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MBM6Ch3Slidesd2l.pptx
Market-Based Management
MBM6
Chapter 3
Ch 3: Market Demand
Ch 4: Customer Analysis
Ch 5: Market Segmentation
Ch 6: Competitor Analysis
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Market-Based Management
MBM6
Chapter 3
Chapter 3
Defining Market Space and Estimating Market Potential
Understanding Dynamics of Market Demand and the Product Lifecycle
Understanding How Market Share is Achieved and Evaluating Share Strategies
A narrow market definition limits your business opportunities. You have to see more to sell more.
—Jack Welch, CEO, 1981–2000 General Electric
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Customer Focus, Customer
Performance, and Profit Impact
Defining Market Space and Estimating Market Potential
MBM6
Chapter 3
In this section we will look at how the greatest threat to a business’s survival—and a major cause of missed market opportunities—is a narrow focus on existing product-markets.
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Narrow vs. Broad Market Definition
MBM6
Chapter 3
Broad Market Definition
Goes beyond existing products and customers
Discovers unserved needs of customers
Includes all substitute products.
Recognizes untapped market potential.
Long-term oriented
Narrow Market Definition
Sticks with existing products and customers
Focuses on the articulated needs of served customers
Confines to a particular product
Results in unfilled market potential.
Short-term oriented
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Product-Market Structure
MBM6
Chapter 3
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Market Definitions
MBM6
Chapter 3
A broad market definition is essential for any business in order to understand and measure market demand, market potential, and market share.
A narrow market definition, one adopted by design, is not always a limitation.
Market Share = Sales/Market Demand
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Market (Demand) Potential
MBM6
Chapter 3
Knowing the maximum number of units that can be consumed by the defined market (Market Potential) is of great strategic importance to a business: After a market reaches its full potential and saturates, new customers will be hard to find.
Personal Computer Market Demand
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Market Potential (Units vs. dollar values)
MBM6
Chapter 3
Units
Dollars
Consuming units: individuals, families, households, businesses, or
other purchasing entities.
Buying ceiling: the percentage of consuming units who
can afford to buy your product at an average price.
Purchase rate: how likely will a consuming unit buy your product
each year?
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Estimating Market Potential - PCs
MBM6
Chapter 3
The first step of estimating market potential is to define the geographical boundaries and the consuming units.
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Market Development and Potential
MBM6
Chapter 3
MDI: the degree to which the overall market for a product has been developed
MDI <33 : considerable growth potential
33<MDI<67: moderate growth potential
MDI>67: limited growth potential
MDI begins to level off near 80
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Customer Focus, Customer
Performance, and Profit Impact
Understanding Dynamics of Market Demand Throughout the Product Lifecycle
MBM6
Chapter 3
In this section we will look at how understanding market demand over time is an important aspect of market planning and strategy development.
Factors of Market Development
MBM6
Chapter 3
Many new markets and most global markets are well below their market potentials because large numbers of potential customers have not yet entered them.
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Product-Market vs. Product Life Cycle
MBM6
Chapter 3
Generic product-market life cycle: entire product category
Product life cycle: a particular product in the category.
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Product Life Cycle, Market Demand, and Profits
MBM6
Chapter 3
In the early stages of the product life cycle the net marketing contribution (NMC) is negative. As the product moves through the lifecycle, NMC will reach break-even, grow, peak, flatten, and begin to decline as market demand decreases.
NMC =
Gross profit – Marketing and Sales Expenses
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PC Life-Cycle Sales and Gross Profit
MBM6
Chapter 3
Profits can vary over the product life cycle.
For PCs, we see continued growth beyond the late growth stage in both sales revenues and market demand in units.
Slower growth in volume and declining prices will contribute to lower margins and lower industry gross profits.
This modest decline occurs as the PC market moves from late growth to the maturity stage.
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Customer Focus, Customer
Performance, and Profit Impact
Understanding How Market Share is Achieved and Evaluating Share Strategies
MBM6
Chapter 3
In this section we will look at how, for a given market and the market’s potential for development, a business can determine its best opportunities for sales growth, depending on its potential to grow share.
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Market Share Performance Tree
MBM6
Chapter 3
Moving from bottom to top, each stage of the market share performance tree indicates how the customer respond to a strategy influences market share. The first step is to identify the sequence of events that have to take place for a customer purchase to occur.
45% x 25%
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Market Share Index vs Actual
MBM6
Chapter 3
Benefits of MSI:
Helps identify the major causes of lost market share opportunity
Provides a mechanism for assessing market share change when improvement efforts are directed to an area of poor performance
Enables a business to estimate a reasonable potential for its market share
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Market Share Potential Index
MBM6
Chapter 3
For each level of the tree, the share performance gap indicates the extent of lost market share due to the lower customer response rates.
Establishing a desired level of response at each level of the performance tree provides a basis for estimating market share potential.
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Share Development Index (SDI)
MBM6
Chapter 3
The SDI of 41 means that the business is achieving only 41 percent of its potential market share performance.
Share Development Index (SDI)
= Market Share Index/Share Potential Index
= 10%/24.6% x 100
= 41
Based on share potential index (potential market share) and market share index (current market share), we can calculate a share development index (SDI) by using this formula:
Share Development Index (SDI) = market share index/ share potential index
This share development index tells us the extent to which the business has achieved its market share performance.
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MDI vs SDI
MBM6
Chapter 3
By combining the Market Development Index (MDI) with the Share Development Index (SDI), a business can discover whether they should focus on market development or share development or both, depending on the product’s position in the growth opportunity portfolio.
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