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Patterns of Entrepreneurship Management 5th Edition, Chapter 4

Chapter 4

Customer/ Market Analysis

Competitive Analysis

Pricing & Positioning

Customers, Markets, Competitors in a Digital World

Internet Market

Research

Presentation Outline

• Customer/Market Analysis

– Niche or target markets

– One to One Marketing

– Define the Market Segmentation

– Market Research

• Evaluate the Competition-Sample Evaluation

• Prepare the Pricing Plan

• Position the Product or Service

• Using The Internet for Market Research

Chapter 4

Customer/ Market Analysis

Competitive Analysis

Pricing & Positioning

Internet Market

Research

Niche, Verticals and Target Markets

➢ A niche market is a small segment of a

large market ignored by other companies

➢ A vertical market is a specific sector or

class of customers that may require

different products and/or be acquired

through different marketing channels

➢ Target marketing is a strategy to focus on

segments of a market and prepare a plan

for each market segment or vertical.

Chapter 4

Customer/ Market Analysis

Competitive Analysis

Pricing & Positioning

Internet Market

Research

Rogers’ Bell-Curve - Customer Adoption Patterns

When introducing a new product or service, you should target

customers who are more likely to try something new – the

innovators and early adopters. They are usually not price-sensitive.

These customers can usually be found and attracted using social

media methods.

Chapter 4

Customer/ Market Analysis

Competitive Analysis

Pricing & Positioning

Internet Market

Research

Identifying Customers--Consider the 4 factors

• Market Identification--Current market and service

needs determined

• Current and Best Customers--to allocate resources

to segment the market

• Potential Customers--target by geographical or

industry wide, or ease of reaching via social media

platforms

• Outside factors --identify changing trends

Prepare the Marketing Analysis and Plan

Chapter 4

Customer/ Market Analysis

Competitive Analysis

Pricing & Positioning

Internet Market

Research

One to One marketing

Learn the profile or details about customers to

identify the most valuable ones.

• Identify customers or get them to identify

themselves

• Link customers identities to their transactions

• Calculate individual customer lifetime value

• Strengthen a customer satisfaction program

• Social media methods, such as on-line advertising,

“click through” links, search engine optimization

and networking on social platforms are excellent

for finding individuals at low cost.

Chapter 4

Customer/ Market Analysis

Competitive Analysis

Pricing & Positioning

Internet Market

Research

Internet Market Research

Accessing potential customers using the internet is a low-cost way of

researching customer needs and behaviors. Here are a few examples:

➢ Research sites such as “Ask Your Target Market” have a large network

of motivated potential customers that they can question

➢ Using a “smoke-screen” web-site that probes customers found on chat

rooms on social media platform

➢ Explore search engine key-words on Google to drive potential customers

to your informative web-site

➢ Posting Blogs about your company and its products in on-line discussion

groups

➢ Creating informative video content to post on Youtube or Vimeo

➢ Launching an MVP for testing with a small group of early adopters

➢ Using a crowd-sourcing site to “pre-sell” products before complete

development (See Chapter 5)

➢ Creating informative content to stimulate relevant “influencers” to post

comments on their web-sites and in blogs.

Chapter 4

Customer/ Market Analysis

Competitive Analysis

Pricing & Positioning

Internet Market

Research

Define the Market Segmentation

There are Several Ways to Segment a Market

➢ Demographic Segmentations-divide the market into

groups,based on age,income level and gender

➢ Geographic Segmentation- divide people or

businesses into regional and by location

➢ Psychographic Segmentation-divides into cultural

groups,value or social categories

➢ Tech-savvy segmentation – heavy users of devices

and the internet

➢ Ethnic Segmentation- divide by ethnic group

Chapter 4

Customer/ Market Analysis

Competitive Analysis

Pricing & Positioning

Internet Market

Research

➢ Do potential customer groups have different

needs?

➢ Can the customers that fit into a given

segment be identified?

➢ Are customers both willing and able to pay?

➢ Is the segment large enough to be profitable?

➢ Can the segment be reached in a cost-

effective manner? For example, directly via

the internet?

Questions for Effective Segmentation

Chapter 4

Customer/ Market Analysis

Competitive Analysis

Pricing & Positioning

Internet Market

Research

• It is particularly important to identify which

businesses will provide the most significant

competition and predict what they will likely

do.

• Analyze the situation by asking the questions

provided below regarding six key areas of

competition.

