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Market Analysis

Chapter 3

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 in

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products 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 the customer. The customers have, choice they will chose what they like best The firm‟s offering a product or service that most closely matches the market‟s product/service will be the one‟s that survive. One process used to incorporate customer requirements in marketing strategy is Quality Function Deployment

Quality Function Deployment (QFD)

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1. 2. 3.


Is a practical step by step method that incorporates customer needs into the design of new products and/ or augmentation 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 Customer requirements Engineering characteristics Customer perceptions Objective characteristics comparison

 2. or how can we fulfill. customer needs? .    Customer Requirements: Marketing research is used to interview customers to determine what the customers want and expect from the product The engineering characteristics and design attributes: Technical means available to the company to satisfy the customer The relationship matrix addresses is based on the association between the engineering characteristics and customer requirements The relationship matrix addresses the essential question : How are we fulfilling.1.

is integral in the development of marketing strategy . This can highlight image problem faced by the company  QFD is one technique used by managers to decide which needs of the buyers the firm hopes to satisfy Understanding what the market demands and what choices are available to the buyers. Customer perceptions  Compares customers‟ perception of the firm‟s product characteristics to those of competition  Second comparison is between the customer perception and the objective measures.3.

2. 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 drastically depending on how the relevant market is defined Defining Relevant Market usually involves two steps How management describe the product market structure The Relevant market boundaries within that product market structure is defined .Defining Relevant Markets    1.

A product market structure is a representation of the degree of substitutability that exist among set of products and or services that satisfy similar needs Uncovers the hierarchical schemes of attributes used by the consumers to partition the total set of brands into smaller subsets The brands in the subset are more similar and therefore more competitive with each other than any other brand in product class Market structure studies allow the marketing managers understand which brands are similar and which attributes are used to cluster the brands .Describing the Product Market Structure      In order to define market both the needs of the buyers and the goods and services offered by sellers to meet the need must be identified.

Market Structure for soft drinks Cola Non Cola Regular Diet Diet Regular Caffeine Caffeine Free Caffeine Caffeine Free Caffeine Caffeine caffeine free Caffeine free Brands Brands Brands Brands Brands Brands Brands Brands .

ii.   • i. iii. By defining product market structure managers can: Identify the various ways in which a market or product might be defined Identify the type of products and services they must compete with in various need-satisfaction situations Managers could classify competing alternatives at three levels Competing brands within a product form Competing product forms within a product class Competing product classes serving generic needs .

   a) b) Immediate concern is to classify product form or classes in order to identify possible ways of defining the market to be classified. Classification of alternative product form or classes is based either on: Similarity of characteristics or functions among alternatives Similarity of usage situation . WHY? Brand or supplier competition could be best analyzed after the relevant market is defined.

Similarity of characteristics or functions  Managers classify products as highly similar if they share physical or chemical characteristics or if they function technically in same way  Example: within the generic need “ breakfast food” cereals. presweetened cereals . bread. and eggs would be considered as different classes based on the differences in their composition and in the processes used to prepare them  Cereals could be subsequently divided into product form( nutritional cereals. so on) that share some technical characteristics but exhibit some differences . pastries.

Similarity of Usage  Consumers do not always select the most functionally similar alternatives when switching from product forms or classes  Managers may want to obtain customer‟s judgments of similarity among alternatives. consumers may elect to substitute frozen waffles (rather than oat meals) for cold cereals if the usage situation calls for fast preparation . however when asking what products are most substitutable. managers must attempt to account for usage situation.  Example: Hot cereal and cold cereal may be similar to each other than frozen waffles.

via product development) and with identifying potential threats to the firm‟s growth due to changing environment.  Taking broad view of the market often leads a firm to shift in and out of product categories  Top management define the relevant market broadly when the following conditions occur .Defining Broad Relevant Market  Generally top management will be concerned with identifying long run growth opportunities (especially.

and or social and cultural changes are likely to change the type or frequency 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.form level ( often because the product is an innovative form) .Defining Broad Relevant Market  Regulatory and technological changes are expected to create new alternatives on the seller‟s side of the market  Economic. demographic.

Defining Narrow Relevant Market  Middle level managers are more likely to define the relevant market in terms of product form rather than a product class  The focus is most likely to be appropriate to the extent that the planning focus in on short run decision and in the following situation  Brand or company competition is far more significant than competition among form or classes  Major environmental changes are not anticipated or are not expected to lead to changes in alternative form or in usage situation( this assumption is only for short run)  The product form or the product class is used for a unique set of usage situation so that there is no easily substitutable 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 Broad Relevant Market Narrow Relevant Market Primary Demand Selective Demand .

