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Outline for Discussion Competitor Analysis: Porters Five Forces Small Group Exercise
Marketing Math
Tools in your Toolbox Adjourn for Dinner (5:30pm)
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Small Group Exercise
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Outline for Discussion Competitor Analysis: Porters Five Forces Small Group Exercise
Marketing Math
Tools in your Toolbox Adjourn for Dinner (5:30pm)
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Marketing Math
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Market Potential
Start with possible pool of customers Identify number of competitors and their
share (assume equal).
Identify your potential share. Plug information into customer product
matrix.
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Market Potential Who uses your product? How often is it
used?
Multiplying these two can give you anindication of the market potential(expressed as the number of customer orsales) you might expect in a market.
First, find accurate population stats then Combine with good useage stats
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http://factfinder.census.gov/home/saff/main.html?_lang=en
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Market potential for Coffee Who uses your product? How often is it used? Multiplying these two can show market
potential
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http://www.coffeeresearch.org/market/usa.htm
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Hot coffee Who uses your product?
Maybe half of the adults > age 18
How often is it used?
Once daily, perhaps the morning Multiplying these two can show market
potential
24,068 (50% drink coffee) = 12,034 potentialcups of coffee consumed in 27713
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Market Potential of Coffee24,068 (50% drink coffee) = 12,034 potential
cups of coffee consumed in 27713 How many competitors?
2 Starbucks, 4 McDonalds, and probably24+ additional competitors = 30
What is an equal share of the market?
12,043 cups of coffee 30 = 401 cups each
Could go further and see sales & profit
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Market Potential of Coffee12,043 cups of coffee 30 = 401 cups each Could go further and see sales & profit
401 cups at $2.00 each = $802 in sales
401 cups at $0.50 each = $200.50 in profit But that is per day, what about annually?401 per day x 364 days = 145,964 cups
annually or $291,928 in sales annually
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Another Example Birthday parties in the Gardens How many birthdays occur in your city
each week?
Divide population (30,903) by 365 days = 84birthdays each day in Durham
How many parties? Doesnt matter asmuch as supply (1 per day, 2 onweekends)
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Customer / Product MatrixCustomers
Products
Homeowners Renters Businesses
Annuals
Perennials
Trees &Shrubs
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Market Potential for Annuals First, is it a household purchase or an
individual purchase? How many households?How many homeowners?
How many renters? How many households using annuals?
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Percent of Households BuyingAnnuals and Perennials
05
101520253035
87 88 89 90 91 92 93 94 95 96 97 98 99 0 1 2 3
annual transplantsvegetable transplants
perennial transplants
Source: National Gardening Association 2004
28%
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Participation and home ownershipParticipation Home-owners
(n=1012)Renters(n=499)
Outdoor lawn care ormowing*
65.7% 35.3%
Outdoor flowergardening withannuals orperennials*
62.6% 30.5%
Landscaping withtrees or shrubs* 48.8% 23.4%
* Significant difference for Chi-square test at p
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Market Potential How many homeowners? 7983 How many renters? 5245 How many gardeners using annuals?
7983 x 0.626 (buying annuals) = 4997 5245 x 0.305 (buying annuals) = 1599
Total buyers = 4997 + 1599 = 6596 How many competitors? 30 Expected market share = 219
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Customer / Product MatrixCustomers
Products
Homeowners
(4997)
Renters
(1599)
Businesses
(625)Four inch
Windowbox
Largeplanter
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Customer / Product MatrixCustomers
Products
Homeowners
(4997)
Renters
(1599)
Businesses
(625)Four inch medium
Windowbox
large
Largeplanter large
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Customer / Product MatrixCustomers
Products
Homeowners
(4997)
Renters
(1599)
Businesses
(625)Four inch medium medium
Windowbox
large large
Largeplanter large small
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Customer / Product MatrixCustomers
Products
Homeowners
(4997)
Renters
(1599)
Businesses
(625)Four inch medium medium small
Windowbox
large large small
Largeplanter large small large
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80 / 20 RuleCustomers
Products
Homeowners Renters Businesses
Four inch medium medium small
Windowbox
large large small
Largeplanter
large small large
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Customer / Product MatrixCustomers
Products
New business Mid-age
business
Established
businessSeminar
Telephonecall
Personalvisit
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Customer / Product MatrixCustomers
Products
New
business
Mid-age
business
Established
businessSeminar +++ time
+ impact
++ time
++ impact
++ time
+ impact
Telephonecall
+++ time
+ impact
+ time
++ impact
+ time
++++ impact
Personalvisit +++++ time++ impact++ time+++ impact
++ time+++ impact
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Customer / Product MatrixCustomers
Products
New
business
Mid-age
business
Established
businessSeminar 40 hr
+ impact
30 time
++ impact
30 time
+ impact
Telephonecall
40 hr
+ impact
10 hr
++ impact
10 hr time
++++ impact
Personalvisit 50 hr++ impact20hr+++ impact
20 hr+++ impact
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Customer / Product MatrixCustomers
Products
New
business
Mid-age
business
Established
businessSeminar +++ time
+ impact
++ time
++ impact
++ time
+ impact
Telephonecall
+++ time
+ impact
+ time
++ impact
+ time
++++ impact
Personalvisit +++++ time++ impact++ time+++ impact
++ time+++ impact
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Customer product matrix Clearly segment customers Create a long list of products, focusing on use of the core and augmented product Consider carefully sources of information
to complete the center of the matrix Think about the best fit for your business
in the short run (where do the circles
match)? Use it as a tool for business growth.
