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Framing the Market OpportunityFraming the Market Opportunity
McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
Framing the Market Opportunity — Today’s Objectives
Objectives will be to:
Introduce the framework for market opportunity analysis
Examine three basic “value-types”
Discuss the identification of unmet and under-served needs
Explore how customers are segmented and targeted
Examine the role of resources in evaluating market opportunities
Discuss how to assess the attractiveness of a market opportunity
Examine eBay’s market opportunity
Chapter 2: Framing the Market Opportunity
Market Opportunity Analytic Framework
Three Basic “Value Types”
Use of the Customer Decision Process to Identify Unmet and Underserved Needs
Segmentation and Targeting
The Role of Resources in Evaluating Market Opportunity
Assessing the Attractiveness of a Market Opportunity
EBay’s Market Opportunity
Conclusion
Market Opportunity Analytic Framework
Three Basic “Value Types”
Use of the Customer Decision Process to Identify Unmet and Underserved Needs
Segmentation and Targeting
The Role of Resources in Evaluating Market Opportunity
Assessing the Attractiveness of a Market Opportunity
EBay’s Market Opportunity
Conclusion
Chapter 2: Framing the Market Opportunity
Framework for Market Opportunity
Influenced by the New Economy
• Competition occurs across industries rather than within industries
• Competitive behavior occurs at unprecedented speed
• Competition occurs between alliances of companies rather than between individual companies
• Easier to influence customer behavior because still in early stages of being defined
• Industry value chains are being reconfigured
Seed Opportunity in Existing New Value System
Identify Unmet and Underserved Need(s)
Identify Target Segment(s)
Declare Company’s Resource-Based Opportunity for Advantage
Assess Competitive, Technical, and Financial Opportunity Attractiveness
Make “Go / No Go” Assessment
Exhibit 2.1: Framework for Market Opportunity
Opportunity Analysis Steps Benefit of Step
Step 1: Investigate opportunity in an existing or new value system
Identifies previously unexploited areas of potential market value for further analysis
Step 2: Identify unmet or underserved needs
Uncovers customers decision process and “opportunity nucleus” that a new offering could address
Step 3: Determine target customer segments
Allows a company to craft an offering that will appeal to the target customers
Step 4: Assess resource requirements to deliver the offering
Identifies existing resource strengths and weaknesses needing to be addressed internally or with partners to bring offering to market
Step 5: Assess competitive, technological, and financial attractiveness of opportunity
Determines the character and magnitude of the opportunity; establishes barriers to entry and potential rewards
Step 6: Conduct go/no-go assessment Determines whether the opportunity is attractive enough to pursue
Market Opportunity Analytic Framework
Three Basic “Value Types”
Use of the Customer Decision Process to Identify Unmet and Underserved Needs
Segmentation and Targeting
The Role of Resources in Evaluating Market Opportunity
Assessing the Attractiveness of a Market Opportunity
EBay’s Market Opportunity
Conclusion
Chapter 2: Framing the Market Opportunity
Exhibit 2.2: Three Types of Basic Value
More Efficient Markets
More Efficient Value Systems
Customize Offerings
Build Community
Introduce New Functionality or Experience
Disrupt Pricing
Ease Access
Radically Extend Reach
Trapped Value New-to-the-World Value
Hybrid Value
Exploring Basic Value
Trapped Value More efficient markets lower search and transaction costs
• Bizbuyer.com
• Lending Tree Inc.
• OffRoad Capital Corp.
More efficient value systems compress or eliminate steps in an existing value system
• Amazon.com
New-to-the-World Value
Customizing offerings allows customers to add and remove features
• Yahoo
• Quicken.com
Build communities to leverage customers’ participation
• Zeal.com
Introduce new functionality to transform all or part of an industry value chain
• e-books
• Internet telephony
Hybrid Value Disrupt pricing and change pricing-power relationships
• MySimon.com
Enable ease of access and help customers find products
• Abebooks.com
Extend reach and welcome distant customers
• Distance education
Market Opportunity Analytic Framework
Three Basic “Value Types”
Use of the Customer Decision Process to Identify Unmet and Underserved Needs
Segmentation and Targeting
The Role of Resources in Evaluating Market Opportunity
Assessing the Attractiveness of a Market Opportunity
EBay’s Market Opportunity
Conclusion
Chapter 2: Framing the Market Opportunity
Customer Decision Process
OriginationOrigination
Information Gathering
Information Gathering
EvaluationEvaluation
Purchase DecisionPurchase Decision
Postpurchase Evaluation and
Behavior
Postpurchase Evaluation and
Behavior
Pre-purchase
Purchase
Post-purchase
What prompts the customer to action?