Analyzing Primary and Secondary Demand Define Relevant Market Boundaries Primary Demand Identify buyers of product form and product class Factors impacting the willingness and ability to buy the product form/ class Selective Demand Type of buyer decision process Identification of determinant attribute .

Analyzing Primary Demand  Primary demand is the demand for product form or product class that has been identified as the relevant market  By analyzing primary demand managers can learn:  Why and how customers buy a product form or class  Who are the buyers in the relevant market .

Key Elements in Analyzing Primary Demand  The most reason for analyzing primary demand is to identify the growth opportunities for the product form or class  This information is of special importance to managers 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 identify possible ways of boosting and revitalizing sales  These questions will fall into two categories  Buyer Identification Questions  Willingness to buy and ability to buy questions .

managers can learn which type of buyers are likely to have a need for product form or class  To the extent that these buyers can be described in terms of age. and similar characteristics managers can project changes in primary demand based on population trends for different groups  By identifying the heavy users in a product category. managers can select communication media that are efficient in reaching buyers or can identify the individuals sales force should call on . location.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 of communicating to the market  Specifically by identifying the current buyers.

sex. population density. or other demographic traits .  ii. occupation. and family size are among the characteristics that may typify buyers of a product form.1. Demographics are useful because most advertising media measure these characteristics in describing their audience and make this information available to prospective advertisers Believe is that buyers will buy from some one who is viewed similar in education. education. age. cultural traditions. Buyer or User Characteristics  i. and other factors that vary according to region or urban-suburban –rural distinctions Demographics Age.    Three kinds of characteristics are useful for describing buyers of product class or product form Location: Rates of purchase of various product forms may be influenced by climate.

what things are important to them. Life style:  Measures of life style or psychographics attempt to reflect the way in which products fit into consumer‟s normal pattern of living by examining how people spend their time.iii. what opinions they have about themselves and the world around them ( AIO)  Life style measures primarily reflect the influence of social forces on consumption process  Life styles may provide clues about why people do or do not use a product regularly  The media advertising setting will be most effective in reaching buyers if it is at least some what consistent with customer 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 of product or service  Managers should identify all the individuals who may be involved in the buying process and understand the kind of influence exerted by each one .

In addition managers must understand the factors influencing the willingness and ability to buy .Customer turnover  The term refers to the rate at which an organization must      replace all or substantial part of their customers because of change in some aspects of buyer „s characteristics In these situations marketing manager that large portion of the marketing effort must be directed towards continually identifying first-time users or patrons As these targets will be less knowledgeable about the product 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 potential customers do not buy the products as frequently7 as they might Knowing that market can be expanded because other potential users exist is not sufficient.

or life style and psychographic 2. demographics.Diagnostic questions of buyer identification 1. The Buying Center Who is involved in the buying process ( reference groups. Characteristics of buyers or users Can buyers of this product category be classified by location. Customer Turnover Is there a high degree of turnover due to mobility or because purchase is tied to age or other demographic factors? If so why . colleagues. family membership 3.

several specific factors need to be examined Related product or services Usage may be limited because the related products and services essential to satisfactory usage are inadequate.   The main determinant of willingness to buy a product form or class is the buyers perception of product‟s utility for one or more usage situation A manager‟s analysis of the product market structure should identify the usage situations to which a product form is potentially applicable In order to determine why some potential buyers do not use the product for one or more of these purposes .Willingness to buy    i. Example: Manufacturers of personal computers found that lack of programs for applications that were not job related served as barrier to sales growth for in home computers .

 b. It is important to identify situations in which problem occurs and determine whether the problems lie: In the product features New product features may have to be designed In user‟s lack of knowledge about how to use the product Customer training or technical assistance is necessary to overcome deficiencies . > Usage Problem Some products are not perceived as performing equally well under all circumstances.   a.ii.

Value or experience compatibility  When new products require a change in buying or 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. managers should design communication that stress not only the advantages of the product but also the advantages of the change in values or usage experiences that go with the product Example: Lever Brother‟s promotion of margarine .iii.

Psychological risk . Physical risk f. b. Perceived Risk  Exists when buyers believe that there is strong likelihood of making a poor decision and consequences of poor decision is significant a. Time or convenience c. Economic or financial risk. Financial risk e.iv. Performance risk d. Social risk f.

purchases can be enhanced by improved access.   Cost factor: Likely to inhibit primary demand. if. installation cost .    2. a product is a discretionary item less expensive product form alternatives exist The price and or associated buyer costs (operating cost. maintenance cost) Packaging and size factor Product form sale may be limited by virtue space and size requirements Spatial Availability: The cost of acquiring product may be a function of locational factors The rate of purchase of low value .  3. credit cost. . postponable.Ability to Buy 1.

