Chapter 13 - Selecting target markets

Question 1

Who suggested the 2 ways markets can be defined?

Answer 1

Day, 1992

Question 2

Day, 1992

Answer 2

Markets can be defined in two ways

Question 3

What are the 2 ways markets can be defined? (Day, 1992)

Answer 3

Customer-defined market

Competitor-defined market

Question 4

Customer-defined markets (Day, 1992)

Answer 4

Substitutes in use

All the products and services which may meet same customer needs and problems

More insightful in understanding dynamics of market, attractiveness of alt. markets, developing strong competitive positions

Question 5

Competitor-defined markets (Day, 1992)

What is it important for?

Answer 5

All the competitors that could possibly serve needs of group of customers

Reflects technological similarity, relative production costs and distribution methods

Important for allocating marketing resource and managing market programme

Question 6

What is a market?

Answer 6

Group of customers

Question 7

What is an industry?

Answer 7

Group of companies/firms

Question 8

What are the 7 market characteristics that influence might assessment of market attractiveness?

Answer 8

1) Size of segment
2) Segment growth rate
3) Stage of industry evolution
4) Predicability
5) Price elasticity and sensitivity
6) Bargaining power of customers
7) Seasonality and cyclicality of demand

Question 9

What 6 economic characteristics of a market might influence the assessment of market attractiveness?

Answer 9

1) Barriers to entry
2) Barriers to exit
3) Bargaining power of suppliers
4) Level of technology utilisation
5) Investment required
6) Margins available

Question 10

What are the 4 competitive characteristics that might influence assessment of market attractiveness?

Answer 10

1) Competitive intensity
2) Quality of competition
3) Threat/strength of substitution
4) Degree of differentiation

Question 11

What are the 4 general business environment factors that might influence assessment of market attractiveness?

Answer 11

1) Exposure to economic fluctuations
2) Exposure to legal and political factors
3) Degree of regulation
4) Social acceptability and physical environment impact

Question 12

Barriers to entry

Answer 12

Example = protected technology/high switching cost for customers

Costs of overcoming barriers may make venture prohibitively expensive and uneconomic

Question 13

Barriers to exit

Answer 13

Locked into untenable or uneconomic positions

Substantial investment hurdles (barrier to entry) once undertaken lock company into continuing to use facilities created

Question 14

Level of technology utilisation

Answer 14

More technologically advanced will be attracted to market which utilise their expertise more fully

Can be used as barrier to entry to other companies

Question 15

Margins available

Answer 15

Margins vary from market to market

Result of price sensitivity and partly result of competitive rivalry

Question 16

Size of segment

Answer 16

The right size for a company is not always a large/the largest one

High volume markets offer great potential for sales expansion

Potential for achieving economies of scale in production and marketing

More efficient operations

Question 17

Segment growth rate

Answer 17

Companies sales growth is more easily achieved in growing markets

Question 18

Stage of industry evolution

Answer 18

Different stages more attractive depending on company’s objectives

For initial targeting, markets in early stages of evolution generally more attractive -> more future potential and less likely to be crowded by competitors

Short-term returns = modest (growth requires investment)

Question 19

Predictability

Answer 19

More predictable the market, the less prone it is to discontinuity and turbulence

Easier to predict accurately the potential value of segment

More certain of longer-term viability of target

Question 20

Price elasticity

Answer 20

Markets which are less price sensitive, where the price elasticity of demand is low = more attractive than more sensitive markets

More price-sensitive markets = greater chance of price wars and shakeout of less efficient suppliers

Question 21

Bargaining power of customers

Answer 21

Prefer markets dictated by suppliers not customers

UK supermarket = buying power of supermarket chains is considerable

Question 22

Seasonality and cyclicality of demand

Answer 22

Extent to which demand fluctuates by season or cycle

For company already surviving highly seasonal market, new opportunity in counter-seasonal market might be particularly attractive -> utilise capacity all year round

Question 23

Degree of differentiation

Answer 23

Where there is little differentiation between product offerings offer significant opportunities to companies that can achieve differentiation