Situational Analysis

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Situational Analysis

• Understanding the Market Definition and
  Measurement

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Market Definition

• Three dimensions of definition
• Works from broad to narrow.
• Identifies all possible opportunities, enabling
  business to be proactive and to anticipate
  consumer needs.

3
First Dimension

• Identifies competing product classes serving
  generic need.
• Example
• Generic need thirst
• Competing product classes
• milk, soda, coffee, tea, juices, water,
  etc.

4
Second Dimension

• Identifies competing product forms within product
  class.
• Example
• Product class coffee
• Competing forms whole bean, ground,
  instant, coffee bags, etc.

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Third Dimension

• Identifies competing brands within product form.
• Example
• Product form whole bean
• Competing brands Folgers, Starbucks,
  Millstone, Gevalia, etc.

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Marketing Definition
Thirst
Broad
Milk
Coffee
Soda
Tea
Juice
Ground
Whole Bean
Instant
Coffee Bag
Narrow
Folgers
Starbucks
Millstone
Gevalia
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A strategic marketing definition should...

• Identify opportunities.
• Identify the served market.

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Basic Types of Market Measurements

• Market Potential
• The maximum sales opportunity that can be
  achieved by all sellers in the market.
• Sets upper limit on consumption units.

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Measuring Market Potential

• MPN x P x Q
• MPmarket potential
• Nnumber of possible buyers
• Paverage selling price
• Qaverage number purchased by each buyer

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Example Whats the market potential for CDs?

• Assumptions
• Everyone in U.S. gt 14 years buys, on average, 4
  CDs per year at ave. price of 14/CD

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Measuring Market Potential

• Measuring market potential often relies on
• Assumptions.
• Published data (industry publications, govt
  sources).
• Variables that correlate closely to market
  potential.

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Demand

• Market Demand
• The amount of products currently being purchased
  from all sellers in the market (i.e., industry
  sales).
• Company Demand
• The amount of products currently being purchased
  from a company.

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Gaps Between Potential and Demand
Market Potential
Primary (Basic) Demand Gap
Market Demand
Selective (Company) Demand Gap
Company Demand
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Measuring Market Demand

• Market demand sets upper limit on sales--i.e.,
  100 of market sharemarket demand.
• MD (EC x PA) (NC x PA)
• MDmarket demand
• ECexisting customers
• NCnew customers
• PApurchase amount

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Example What is the market demand for the
cellular phone market in 2001?

• Market attracts approx. 5 million new
  customers/year 70 mill.
• MD (65 mill. X 400 minutes/yr.)
• (5 mill. X 200 minutes/yr.)
• 27 billion minutes/year

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Measuring Company Demand Sales Forecasting

• Forecasts are predictions--they have to be
  continuously monitored and adjusted.
• Different approaches
• Top-down forecasting
• Build-up forecasting

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Subjective Forecasting Methods

• Utilize opinions of employees, managers, or
  customers.
• Least accurate, although popular to use.
• Three different types.

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Sales Force Composite

• Salespeople project sales volume for customers in
  their own territory estimates are aggregated and
  reviewed at higher management levels.
• Benefit
• Disadvantage

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Jury of Executive Opinion

• Solicit the judgment of a group of experts or
  experienced managers to estimate sales.
• Benefit
• Disadvantage

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Customer/Industry Surveys

• Survey customers to ask them how much they intend
  to buy in a future period.
• Benefit
• Disadvantage

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Extrapolation Methods

• Utilizes existing sales data.
• Higher accuracy than subjective methods.

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Naïve Forecasting

• Uses past sales data to forecast future sales,
  assuming that there will be no changes.
• Assumes that the best estimate of future sales is
  the current level of sales.
• Often used as a standard for comparison with
  other forecasts.

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Moving Average

• Compute the average sales volume achieved in
  recent periods and use the average to predict
  sales in the next period.
• Can be a conservative forecast.
• Can assign different weights to different time
  periods--smoothing constants.

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Example Moving Average
1st Qtr 2000 500K
2nd Qtr 2000 600K
3rd Qtr 2000 700K
4th Qtr 2000 600K
1st Qtr 2001 633.3K
Average 600K
Average 633.3K
Average 644.4K
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Percent Rate of Change

• Trend projection.
• If sales have been generally increasing,
  forecasts with this method will be greater than
  forecasts using other methods.

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Example Percent Rate of Change
1st Qtr 1998 100K
1st Qtr 1999 125K
To predict sales for 1st quarter 2000
Sales 125K (125K x .25) 125K
31.25K 156.25K
change25
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Leading Indicators

• When sales are influenced by basic changes in the
  economy, can use leading indicators to predict
  sales.

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Quantitative Methods

• Methods that utilize numerical procedures to
  extend past sales into the future.
• Regression.
• Time series analysis.

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Market Share

• Market share index
• product awareness x (70)
• product attractiveness x (65)
• intention to buy x (60)
• product availability x (60)
• product purchase (50)
• 8

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Market Development Index (MDI)

• Whats the potential for the market to develop?
• MDI current market demand
• maximum market potential

X 100
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Interpreting MDI

• MDI lt 33
• Considerable market growth potential.
• Can grow market with high prices and basic
  benefits.

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Interpreting MDI (continued)

• MDI 33-67
• Growth is possible, but need to offer more
  product variations and lower prices expanded
  distribution.

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Interpreting MDI (continued)

• MDIgt67
• Still room for market growth, but more difficult.
• Need very customer-focused solutions.