Conduct A Competitive Analysis

Chapter 4

Customer/ Market Analysis

Competitive Analysis

Pricing & Positioning

Internet Market

Research

Competitive Analysis: Porter’s 5 Forces

Potential

Entrants Threat of New Entrants

Industry

Competitors Rivalry Among

Existing Firms

Bargaining Power

of Buyers

Bargaining

Power

of Suppliers

Business to Consumers Business to Business

Internet

Companies

Suppliers Buyers

•Switching Costs of

Suppliers

•Importance of Volume to

Suppliers

•Cost Relative to Total

Purchases

•Impact on Cost or

Differentiation

•Access to Distribution

•Government Policies

•Expected Retaliation

•Economics of Scale

•Proprietary Product

Differences

•Brand Identity

•Buyer Concentration

vs. Firm

•Buyer Volume

•Buyer Switching Costs

•Substitute Products

•Product Differences

•Brand Identity

•Impact on Quality/Performance

•Buyer Profile

•Industry

Growth

•Product

Differences

•Brand Identity

•Exit Barriers

•Diversity of

Competitors

Chapter 4

Customer/ Market Analysis

Competitive Analysis

Pricing & Positioning

Internet Market

Research

Evaluating the Competition Sample Evaluation

Factors Attractiveness

High Low

Competition among companies

Competition is minimal but will become intense in 1year

The industry is declining and is mature

The power of customers

Volume is high and willing to negotiate

Customer has few switching costs

The power power of suppliers

Many substitutes and sources are available

Limited supply; products differentiated

Internet companies No competition defined on the internet

Many companies are entering this market

Potential threats Complex barriers and costs are high to enter market

Few simple entry barriers to enter the business

Chapter 4

Customer/ Market Analysis

Competitive Analysis

Pricing & Positioning

Internet Market

Research

Measuring the Venture’s Strengths and Weaknesses

Factor Attractiveness

High Low

Management t eam Proven People w it h right

skills not available

Financing You have comf ort able

cushion or can raise

capit al if needed

You have a narrow

t ime horizon t o make

money

Product development Complet e product line One product of

limit ed lif e

Sales f orce St rong cont act s;

specialist skills

Limit ed cont act s;

generalist skills

Market ing Deep and t ight ly-

f ocused

Unt arget ed

Operat ions St rat egic alliances

help improve

execut ion

Learning in a vacuum

Chapter 4

Customer/ Market Analysis

Competitive Analysis

Pricing & Positioning

Internet Market

Research

• How is the competitive product or service defined?

• How is it similar or different?

• Does the competition cater to a mass, niche or vertically targeted market?

• What features of the product are superior?

• What strengths or weaknesses of the competition can be exploited?

• Has the competitor developed a strong brand and image?

Product and Service Questions

Chapter 4

Customer/ Market Analysis

Competitive Analysis

Pricing & Positioning

Internet Market

Research

Price Questions

• What is the competitor’s pricing strategy?

• Is the competitor’s price higher or lower?

• What is the competitor’s gross margin for

similar products?

• Does the competitor offer terms, discounts,

or promotions

Chapter 4

Customer/ Market Analysis

Competitive Analysis

Pricing & Positioning

Internet Market

Research

Industry Competitors

• Define the competition in terms of new, Internet, or potential threats of existing companies.

• What are the strengths and weaknesses of each?

• How will internet-centric companies affect the business?

• How can the suppliers or buyers affect the competition?

Chapter 4

Customer/ Market Analysis

Competitive Analysis

Pricing & Positioning

Internet Market

Research

• How strong is the competitor’s management

team?

• What is their background or experience?

• How do they recruit new key employees?

• What skills have they been recruiting?

• What consultants have they been using?

Management Team

Chapter 4

Customer/ Market Analysis

Competitive Analysis

Pricing & Positioning

Internet Market

Research

• Is the competitor profitable?

• What volume are sales and market shares?

• Do they spend money for R&D, Internet, and

web development?

• Are they properly capitalized? How strong is

their cash flow?

• How are they funded? Do they have access to

additional capital if needed?

Financial Questions

Chapter 4

Customer/ Market Analysis

Competitive Analysis

Pricing & Positioning

Internet Market

Research

Preparing the Pricing Plan

Pricing Methods

Value: Price should not be based simply on cost, plus a

modest profit. Instead, price should be based on the value

of the product or service.

Rationale: Why prices differ from those of the

competitors.For instance, does the new business perform a

function faster or more efficiently?

Differential: Can independent market sectors or verticals be

priced differently to maximize value?

Tiered: Customers are provided a basic version of the product

at low cost, or even for free. After gaining confidence they

purchase an upgrade (or upsell) for more features and

benefits. Referred to as “Freemium” pricing.

Chapter 4

Customer/ Market Analysis

Competitive Analysis

Pricing & Positioning

Internet Market

Research

How to Position the Product or Service

• One way to charge a high price is when competition

and substitution products are minimal

• Another is to “match competition” by pricing

slightly under the competitor’s rates to expand one’s

own market share (for example, Samsung or Apple

Smartphones).

• A third is to substantially under-price the market, so

as to exclude competitors altogether

• Early adopters usually are not price-sensitive, so

beware entering the market with a unique product

and under-price it – it is always harder to raise

prices.

Chapter 4

Customer/ Market Analysis

Competitive Analysis

Pricing & Positioning

Internet Market

Research

Market Research Using the Internet

•The internet can be used to undertake initial

market research cost effectively.

• Using “web 2.0” tools and social networks, a

campaign can be carried out in just a few days

or even hours!

• Here are just two examples of how the

Internet can be used for market research…..

