chapter 2 Framing the Market Opportunity Mc GrawHillIrwin

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chapter 2 Framing the Market Opportunity Mc. Graw-Hill/Irwin © 2004 The Mc. Graw-Hill Companies,

chapter 2 Framing the Market Opportunity Mc. Graw-Hill/Irwin © 2004 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

Framing the Market Opportunity — Today’s Objectives will be to: Introduce the framework for

Framing the Market Opportunity — Today’s Objectives will be to: Introduce the framework for market opportunity analysis Examine three basic “value-types” Discuss the identification of unmet and under-served needs Explore how customers are segmented and targeted Examine the role of resources in evaluating market opportunities Discuss how to assess the attractiveness of a market opportunity Examine e. Bay’s market opportunity

Chapter 2: Framing the Market Opportunity Analytic Framework Three Basic “Value Types” Use of

Chapter 2: Framing the Market Opportunity Analytic Framework Three Basic “Value Types” Use of the Customer Decision Process to Identify Unmet and Underserved Needs Segmentation and Targeting The Role of Resources in Evaluating Market Opportunity Assessing the Attractiveness of a Market Opportunity EBay’s Market Opportunity Conclusion

Chapter 2: Framing the Market Opportunity Analytic Framework Three Basic “Value Types” Use of

Chapter 2: Framing the Market Opportunity Analytic Framework Three Basic “Value Types” Use of the Customer Decision Process to Identify Unmet and Underserved Needs Segmentation and Targeting The Role of Resources in Evaluating Market Opportunity Assessing the Attractiveness of a Market Opportunity EBay’s Market Opportunity Conclusion

Framework for Market Opportunity Seed Opportunity in Existing New Value System Influenced by the

Framework for Market Opportunity Seed Opportunity in Existing New Value System Influenced by the New Economy Identify Unmet and Underserved Need(s) Identify Target Segment(s) Declare Company’s Resource-Based Opportunity for Advantage Assess Competitive, Technical, and Financial Opportunity Attractiveness Make “Go / No Go” Assessment • Competition occurs across industries rather than within industries • Competitive behavior occurs at unprecedented speed • Competition occurs between alliances of companies rather than between individual companies • Easier to influence customer behavior because still in early stages of being defined • Industry value chains are being reconfigured

Exhibit 2. 1: Framework for Market Opportunity

Exhibit 2. 1: Framework for Market Opportunity

Chapter 2: Framing the Market Opportunity Analytic Framework Three Basic “Value Types” Use of

Chapter 2: Framing the Market Opportunity Analytic Framework Three Basic “Value Types” Use of the Customer Decision Process to Identify Unmet and Underserved Needs Segmentation and Targeting The Role of Resources in Evaluating Market Opportunity Assessing the Attractiveness of a Market Opportunity EBay’s Market Opportunity Conclusion

Exhibit 2. 2: Three Types of Basic Value Trapped Value More Efficient Markets More

Exhibit 2. 2: Three Types of Basic Value Trapped Value More Efficient Markets More Efficient Value Systems New-to-the-World Value Disrupt Pricing Customize Offerings Ease Access Build Community Radically Extend Reach Introduce New Functionality or Experience Hybrid Value

Exploring Basic Value Trapped Value New-to-the-World Value More efficient markets lower search and transaction

Exploring Basic Value Trapped Value New-to-the-World Value More efficient markets lower search and transaction costs Customizing offerings allows customers to add and remove features • Bizbuyer. com • Yahoo • Lending Tree Inc. • Quicken. com • Off. Road Capital Corp. Build communities to leverage customers’ participation More efficient value systems compress or eliminate steps in an existing value system • Zeal. com • Amazon. com Hybrid Value Disrupt pricing and change pricing-power relationships • My. Simon. com Enable ease of access and help customers find products • Abebooks. com Extend reach and welcome distant customers • Distance education Introduce new functionality to transform all or part of an industry value chain • e-books • Internet telephony