What factors influence the customer’s decision?
What attributes of the product does the customer consider?
What options does the customer identify?What decision(s) does he make?
What does the customer do about his decision?
A framework to look systematically for unmet or underserved needs
Because value creation is basedon understanding
and meeting customer needs.
Because value creation is basedon understanding
and meeting customer needs.
Exhibit 2.3: Decision for Purchasing a Camera
OriginationOrigination
Information Gathering
Information Gathering
EvaluationEvaluation
Purchase DecisionPurchase Decision
Postpurchase Evaluation and
Behavior
Postpurchase Evaluation and
Behavior
Personal usePersonal use GiftGift
FeaturesFeatures Brand/manufacturer
Brand/manufacturer
Type(digital/film)
Type(digital/film) CostCost
Likelihood of repeat purchase or
recommendation
Likelihood of repeat purchase or
recommendation
Pre-purchase
Purchase
Post-purchase
FilmFilm DigitalDigital InstantInstant
APSAPS BasicBasic Fully loadedFully
loaded
ComplexityComplexity Usage occasions
Usage occasions ReviewsReviews Past
ExperiencesPast
ExperiencesBudget
constraintsBudget
constraints
Print qualityPrint quality ReliabilityReliabilityLearning
curve/ease of use
Learning curve/
ease of use
Range of accessories
Range of accessories
35mm35mm
Body TypeBody Type LensLens
ZoomZoom FixedFixedSLRSLR Point & shoot
Point & shoot
Throw-away
Throw-away StandardStandard
Vacation Travel Destination DecisionOriginationOrigination
Information Gathering
Information Gathering
EvaluationEvaluation
Purchase DecisionPurchase Decision
Postpurchase Evaluation and
Behavior
Postpurchase Evaluation and
Behavior
Pre-purchase
Purchase
Post-purchase
Likelihood of Repeat or Referral
Likelihood of Repeat or Referral
ComfortComfort StyleStyle PhotosPhotos Degree of Memorability
Degree of Memorability
EventEvent BreakBreak
Honey-moon
Honey-moon ReunionReunionHolidayHoliday
Number and Relationship of
Travelers
Number and Relationship of
TravelersWeatherWeatherDuration and
DistanceDuration and
Distance ActivitiesActivitiesBudgetBudget
Travel AgentTravel Agent Travel GuidesTravel Guides PastExperiences
PastExperiences
BrochuresBrochures Chat roomsChat
roomsBooksBooks
Vacation PackageVacation Package
Independently Planned
Independently Planned
World TourWorld Tour CruiseCruise Small-Town Discovery
Small-Town Discovery Beach EscapeBeach Escape Outdoor
AdventureOutdoor
Adventure
Market Opportunity Analytic Framework
Three Basic “Value Types”
Use of the Customer Decision Process to Identify Unmet and Underserved Needs
Segmentation and Targeting
The Role of Resources in Evaluating Market Opportunity
Assessing the Attractiveness of a Market Opportunity
EBay’s Market Opportunity
Conclusion
Chapter 2: Framing the Market Opportunity
Exhibit 2.4: Segmentation Approaches
Segmentation Type Description Examples of Variables
Geographics Divides market into geographical units
Country, region, city
Demographics Divides market on the basis of demographic values
Age, gender, income, education
Firmographics Divides market on the basis of company-specific variables
Number of employees, company size
Behavioral Divides market based on how customers actually buy and use the product
Website loyalty, prior purchases
Occasion (Situational) Divides market based on the situation that leads to a product need, purchase or use
Routine occasion, special occasion, part of day
Psychographics Divides market based on lifestyle and/or personality
Personality (laid-back, type A), lifestyle
Benefits Divides market based on benefits or qualities sought from the product
Convenience, economy, quality
Effective Segmentation Requirements
Source: Philip Kotler, Marketing Management (1997), p. 269
MeaningfulMeaningful
ActionableActionable
SubstantialSubstantial
MeasurableMeasurable
Customers must demonstrate needs, aspirations or behavioral patterns that are similar within a segment and different across segments
– A distinction between a price-sensitive and a quality-seeking segment is meaningful, since the two segments demonstrate distinguishable sets of needs
A company must be able to reach customers within each segment through effective and targeted marketing programs