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Why ask for a recommendation? Another tool for market potential. Asking one simple question, How likely are youto recommend us to a friend? December 2003 HBR had an article that was
simplistic and valuable (The One Number You
Need to Grow, Harvard Business Review,81[12]:46-54).
Use a 10-point scale for the recommendation toa friend, where 9= extremely likely torecommend, and 0= was not at all likely torecommend.
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Ask for A Recommendation Customers who responded with 8 or 9 are
Promoters. People with a 6 or 7 are Passively
Satisfied, because while they were happy,they werent as willing to put their ownreputation on the line and recommend the
business to a friend or colleague. TheDetractors responded with a 5 or less.
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Net Promoter Percentage 50 clients last year 2 rated you 9 2 rated you 8 22 rated you 7 12 rated you 612 rated you 5 or below 4/12=25% and 16% was the median(study)
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Recommend us to a friend? Key to growing a business is to have a Net
Promoter Percentage of 16% or more (4Promoters to 25 Detractors)
A ratio of Promoters {8 or 9} to Detractors{5 or less} of 16% or more.
Ask the question seasonally; calculateyour ratio. Relate it to growth.
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Lifetime value What is the one-time purchase of a cup of
gourmet coffee? $3.50 Weekly (5 of the 7 days)?
$17.50 Annually (50 of the 52 weeks)? $910 Long term purchases (20 years)? $18,200
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Lifetime value What is the one-time purchase of a
annual plants by an averagehousehold?
$76 Long term purchases (20 years)? $1520
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Market Potential Use conservative numbers Go low on the use statistics Go high on the competition statistics Calculate annual purchases, but strive forlifetime customers Costs more to acquire one new customer
than it does to have a current customerbuy one more item.
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Outline for Discussion Competitor Analysis: Porters Five Forces Small Group Exercise Marketing Math
Tools in your Toolbox Adjourn for Dinner (5:30pm)
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Tools now in your tool box Construct a customer profile
Construct a customer/product matrix Calculate market potential
Caution entrepreneurs to now add thought to the data and interpret what they see. Remember: Numbers dont make
decisions, thoughtful people do!
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The CustomerWho would buy or is buying a similar
product? Can you describe them interms of measurable variables like age,income or home value, gender, ethnicity,
zip code, or education level? Do youknow how often they purchase theproduct or similar products?
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The CustomerDo you know how they use the product? Do
you know where they use the product (athome, at a friends home, in the car, or ata restaurant)? Do they go to get the
product or service or does it come tothem? Do you know why they purchasethe product or similar products? Are thereenough of them in the current market?
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The Product
What is the product? Can you describe the
product in terms of its features (technicalaspects), functions (how someone coulduse the product), and benefits (what
does the feature do for the customer?).Do products need to be customized orcan they be mass produced? Can theybe stored easily or are they perishable?
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The Competition
Who is the competition? Think broadly
about substitute products (chocolate milkcan substitute for some in the place ofwhite milk but there are no substitutes for
gasoline in a car engine). Is anyoneselling the product or good products in themarket youre considering entering?
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The Market
What is the market like? How much control
do suppliers have over things you need?How easy is it for buyers to negotiateprice or other product attributes? Are
there a lot of substitutes in the market?What is their value proposition (how dothey compare on price, time, and qualitysavings or expenditures)? How stiff orlax is the competition? How easy is it fora new business to start up?
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Your Company
What about your company? How does it compare in aSWOT analysis? What are the business strengths?
What do you do very well? What do you haveproblems doing or what are some weaknesses? Doyou have the resources to invest to overcome theweakness? What have you learned from past
mistakes? What opportunity do you see outside thecompany? What have competitors not seen and/or notdone well? What have they failed at doing and whatleads you to believe you could be successful? What
are the strengths of the competition (threats to yourbusiness)?
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What information is missing that you can
observe? Can you talk with othersinformally who can provide you withfactual information? Can you visit other
businesses and gain some factualinformation?
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What information listed above do you need
to find? Try to find it first in a secondarysource, such as the Chamber ofCommerce, community organization,
library, Internet, or printed sourcebefore your consider collecting theinformation from consumers
themselves.
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Customer / Product Matrix
Customers
Products
Homeowners
(4997)
Renters
(1599)
Businesses
(625)Four inch medium medium small
Windowbox
large large small
Largeplanter
large small large
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Customer / Product Matrix
Customers
Products
Homeowners
(4997)
Businesses
(625)Four inch medium small
Windowbox
large small
Largeplanter
large large
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Your Marketing PlanA. Consider the array of potential products you may
offer, including the sizes, shapes, colors, and
cultivars of each.B. Which customer segments will you target? How do
you most easily describe them?
C. How will you price the product? What will be yourvalue proposition? Will you have high or lowquality? Will you have customers invest time for theproduct or save them time? Will the price be low orhigh? Remember, customers want high quality at
low prices and low time investment, but thiscombination is not sustainable for most businesses.
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Part puzzle completion
Part chess strategy
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Parting Thoughts
Much art to the science of marketresearch.
Always be incomplete information, but find as much good information as possible.
Be creative and think broadly aboutmarkets and consumers thats where theprofit is.
Dont discount the elements of risk andluck involved to be successful.
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Thank you!