Chapter 2: Framing the Market Opportunity Analytic Framework Three Basic “Value Types” Use of

Chapter 2: Framing the Market Opportunity Analytic Framework Three Basic “Value Types” Use of the Customer Decision Process to Identify Unmet and Underserved Needs Segmentation and Targeting The Role of Resources in Evaluating Market Opportunity Assessing the Attractiveness of a Market Opportunity EBay’s Market Opportunity Conclusion

Customer Decision Process A framework to look systematically for unmet or underserved needs Prepurchase

Customer Decision Process A framework to look systematically for unmet or underserved needs Prepurchase Origination What prompts the customer to action? Information Gathering What factors influence the customer’s decision? Evaluation What attributes of the product does the customer consider? Purchase Decision What options does the customer identify? What decision(s) does he make? Postpurchase Evaluation and Behavior What does the customer do about his decision? Because value creation is based on understanding and meeting customer needs.

Exhibit 2. 3: Decision for Purchasing a Camera Personal use Origination Prepurchase Information Gathering

Exhibit 2. 3: Decision for Purchasing a Camera Personal use Origination Prepurchase Information Gathering Evaluation Purchase Type (digital/film) Features Brand/ manufacturer Cost Complexity Usage occasions Reviews Past Experiences Budget constraints Film Digital Instant Body Type Lens Purchase Decision 35 mm Postpurchase Gift Postpurchase Evaluation and Behavior APS Print quality Basic Fully loaded Throwaway Reliability Standard SLR Learning curve/ ease of use Likelihood of repeat purchase or recommendation Point & shoot Zoom Range of accessories Fixed

Vacation Travel Destination Decision Event Break Origination Holiday Prepurchase Information Gathering Number and Relationship

Vacation Travel Destination Decision Event Break Origination Holiday Prepurchase Information Gathering Number and Relationship of Travelers Honeymoon Reunion Duration and Distance Budget Travel Agent Activities Weather Past Experiences Travel Guides Evaluation Books Brochures Chat rooms Vacation Package Purchase Decision World Tour Comfort Postpurchase Independently Planned Small-Town Discovery Cruise Style Beach Escape Photos Postpurchase Evaluation and Behavior Likelihood of Repeat or Referral Outdoor Adventure Degree of Memorability

Chapter 2: Framing the Market Opportunity Analytic Framework Three Basic “Value Types” Use of

Chapter 2: Framing the Market Opportunity Analytic Framework Three Basic “Value Types” Use of the Customer Decision Process to Identify Unmet and Underserved Needs Segmentation and Targeting The Role of Resources in Evaluating Market Opportunity Assessing the Attractiveness of a Market Opportunity EBay’s Market Opportunity Conclusion

Exhibit 2. 4: Segmentation Approaches

Exhibit 2. 4: Segmentation Approaches

Effective Segmentation Requirements Customers must demonstrate needs, aspirations or behavioral patterns that are similar

Effective Segmentation Requirements Customers must demonstrate needs, aspirations or behavioral patterns that are similar within a segment and different across segments – A distinction between a price-sensitive and a quality-seeking segment is meaningful, since the two segments demonstrate distinguishable sets of needs A company must be able to reach customers within each segment through effective and targeted marketing programs – A customer segment consisting of customers with blue eyes is not actionable, since it is very hard to identify and reach only customers with blue eyes Segments must be large and profitable enough to make the investment in serving them worthwhile – My. CFO. com is targeted toward high-net-worth individuals, helping them manage their portfolios; even though the number of those individuals is small, the dollar amount managed is sizeable, thus constituting a substantial segment Key characteristics of the segments (e. g. , size and spending patterns) must be easy to measure Meaningful Actionable Substantial Measurable Source: Philip Kotler, Marketing Management (1997), p. 269

