Product Management - Background Analysis & Market Evaluation

Background Analysis

Chapter 2: Product Management

Background Analysis Activities for Product Managers

To evaluate a product effectively, product managers should perform these activities:

  • Category Attractiveness Analysis: Evaluate the overall appeal of a product category or market segment.
  • Market Analysis: Study current and potential customers and categorize them into segments.
  • Competitive Analysis: Assess the strengths and weaknesses of competitors offering similar products.
  • Market Potential and Sales Forecasting: Determine the total demand for a product and estimate future sales.
Three Elements of Analysis
  • Gather: Collect relevant information on consumers and competitors.
  • Assess: Examine and evaluate the information to determine implications.
  • Act: Take appropriate steps based on the assessment results.

1. Category Attractiveness Analysis

Definition

Evaluation of the overall appeal of a product category or market segment to assess whether a specific market or industry is worth entering or investing in.

Purpose

To determine the attractiveness of a market.

Key Factors Analyzed
  • Aggregate market factors
  • Category factors
  • Environmental analysis
Outcome

Helps businesses decide whether to enter, expand, or exit a market.

Category Attractiveness Analysis - Aggregate Market Factors

Category Size
  • Definition: The total size of the market or product category, measured in sales revenue, unit sales, or the number of customers.
  • Importance: Larger markets offer more revenue opportunities but may have higher competition.
  • Example: The global smartphone market is a large and attractive category.
Market Growth
  • Definition: The rate at which the market or category is growing over time, expressed as a percentage.
  • Importance: High growth rates indicate increasing demand and opportunities to capture market share.
  • Example: The electric vehicle (EV) market is experiencing rapid growth.
Product Life Cycle
  • Definition: The stages a product goes through from introduction to decline.
  • Importance: Understanding the product life cycle helps businesses decide whether to invest, innovate, or exit.
  • Example: Smartphones are in the maturity stage, while foldable phones are in the growth stage.
Seasonality
  • Definition: Predictable, recurring fluctuations in sales that occur at specific times of the year, tied to calendar or weather.
  • Importance: Businesses must plan for seasonal demand to manage inventory, staffing, and cash flow.
  • Example: Retailers experience high sales during the holiday season (Q4), and ice cream sales peak in the summer.
Sales Cyclicity
  • Definition: Fluctuations in sales that occur over longer periods, tied to broader economic or industry-specific cycles.
  • Importance: Markets with high cyclicity are riskier because sales can drop significantly during downturns.
  • Example: The real estate market is highly cyclical.
Profits
  • Definition: The profitability of the market or product category, in terms of profit margins (e.g., gross margin, net margin).
  • Importance: High profitability makes a market attractive but may attract more competitors.
  • Example: The software industry often has high profit margins.
Overall Evaluation

These factors are used to evaluate the overall attractiveness of a market or product category.

  • A large category size with high market growth and high profits is generally very attractive.
  • If the market is in decline or has high cyclicity, it may be less attractive despite its size or profitability.
Strategic Priorities

Businesses often assign weights or scores to these factors based on their strategic priorities.

  • A company focused on growth might prioritize market growth and product life cycle.
  • A company focused on stability might prioritize category size and profits.

Category Attractiveness - Category Factors

Porter's Five Forces Model

A classic model developed by Porter (1980) considers five factors in assessing the structure of industries:

  • The threat of new entrants.
  • The bargaining power of buyers.
  • The bargaining power of suppliers.
  • The amount of intra-category rivalry.
  • The threat of substitute products or services.
Impact on Category Attractiveness
  • Threat of New Entrants: High threat = Low attractiveness, and low threat = High attractiveness.
  • Bargaining Power of Buyers: High power = Low attractiveness, and low power = High attractiveness.
  • Bargaining Power of Suppliers: High power = Low attractiveness, and low power = High attractiveness.
  • Intra-Category Rivalry: High rivalry = Low attractiveness, and low rivalry = High attractiveness.
  • Threat of Substitute Products: High threat = Low attractiveness, and low threat = High attractiveness.

Category Attractiveness - Environmental Analysis

Environmental Analysis

Businesses must conduct a thorough environmental analysis as a foundational step in the NPD process. It involves evaluating external factors that can influence the viability and performance of a new product.

If a category’s sales are tied to the domestic economic situation, cyclicity can result. Alternatively, categories that are well positioned to take advantage of environmental changes may prosper, as can product managers who view these changes as opportunities to gain.

PESTEL Analysis

Environmental factors can be grouped into six categories:

  • Political
    • Political Stability
    • Corruption
    • Tax Policy
    • Funding Grants
    • Foreign Trade Policy
  • Economic
    • Economic Growth
    • Interest Rates
    • Inflation
    • Disposable Income of Consumers
    • Labor Costs
  • Social
    • Population Growth
    • Age Distribution
    • Cultural Barriers
    • Consumer Views
    • Workforce Trends
  • Technological
    • Emerging Technologies
    • Maturing Technologies
    • Production and Distribution
    • Research and Investment
  • Legal
    • Regulation
    • Employment Laws
    • Consumer Protection
    • Copyright and Patents
    • Anti-trust Laws
    • Tax Policies
  • Environmental
    • Climate
    • Environmental Policies
    • Availability of Inputs
    • Corporate Social Responsibility

Market Segment Attractiveness Ratings

A table is utilized to assess market segment attractiveness, with columns for market segment, percentage of company sales, percentage of industry sales, characteristics of market attractiveness, and a rating from 1–5.

Market Attractiveness Matrix

Overview

This matrix evaluates market segments based on organizational resource strength and market segment attractiveness.

Categories
  • High Organizational Resource Strength and High Market Attractiveness: Best prospects
  • High Organizational Resource Strength and Low Market Attractiveness: Poor prospects
  • Low Organizational Resource Strength and High Market Attractiveness: Attractive segments, build strengths first
  • Low Organizational Resource Strength and Low Market Attractiveness: Worst prospects

2. Market Analysis

Definition

Market analysis involves studying the current and potential customers for a product or product line and then categorizing them into segments. A revisiting segmentation is vital to avoid overlooking opportunities or challenges that need to be addressed.

Insights from Customers

Steve Jobs' Approach

  • Instead of directly asking customers what they want, the approach is to anticipate their future needs.
  • People often don't know what they want until they see it; therefore, relying solely on market research is not sufficient.
  • The task is to