact actual buyer is frequently not the user ofproduct or service

Managers should identify all the individuals whomay be involved in the buying process andunderstand the kind of influence exerted by eachone

us omer urnover



us omer urnover The term refers to the rate at which an organization must

replace all or substantial part of their customers becauseof change in some aspects of buyer „s characteristics

In these situations marketing manager that large portionof the marketing effort must be directed towardscontinually identifying first-time users or patrons

As these targets will be less knowledgeable about theproduct different marketing strategies and programs

must often be designed about the product The potential market for product form is often larger than

the current level of demand when some potentialcustomers do not buy the products as frequently7 as theymight

Knowing that market can be expanded because otherpotential users exist is not sufficient.

In addition managers must understand the factorsinfluencing the willingness and ability to buy

Di ti ti f b id tifi ti



Diagnostic questions of buyer identification

1. Characteristics of buyers or users

Can buyers of this product category be classified by location,demographics, or life style and psychographic

2. The Buying Center

Who is involved in the buying process ( reference groups,colleagues, family membership

3. Customer Turnover

Is there a high degree of turnover due to mobility or becausepurchase is tied to age or other demographic factors? If so why

Willingness to buy



Willingness to buy The main determinant of willingness to buy a product

form or class is the buyers perception of product‟sutility for one or more usage situation

A manager‟s analysis of the product market structureshould identify the usage situations to which a productform is potentially applicable

In order to determine why some potential buyers donot use the product for one or more of these purposes

, several specific factors need to be examinedi. Related product or services

Usage may be limited because the related productsand services essential to satisfactory usage areinadequate.

Example: Manufacturers of personal computers foundthat lack of programs for applications that were not jobrelated served as barrier to sales growth for in homecomputers



ii. Usage Problem Some products are not perceived as

performing equally well under allcircumstances. It is important to identify situations in which

problem occurs and determine whether theproblems lie:

a. In the product features New product features may have to be

designedb. In user‟s lack of knowledge about how to use

the product> Customer training or technical assistance is

necessary to overcome deficiencies



iii. Value or experience compatibility

When new products require a change in buyingor using behavior that conflicts with customers‟

prior usage experience or broader value system,the rate of adoption will be slow

To overcome this source of resistance, managersshould design communication that stress notonly the advantages of the product but also theadvantages of the change in values or usage

experiences that go with the productExample: Lever Brother‟s promotion of margarine



iv. Perceived Risk

Exists when buyers believe that there is stronglikelihood of making a poor decision andconsequences of poor decision is significant

a. Economic or financial risk. b. Time or

conveniencec. Performance risk d. Financial risk

e. Physical risk f. Social risk

f. Psychological risk



Ability to Buy1. Cost factor: Likely to inhibit primary demand, if;

a product is a discretionary item

less expensive product form alternatives exist The price and or associated buyer costs (operating

cost, credit cost, installation cost , maintenance cost)2. Packaging and size factor

Product form sale may be limited by virtue space andsize requirements3. Spatial Availability:

The cost of acquiring product may be a function oflocational factors

The rate of purchase of low value , postponable,purchases can be enhanced by improved access.



Diagnostic Questions on Willingness and Ability to buy

1. Willingness to buy

Would improved related products and services increase utilizationWhat problems exist or perceived to exist

Is the product or service compatible with the values and experiences of buyer?

What type of perceived risk are significant in the purchase of the product form

2. Ability to Buy

To what extent do purchase prices and other acquisition or maintenance costinhibit purchase

Are product size or packaging factors creating space problems for customers?

Is the product available at a time and place that meets customer needs

Analyzing Selective Demand



Analyzing Selective Demand

Primary Demand is the demand for product form or class,selective demand is the demand for specific brand within

the relevant market In analyzing selective demand, managers are interested

in understanding how buyers make choices from thealternative brands within the relevant market

Not all buyers are alike in their choices. Choice is afunction of buyer‟s needs( desired benefits) and buyersperceptions of alternatives in the context of the specificusage situation

The first step is identifying the type of decision making

process The second step is identifying the determinant attribute



Process

1. Extensive problem solving occurs when:

When buyers have no prior experience inpurchasing the product

Product or service carries high perceived risk

Such buying decisions involve extensiveinformation search and deliberations

Buyers must develop understanding of what

alternatives exist and what importantconsiderations in making a decision should be