Exhibit 2. 6: Consumer Digital Camera Purchasing Segmentation

Exhibit 2. 6: Consumer Digital Camera Purchasing Segmentation

Consumer E-Books Purchasing Segmentation Purchase Occasion Self-Consumption Gift Institutional By Request Reader College Education

Consumer E-Books Purchasing Segmentation Purchase Occasion Self-Consumption Gift Institutional By Request Reader College Education Hobby or Special Interest In-Depth Topical Insights and Discussion Reference and Research Materials Moderate Education Required Reading For Display Entertainment Limited Education How-To Information Compendium by Topic How-To Information Advice and Recommendations

Number of E-Books Purchased Purchase Occasion Self-Consumption Gift Institutional By Request Reader College Education

Number of E-Books Purchased Purchase Occasion Self-Consumption Gift Institutional By Request Reader College Education Hobby or Special Interest In-Depth Topical Insights and Discussion Reference and Research Materials Moderate Education Required Reading For Display Entertainment Limited Education High How-To Information Moderate Low Compendium by Topic How-To Information Advice and Recommendations

Ideal E-Book Delivery Mechanisms Purchase Occasion Self-Consumption Gift Institutional By Request Reader College Education

Ideal E-Book Delivery Mechanisms Purchase Occasion Self-Consumption Gift Institutional By Request Reader College Education Hobby or Special Interest In-Depth Topical Insights and Discussion Reference and Research Materials Moderate Education Required Reading For Display Entertainment Limited Education New Economy How-To Information Either How-To Information Traditional Compendium by Topic Advice and Recommendations

Amazon. com Homepage for Two Different Customers

Amazon. com Homepage for Two Different Customers

Chapter 2: Framing the Market Opportunity Analytic Framework Three Basic “Value Types” Use of

Chapter 2: Framing the Market Opportunity Analytic Framework Three Basic “Value Types” Use of the Customer Decision Process to Identify Unmet and Underserved Needs Segmentation and Targeting The Role of Resources in Evaluating Market Opportunity Assessing the Attractiveness of a Market Opportunity EBay’s Market Opportunity Conclusion

Specifying a Resource System Identify core benefits in the value proposition or cluster Identify

Specifying a Resource System Identify core benefits in the value proposition or cluster Identify capabilities that relate to each benefit Link resources to each capability Identify to what extent the firm can deliver each capability Identify partners who can complete capabilities

Assessing the Quality of a Resource System Uniqueness Links Sustainability Good resource systems provide

Assessing the Quality of a Resource System Uniqueness Links Sustainability Good resource systems provide benefits, capabilities and activities that are different from those of competitors Good resource systems have links between capabilities and benefits, among capabilities, among resources, and between virtual-world and physical-world business systems Good resource systems are difficult for competitors to replicate Source: Philip Kotler, Marketing Management (1997), p. 269

Chapter 2: Framing the Market Opportunity Analytic Framework Three Basic “Value Types” Use of

Chapter 2: Framing the Market Opportunity Analytic Framework Three Basic “Value Types” Use of the Customer Decision Process to Identify Unmet and Underserved Needs Segmentation and Targeting The Role of Resources in Evaluating Market Opportunity Assessing the Attractiveness of a Market Opportunity EBay’s Market Opportunity Conclusion

Exhibit 2. 8: Competitor Profiling — Eastman Kodak

Exhibit 2. 8: Competitor Profiling — Eastman Kodak

Exhibit 2. 12: Kodak’s Overall Opportunity Assessment Positive Factor Neutral Factor Negative Factor Competitive

Exhibit 2. 12: Kodak’s Overall Opportunity Assessment Positive Factor Neutral Factor Negative Factor Competitive Vulnerability Technical Vulnerability Magnitude of Unmet Need Interaction Between Segments Likely Rate of Growth Technological Vulnerability Market Size Level of Profitability

Chapter 2: Framing the Market Opportunity Analytic Framework Three Basic “Value Types” Use of

Chapter 2: Framing the Market Opportunity Analytic Framework Three Basic “Value Types” Use of the Customer Decision Process to Identify Unmet and Underserved Needs Segmentation and Targeting The Role of Resources in Evaluating Market Opportunity Assessing the Attractiveness of a Market Opportunity EBay’s Market Opportunity Conclusion

Exhibit 2. 13: EBay’s Financial Growth

Exhibit 2. 13: EBay’s Financial Growth

Exhibit 2. 14: Market Share — EBay Yahoo 3% Amazon 2% Egghead 5% u.