Willingness to buy Would improved related products and services increase utilization What 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.Diagnostic Questions on Willingness and Ability to buy 1. Ability to Buy To what extent do purchase prices and other acquisition or maintenance cost inhibit 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 .

    selective demand is the demand for specific brand within the relevant market In analyzing selective demand.Analyzing Selective Demand  Primary Demand is the demand for product form or class. Choice is a function of buyer‟s needs( desired benefits) and buyers perceptions of alternatives in the context of the specific usage situation The first step is identifying the type of decision making process The second step is identifying the determinant attribute . managers are interested in understanding how buyers make choices from the alternative brands within the relevant market Not all buyers are alike in their choices.

    Extensive problem solving occurs when: When buyers have no prior experience in purchasing the product Product or service carries high perceived risk Such buying decisions involve extensive information search and deliberations Buyers must develop understanding of what alternatives exist and what important considerations in making a decision should be .Identifying the Types of Decision Process 1.

Limited problem solving:  Characterize situations in which the buyer has:  Sound knowledge of the product category  Is familiar with important considerations in making a choice  Still takes time to compare and evaluate alternates because:  Alternatives may change over time or  Buyers change their preference for different alternatives  Preferences may change because of: .2.Changes in product usage .Changes in buyer‟s financial circumstances .Buyer is seeking variety .

3. The kind of information required by buyers will vary . An understanding of the type of decision process involved in the in the purchase of a product enables managers to understand search behavior 2. Routinized Response Behavior:  Decision deals with frequently purchased items  Buyers have experience with the brands in product category and perceive no need to search among alternatives  In some cases. strong brand loyalty exist so brand choice decisions are made immediately  There are two reasons why distinction among types of decision process is important 1.

the consumer must then search for and evaluate information to brands within the product class.  The consumer forms an overall evaluation of a product by combining perceptions of the product attributes using some rules to weight rule (s) to weight the information  The first task is to determine which attributes are most important to the consumer  Once the importance of attribute is established. These activities are similar to cognitive processes encountered in limited problem solving .Identifying Determinant Attribute  A traditional psychological or economic view of products and services is that they are bundles of attributes.

The brand with the highest score is the preferred brand . The last task is to form rules to integrate with this information Consumer rules or heuristics are procedures used by consumers to facilitate brand choice The decision rules have been broadly classified as: Compensatory: A negative feature a brand can be overcome by a positive one A simple compensatory rule would average the ratings for each brand.    a.   Having identified the choice criteria or important attributes. the next step would be to gather regarding potential brands on these attributes.

then it is imperative that the product is perceived as atleast as good as the competitors on each important attribute . then second most important attribute is then evaluated In many cases. especially where the alternatives or attributes are many. ii.b.      i. consumers may chose two step process Non-compensatory to screen the alternatives Compensatory to evaluate the brand after screening It is important that marketing managers understand how their customers use information to form an evaluation If the customers use a non-compensatory process at any level.   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.

58 3.30 1= unimportant Quality and Cost Food selection Menu alternatives 3.79 3.58 5 = very important Compensatory – Non compensatory Decision rule Attribute A B c Compensatory Food Taste 4 3 4 Decision Rule = B Quality and cost FOOD selection 3 3 5 5 3 3 Non Compensatory Rule = C Menu Alternative 3 4 3 .Attributes of Fast food restaurant Attribute Food Taste Importance 4.

This is called Determinant attribute  Two dimensions help make help make an attribute a determinant attribute: 1. it is important to distinguish one or more attributes that are most likely to determine the buyer‟s choice. Several products are similar in a large number of attributes  In such cases. Importance  If it provides desirable benefits. If however all competing brands have same feature . then that attribute will not determine brand choice .

Irrelevant Attribute: an attribute which is neither perceived as important nor unique . Defensive attribute: something that is necessary to avoid being eliminated from consideration but not something that will cause people to choose a product ii. Optional attributes: are bells and whistles that may make the product different but are not currently considered to be important iii. Uniqueness • A buyer could evaluate any individual attribute as falling into one of four categories i.2.

A Framework for Assessing Determinant Attribute Perceived variation among alternatives on this attribute Low High Low Irrelevant Attribute Optional Attribute Perceived importance of this Attribute High Defensive Attribute Determinant Attribute .

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 or ownership 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 each important attribute? .Diagnostic Questions on Selective Demand 1.