2. Limited problem solving: Characterize situations in which the buyer has:Sound knowledge of the product category

Is familiar with important considerations inmaking a choice

Still takes time to compare and evaluatealternates because:

Alternatives may change over time orBuyers change their preference for different

alternativesPreferences may change because of:

- Changes in buyer‟s financial circumstances - Changes in product usage- Buyer is seeking variety



3. Routinized Response Behavior: Decision deals with frequently purchased items Buyers have experience with the brands in

product category and perceive no need to searchamong alternatives

In some cases, strong brand loyalty exist sobrand choice decisions are made immediately

There are two reasons why distinction amongtypes of decision process is important

1. An understanding of the type of decisionprocess involved in the in the purchase of a

product enables managers to understand searchbehavior2. The kind of information required by buyers will

vary

ent y ng eterm nant ttr ute



ent y ng eterm nant ttr ute A traditional psychological or economic view of

products and services is that they are bundles of

attributes. The consumer forms an overall evaluation of a

product by combining perceptions of the productattributes using some rules to weight rule (s) toweight the information

The first task is to determine which attributes aremost important to the consumer

Once the importance of attribute is established,the consumer must then search for and evaluate

information to brands within the product class.These activities are similar to cognitiveprocesses encountered in limited problemsolving



Having identified the choice criteria or importantattributes, the next step would be to gather regardingpotential brands on these attributes.

The last task is to form rules to integrate with thisinformation

Consumer rules or heuristics are procedures used byconsumers to facilitate brand choice

The decision rules have been broadly classified as:a. Compensatory:

A negative feature a brand can be overcome by apositive one

A simple compensatory rule would average the ratingsfor each brand. The brand with the highest score is thepreferred brand



b. Non-compensatory approach

Attributes are first ranked in terms of importance

The brands are then evaluated on the most important

attribute The brand with highest ranking is selected

If there is a tie on the most important attribute, thensecond most important attribute is then evaluated

In many cases, especially where the alternatives or

attributes are many, consumers may chose two stepprocess

i. Non-compensatory to screen the alternativesii. Compensatory to evaluate the brand after screening

It is important that marketing managers understandhow their customers use information to form anevaluation

If the customers use a non-compensatory process atany level, then it is imperative that the product isperceived as atleast as good as the competitors on

each important attribute



Attributes of Fast food restaurant

Attribute Importance

Food Taste 4.30 1= unimportant

Quality and Cost 3.79 5 = very important

Food selection 3.58

Menu alternatives 3.58

Compensatory – Non compensatory Decision rule

Attribute A B c

Food Taste 4 3 4

Quality and cost 3 5 3

FOOD selection 3 5 3

Menu Alternative 3 4 3

Compensatory

Decision Rule = B

Non CompensatoryRule = C



Several products are similar in a large number ofattributes

In such cases, it is important to distinguish oneor more attributes that are most likely todetermine the buyer‟s choice. This is called

Determinant attribute

Two dimensions help make help make anattribute a determinant attribute:

1.Importance

If it provides desirable benefits. If however allcompeting brands have same feature , then thatattribute will not determine brand choice



2. Uniqueness

• A buyer could evaluate any individual attribute

as falling into one of four categoriesi. Defensive attribute: something that is

necessary to avoid being eliminated fromconsideration but not something that will cause

people to choose a productii. Optional attributes: are bells and whistles that

may make the product different but are notcurrently considered to be important

iii. Irrelevant Attribute: an attribute which is neitherperceived as important nor unique



A Framework for Assessing Determinant Attribute

Low

High

Low High

Perceivedimportance ofthis Attribute

Perceived variation among alternatives

on this attribute

Irrelevant

Attribute

Optional

Attribute

DefensiveAttribute

DeterminantAttribute



Diagnostic Questions on Selective Demand

1. Decision Process

How extensive is the search for information?

Do buyers use personal or impersonal sources of Information?

Do buyers seek information about brand characteristics?

2. Determinant Attribute

What are the benefits buyers hope to obtain from usage orownership of the product?

What product attributes are viewed as providing these benefits?

What is the relative importance of the various benefits desired?

How much variation is perceived among these alternatives on

Date post:	06-Apr-2018
Category:	Documents
Upload:	sheema-raza
View:	214 times
Download:	0 times

Lecture 3 Market Analysis Chapter 3

Documents