– A customer segment consisting of customers with blue eyes is not actionable, since it is very hard to identify and reach only customers with blue eyes
Segments must be large and profitable enough to make the investment in serving them worthwhile
– MyCFO.com is targeted toward high-net-worth individuals, helping them manage their portfolios; even though the number of those individuals is small, the dollar amount managed is sizeable, thus constituting a substantial segment
Key characteristics of the segments (e.g., size and spending patterns) must be easy to measure
Exhibit 2.6: Consumer Digital Camera Purchasing Segmentation
Consumer E-Books Purchasing Segmentation
Business Education Leisure Leisure Hobby or Special Interest
Collection Business Corporate Education
39
40+
39
40+
39
40+
Purchase Occasion
Reader
Self-Consumption Gift InstitutionalBy
Request
College Education
Moderate Education
Limited Education
Reference and Research Materials
How-To Information
Hobby or Special Interest
Entertainment
For Display
In-Depth Topical Insights and Discussion
How-To Information
RequiredReading
Comp-endium by Topic
Advice and
Recom-mend-ations
Number of E-Books Purchased
Business Education Leisure Leisure Hobby or Special Interest
Collection Business Corporate Education
39
40+
39
40+
39
40+
Purchase Occasion
Reader
Self-Consumption Gift InstitutionalBy
Request
College Education
Moderate Education
Limited Education
Reference and Reference and Research MaterialsResearch Materials
How-To Information
Hobby or Special Interest
EntertainmentEntertainment
For Display
In-Depth Topical Insights and Discussion
How-To Information
RequiredRequiredReadingReading
Comp-endium by Topic
Advice and
Recom-mend-ations
High Moderate Low
Ideal E-Book Delivery Mechanisms
Business Education Leisure Leisure Hobby or Special Interest
Collection Business Corporate Education
39
40+
39
40+
39
40+
Purchase Occasion
Reader
Self-Consumption Gift InstitutionalBy
Request
College Education
Moderate Education
Limited Education
Reference and Research Materials
How-To Information
Hobby or Special Interest
Entertainment
For Display
In-Depth Topical In-Depth Topical Insights and Insights and DiscussionDiscussion
How-To Information
RequiredRequiredReadingReading
Comp-endium by Topic
Advice and
Recom-mend-ations
New Economy Either Traditional
Amazon.com Homepage for Two Different Customers
Market Opportunity Analytic Framework
Three Basic “Value Types”
Use of the Customer Decision Process to Identify Unmet and Underserved Needs
Segmentation and Targeting
The Role of Resources in Evaluating Market Opportunity
Assessing the Attractiveness of a Market Opportunity
EBay’s Market Opportunity
Conclusion
Chapter 2: Framing the Market Opportunity
Specifying a Resource System
Identify core benefits in the value proposition or clusterIdentify core benefits in the value proposition or cluster
Identify capabilities that relate to each benefitIdentify capabilities that relate to each benefit
Link resources to each capabilityLink resources to each capability
Identify to what extent the firm can deliver each capabilityIdentify to what extent the firm can deliver each capability
Identify partners who can complete capabilitiesIdentify partners who can complete capabilities
Assessing the Quality of a Resource System
UniquenessUniqueness Good resource systems provide benefits, capabilities and activities
that are different from those of competitors
LinksLinks Good resource systems have links between capabilities and
benefits, among capabilities, among resources, and between virtual-world and physical-world business systems
SustainabilitySustainability Good resource systems are difficult for competitors to replicate
Source: Philip Kotler, Marketing Management (1997), p. 269
Market Opportunity Analytic Framework
Three Basic “Value Types”
Use of the Customer Decision Process to Identify Unmet and Underserved Needs
Segmentation and Targeting
The Role of Resources in Evaluating Market Opportunity
Assessing the Attractiveness of a Market Opportunity
EBay’s Market Opportunity
Conclusion
Chapter 2: Framing the Market Opportunity
Exhibit 2.8: Competitor Profiling — Eastman Kodak
Exhibit 2.12: Kodak’s Overall Opportunity Assessment
CompetitiveVulnerability