Chapter 4

Customer/ Market Analysis

Competitive Analysis

Pricing & Positioning

Internet Market

Research

Example 1: “Smoke-Screen Test”

Problem: how can “early-adopters” be attracted to a web-site

offering new methods for alleviating asthma, what is the

price they will pay, and how likely they will buy?

Cost effectively:

• Gain website traffic by a social networking presence

• Gather customer information and preferences

Resource Requirements:

• Daily monitoring of social networking (15 mins/day)

• $500 – $1,000 funding for Google AdWords campaign

to draw direct traffic to the site.

Chapter 4

Customer/ Market Analysis

Competitive Analysis

Pricing & Positioning

Internet Market

Research

Task 1: Build Web Presence via Social Networking

• Establish Twitter account: “@breathesimple”

• Continually track ‘tweet’ keywords:

– Asthma attack

– Nebulizer

– Asthma emergency room

• Sample tweets:

Chapter 4

Customer/ Market Analysis

Competitive Analysis

Pricing & Positioning

Internet Market

Research

Task 2: Build Dummy Website to Draw Traffic

• www.breathesimple.com Home Page:

Chapter 4

Customer/ Market Analysis

Competitive Analysis

Pricing & Positioning

Internet Market

Research

http://www.breathesimple.com/

Task 3: Track Website Traffic Using Google Analytics

Chapter 4

Customer/ Market Analysis

Competitive Analysis

Pricing & Positioning

Internet Market

Research

Task 4: Create Short Survey to Gather Customer Info

Goal: Gather as much information as possible without

being asking too much of the customer.

Chapter 4

Customer/ Market Analysis

Competitive Analysis

Pricing & Positioning

Internet Market

Research

Task 5: Track Survey Results Using Automatic Analysis Tool

Chapter 4

Customer/ Market Analysis

Competitive Analysis

Pricing & Positioning

Internet Market

Research

Results from Smoke-Screen Market Research

•Cost of Market Research - $1200

•Duration of Market Research - 2 weeks

•Number of visitors drawn to site – 2100

•Number that completed questionnaire and provided

contact information for purchase – 143

•Cost per customer acquisition - $8.40

•Conversion rate buyer/visitor – 6.8%

•Acceptable price point for product - $300.

The acquired data was sufficiently detailed for

use in the business plan: Chapter 4

Customer/ Market Analysis

Competitive Analysis

Pricing & Positioning

Internet Market

Research

Example 2: Primary Market Research

Problem: How will current customers view improvements to

an existing product, what will they pay for these, and how

much time will they invest in learning the new features?

Cost effectively:

• Target users of existing products

• Gather customer feed-back

Resource Requirements:

• Creating questionnaire (2 hours)

• $50 per respondent up to 150 replies with analysis

• 80 responses in 3 days, 150 within 2 weeks.

Chapter 4

Customer/ Market Analysis

Competitive Analysis

Pricing & Positioning

Internet Market

Research

Example 2: Primary Market Research

Use the service of, for example “Ask Your Target Market”

(www.aytm.com)

• Over 2.5 million registered respondents.

• Questionnaire screens randomly selected respondents to

identify “targeted audience” e.g. Q 1. “I have just bought

a pair of new shoes” or “I am planning a vacation in

Thailand.”

• Only those meeting the required audience get to the

main questionnaire and get paid for their full response.

• Survey results collected over a few days and analyzed

using aytm tools.

• Total costs are around 30% of traditional market research

interview methods and takes much less time.

Chapter 4

Customer/ Market Analysis

Competitive Analysis

Pricing & Positioning

Internet Market

Research

Example 2: Problem Definition

• Halare Inc. developed an improvement to the existing treatments of Sleep Disordered Breathing.

• The current method to alleviate the symptoms is for the sufferer

to wear a “Constant Positive Airway Pressure” mask (CPAP) in bed.

• The company developed a short questionnaire to target existing

users of CPAP machines in order to learn:

a) current usage patterns

b) reasons for dissatisfaction of existing products

c) using a video example of the Halare product,

how they viewed the potential improvements

d) how much time they would devote to learning

to use the additional features

e) what percentage of respondents would purchase the new device and

at what price.

Chapter 4

Customer/ Market Analysis

Competitive Analysis

Pricing & Positioning

Internet Market

Research

Example 2: Results

The next slide shows a typical chart derived from the questionnaire*.

PQ is the pre-screening question, and eliminates any respondent that is

not part of the target market.

Q1 examines the current usage patterns of CPAP machines.

It is shown that < 50% of the users do NOT use their CPAP’s every

night which can lead to serious health problems.

The Questionnaire continued to explore the reasons for poor compliance

and offer Halare’s alternative solution.

The respondent number was capped at 150 which provided a statistically

valid population while limiting total cost of the primary market research

to $7500.00. * Another more complete example can be found in the book, chapter 4.

Chapter 4

Customer/ Market Analysis

Competitive Analysis

Pricing & Positioning

Internet Market

Research

Example 2: Typical Result Chart

Chapter 4

Customer/ Market Analysis

Competitive Analysis

Pricing & Positioning

Internet Market

Research

and AYTM Inc.