Exhibit 2. 14: Market Share — EBay Yahoo 3% Amazon 2% Egghead 5% u. Bid 17% e. Bay 73%

Exhibit 2. 15: EBay — Defining the Value System Trapped

Exhibit 2. 15: EBay — Defining the Value System Trapped

Exhibit 2. 16: EBay — Unmet and Underserved Needs Auction House / Dealer Buyer

Exhibit 2. 16: EBay — Unmet and Underserved Needs Auction House / Dealer Buyer Realize he or she would like to sell something Like to browse or have a specific interest or need Research the value of the item and a possible channel for exchange Research venues / channels for procurement Choose exchange agent and negotiate terms Establish and agree to selling / buying process Deliver merchandise Set auction schedule and choose venue Determine appropriate schedules and locations Hold auction Attend auction Choose procurement channel Notification of when specific items are being sold Easy channel / venue access Objective listing agent Purchase Pre-Purchase Seller Passive search and decision process Easy listing process and objectives Ability to list modestly priced items Improved availability and access Simplified shipping; elimination of two-stage process Conduct preliminary research on items Time to conduct due diligence research on items Bid Time to think about purchase Post-Purchase Win? Receive payment Pay Ease of payment Take commission Receive merchandise Reasonable agent fees Minimized time lag between merchandise surrender and compensation Pass a percentage of proceeds to seller

Exhibit 2. 17: Potential EBay Customers History of Responding to Promotions High Income Active

Exhibit 2. 17: Potential EBay Customers History of Responding to Promotions High Income Active Deal-Makers with Means Active Frugal Collectors Passive Collectors Ease Convenience Moderate Income Active Frugal Collectors Limited Income Price-Sensitive Limited Accessibility or Options

Exhibit 2. 18: EBay Overall Opportunity Assessment Positive Factor Neutral Factor Negative Factor Competitive

Exhibit 2. 18: EBay Overall Opportunity Assessment Positive Factor Neutral Factor Negative Factor Competitive Vulnerability Magnitude of Unmet Need Interaction Between Segments Likely Rate of Growth Technological Vulnerability Market Size Level of Profitability

Chapter 2: Framing the Market Opportunity Analytic Framework Three Basic “Value Types” Use of

Chapter 2: Framing the Market Opportunity Analytic Framework Three Basic “Value Types” Use of the Customer Decision Process to Identify Unmet and Underserved Needs Segmentation and Targeting The Role of Resources in Evaluating Market Opportunity Assessing the Attractiveness of a Market Opportunity EBay’s Market Opportunity Conclusion

Framing the Market Opportunity — Conclusion A firm needs to follow a rigorous approach

Framing the Market Opportunity — Conclusion A firm needs to follow a rigorous approach to correctly isolate market opportunities — the market opportunity analysis framework is a sixstage process that addresses this need The six stages of the framework are: 1) seed opportunity in an existing new value system, 2) identify unmet and underserved need(s), 3) identify and choose target segments, 4) declare the company’s resource-based opportunity for advantage, 5) assess competitive, technological and financial opportunity attractiveness and 6) conduct a “go/no-go” assessment In assessing the attractiveness of an opportunity, four dimensions should also be considered: 1) competitive intensity, 2) customer dynamics (e. g. , unmet needs, likely rate of growth, etc. ), 3) technological vulnerability and 4) microeconomics (industry size and profitability)