TechnicalVulnerability
Magnitudeof Unmet
Need
InteractionBetween
Segments
Likely Rateof Growth
TechnologicalVulnerability
MarketSize
Level ofProfitability
PositiveFactor
NeutralFactor
NegativeFactor
Market Opportunity Analytic Framework
Three Basic “Value Types”
Use of the Customer Decision Process to Identify Unmet and Underserved Needs
Segmentation and Targeting
The Role of Resources in Evaluating Market Opportunity
Assessing the Attractiveness of a Market Opportunity
EBay’s Market Opportunity
Conclusion
Chapter 2: Framing the Market Opportunity
Exhibit 2.13: EBay’s Financial Growth
4186
224
431
748
3270
167
335
614
0
100
200
300
400
500
600
700
800
1997 1998 1999 2000 2001
Mill
ion
s o
f d
olla
rs
Net Revenue
Gross Profit
Exhibit 2.14: Market Share — EBay
eBay 73%
uBid 17%
Yahoo 3%
Amazon2%
Egghead 5%
Exhibit 2.15: EBay — Defining the Value System
Value Type How Extent
Create more efficient markets
Create more efficient value systems
Disrupt market pricing
Hybrid Enable ease of access
Radically extend reach
Customize offerings
New Enable community building
Introduce new functionality or experience
Trapped
Exhibit 2.16: EBay — Unmet and Underserved Needs
Conduct preliminary research on items
Bid
Win?
Seller
Auction House / Dealer Buyer
Realize he or she would like to sell
something
Like to browse or have a specific interest or
need
Research the value of the item and a possible channel for exchange
Research venues / channels for procurement
Choose exchange agent and negotiate
terms
Choose procurement channel
Establish and agree to selling / buying
process
Deliver merchandise
Determine appropriate schedules and
locations
Set auction schedule and choose venue
Attend auction Hold auction
Receive payment Pass a percentage of
proceeds to seller
Pay Receive payment
Receive merchandise Take commission
Notification of when specific items are being sold
Easy channel / venue access Objective listing agent
Passive search and decision process Easy listing process and objectives Ability to list modestly priced items
Improved availability and access Simplified shipping; elimination of two-stage process
Time to conduct due diligence research on items
Time to think about purchase
Ease of payment
Reasonable agent fees
Minimized time lag between merchandise surrender and compensation
Pre
-Pu
rch
as
e P
urc
ha
se
Po
st-
Pu
rch
as
e
Exhibit 2.17: Potential EBay Customers
Promotional
Behavior
User Demographics
Very High High Moderate Limited None
39
40+
39
40+
39
40+
High Income
Moderate Income
Limited Income
Active Deal-Makers with Means
Active Frugal Collectors
Price-Sensitive
Active Frugal
Collectors
Passive Collectors
Ease
Convenience
Limited Accessibility or Options
History of Responding to Promotions
Exhibit 2.18: EBay Overall Opportunity Assessment
CompetitiveVulnerability
Magnitudeof Unmet
Need
InteractionBetween
Segments
Likely Rateof Growth
TechnologicalVulnerability
MarketSize
Level ofProfitability
PositiveFactor
NeutralFactor
NegativeFactor
Market Opportunity Analytic Framework
Three Basic “Value Types”
Use of the Customer Decision Process to Identify Unmet and Underserved Needs
Segmentation and Targeting
The Role of Resources in Evaluating Market Opportunity
Assessing the Attractiveness of a Market Opportunity
EBay’s Market Opportunity
Conclusion
Chapter 2: Framing the Market Opportunity
Framing the Market Opportunity — Conclusion
A firm needs to follow a rigorous approach to correctly isolate market opportunities — the market opportunity analysis framework is a six-stage process that addresses this need
The six stages of the framework are: 1) seed opportunity in an existing new value system, 2) identify unmet and underserved need(s), 3) identify and choose target segments, 4) declare the company’s resource-based opportunity for advantage, 5) assess competitive, technological and financial opportunity attractiveness and 6) conduct a “go/no-go” assessment
In assessing the attractiveness of an opportunity, four dimensions should also be considered: 1) competitive intensity, 2) customer dynamics (e.g., unmet needs, likely rate of growth, etc.), 3) technological vulnerability and 4) microeconomics (industry size and profitability)
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