Session 3 - understanding market opportunities

Market

Composed of individuals or organizations who are interested in and willing to buy a good or service to obtain benefits that will satisfy a particular want or need and have the resources to do so.

• Markets are comprised of buyers

Industry

Comprised of firms that offer a product or class of products that are similar and close substitutes for one another.

• One or more industries will serve one or more markets.

• Industries are comprised of sellers.

  
  

Macro-Level

analyses are based on environmental conditions that affect the market or industry, respectively, as a whole

• demographic environment

• sociocultural environment

• economic environment

• regulatory environment

• technological environment

• natural environment

question: what trends are occurring that are influencing demand in the market

Micro-Level

analyses do not look at the market or the industry overall, but at individuals in that market or industry

Demographic Environment

Shifting age distribution (i.e., aging population)

• In many developed nations

Declining marriage rates

• In many developed nations

Growing middle/shrinking middle class

• Depending on where you are in the world

Sociocultural Environment:

Pertains to those trends that have to do with shifting values, attitudes, and behaviors of individuals in a given society. Some examples include:

• Fitness and nutrition

• Acceptance of Informality

Economic Environemnt

The most far reaching of the components examined

Wide ranges of markets and industries are influenced deeply by things such as:

• Changes in the incomes of individuals

• Changes in government spending

Regulatory Environment:

Political and legal trends, particularly those that result in increased or decreased regulation can have a powerful impact on the attractiveness of a given market

Regulator changes can have a profound impact on the attractiveness of markets

• The Airline Deregulation Act of 1978 gave rise to Southwest Airlines and other regional cost-oriented airlines.

  
  

Technological Environment:

The march of technology can:

• Create new markets and industries

• Reshape markets and industries

Natural Environment:

Changes in the Earth’s resources and climate can have significant and far-reaching effects.

Examples?

• Finite supply of oil

• Climate change

Porter’s Five Competitive Forces

Threat of New Entrants

Bargaining Power of Suppliers

Bargaining Power of Buyers

Threat of Substitute Products

Rivalry Among Existing Industry Firms

Rivalry Among Present Competitors

Rivalry among competitors is high when:

Many small firms (or no dominant firm) in an industry

• e.g., restaurant industry

Little product differentiation

• e.g., fuel industry

Industry is one in which it is easy for buyers to switch from one seller to another

• e.g., ride share industry

Threat of New Entrants

Threat of new entrants is low when:

• Strong economies of scale and learning effects

• Strong capital requirements at the onset

• Greater challenges gaining distribution

Bargaining Power of Suppliers

Bargaining power of suppliers is high when:

• Switching cost of going to a new supplier is high

• Price of substitutes is high

• More plausible and attractive for supplier to engage in forward integration (become a part of the industry)

• Supplier’s product is a large part of the buyer’s value added

Bargaining Power of Buyers

The bargaining power of buyers is high when:

• Buyer concentration is higher

• Switching costs experienced by buyers are lower

• More plausible and attractive for buyers to engage in backward integration (become a part of the industry)

• The product’s importance to the performance of the buyer’s product is lower

Threat of Substitute Products

Threat of substitute products is high when:

• There are more alternative product types (or services) that basically perform the same functions.

• As the price of one product increases, demand for the substitute increases.

• And vice versa.