Chapter Five
Marketing & New Venture
Development
CHAPTER FIVE
MARKETING AND NEW VENTURE DEVELOPMENT
5.1 Market Research for the New Venture
Marketing research involves the gathering and analysis of data in order to
determine such information as who will buy the product, what price
should be charged, and what is the most effective promotion strategy.
5.1.1 The Marketing Research Process
1. Problem/opportunity identification and formulation
2. Definition of the research objectives
3. Choosing a basic method of research
4. Identifying the sample size and selecting the sampling procedures
5. Collecting the data
6. Analyzing the data
7. Preparing and writing the report
8. Follow up
5.2 Marketing Intelligence System
Marketing intelligence system is a set of procedures and sources used by managers
to obtain their everyday information about pertinent development in the
marketing environment.
Marketing managers often carry on marketing intelligence by reading books,
newspapers, and trade publications; talking to customers, suppliers’,
distributors, and other outsiders; and talking with other managers and personal
within the company.
Information for marketing decision making may be broadly classified as: (i)
strategic (ii) tactical (iii) Data bank.
The first type refers to information needed for strategic decisions, e g. whether to
enter a specific overseas market or to diversify into new markets; the second
type relates to information for tactical decisions such as planning of sales
territories the third type provides essential background knowledge about, for
example, competitors’ activities, market trends etc.
5.3 Competitive Analysis
A competitive analysis is essentially a structured method of examining an
organization or industry in order to provide a clear understanding of the
factors that affect a business.
Porter’s Five Forces Model
Porters model of competitive forces assumes that there are five
competitive forces that identifies the competitive power in a business
situation. These five competitive forces identified by the Michael
Porter are:
Threat of substitute products
Threat of new entrants
Intense rivalry among existing players
Bargaining power of suppliers
Bargaining power of Buyers
1. Threat of substitute products
Threat of substitute products means how easily your customers can
switch to your competitors product. Threat of substitute is high
when:
– There are many substitute products available
– Customer can easily find the product or service that you’re
offering at the same or less price
– Quality of the competitors’ product is better
– Substitute product is by a company earning high profits so can
reduce prices to the lowest level.
In the above mentioned situations, Customer can easily switch to
substitute products. So substitutes are a threat to your company.
2. Threat of new entrants
A new entry of a competitor into your market also weakens your
power. Threat of new entry depends upon entry & exit barriers.
Threat of new entry is high when:
– Capital requirements to start the business are less
– Few economies of scale are in place
– Customers can easily switch (low switching cost)
– Your key technology is not hard to acquire or isn’t protected
well
– Your product is not differentiated
There is variation in attractiveness of segment depending upon entry
and exit barriers. That segment is more attractive which has high
entry barriers and low exit barriers.
3. Industry Rivalry
Industry rivalry mean the intensity of competition among the
existing competitors in the market. Intensity of rivalry depends
on the number of competitors and their capabilities. Industry
rivalry is high when:
– There are number of small or equal competitors and less when
there’s a clear market leader.
– Customers have low switching costs
– Industry is growing
– Exit barriers are high and rivals stay and compete
– Fixed cost are high resulting huge production and reduction in
prices
These situations make the reasons for advertising wars, price wars,
modifications, ultimately costs increase and it is difficult to
compete.
4. Bargaining power of suppliers
Bargaining Power of supplier means how strong is the position of a
seller. How much your supplier have control over increasing the
Price of supplies. Suppliers are more powerful when
– Suppliers are concentrated and well organized
– a few substitutes available to supplies
– Their product is most effective or unique
– Switching cost, from one suppliers to another, is high
– You are not an important customer to Supplier
When suppliers have more control over supplies and its prices that
segment is less attractive. It is best way to make win-win relation
with suppliers. It’s good idea to have multi-sources of supply.
5. Bargaining power of Buyers
Bargaining Power of Buyers means, How much control the buyers have
to drive down your products price, Can they work together in ordering
large volumes. Buyers have more bargaining power when:
– Few buyers chasing too many goods
– Buyer purchases in bulk quantities
– Product is not differentiated
– Buyer’s cost of switching to a competitors’ product is low
– Shopping cost is low
– Buyers are price sensitive
Buyer’s bargaining power may be lowered down by offering
differentiated product. If you’re serving a few but huge quantity
ordering buyers, then they have the power to dictate you.
Michael Porters five forces model provides useful input for SWOT
Analysis and is considered as a strong tool for industry competitive
analysis.
5.4 Marketing Strategies for Competitive Positions
Marketing strategies are those plans designed to reach marketing goals.
Types of Marketing Strategies
1. Strategies based on market Dominance - Typically there are four types
of market dominance strategies:
Market Leader
Market Challenger
Market Follower
Market Nicher
1. Market Leader
The market leader is dominant in its industry. It has substantial market share and
often extensive distribution arrangements with retailers. It typically is the industry
leader in developing innovative new business models and new products (although
not always). It sometimes has some market power in determining either price or
output. Of the four dominance strategies, it has the most flexibility in crafting
strategy.
Market leader strategies (main options available):
1.Expand the total market by finding
New users of the product
New uses of the product
More usage on each use occasion
2.Protect your existing market share by:
Developing new product ideas
Improve customer service
Improve distribution effectiveness
Reduce costs
3.Expand your market share:
by targeting one or more competitor
without being noticed by government regulators
2. Market Challenger
A market challenger is a firm in a strong, but not dominant position that
is following an aggressive strategy of trying to gain market share. It
typically targets the industry leader (for example, Pepsi targets Coke),
but it could also target smaller, more vulnerable competitors.
Some of the options open to a market challenger are:
Price discounts or price cutting
Line extensions
Introduce new products
Increase product quality
Improve service
Change distribution
Cost reductions
Intensify promotional activity
3. Market Follower
A market follower is a firm in a strong, but not dominant position that
is content to stay at that position.
The advantages of this strategy are:
No expensive R&D failures
No risk of bad business model
Best practices? are already established
Able to capitalize on the promotional activities of the market
leader
Minimal risk of competitive attacks
Don’t waste money in a head-on battle with the market leader
4. Market Nicher
In this niche strategy the firm concentrates on a selected few target
markets. It is also called a focus strategy. It is hoped that by
focusing ones marketing efforts on one or two narrow market
segments and tailoring your marketing mix to these specialized
markets, you can better meet the needs of that target market.
The niche should be large enough to be profitable, but small enough to
be ignored by the major industry players.
Profit margins are emphasized rather than market share. The firm
typically looks to gain a competitive advantage through
effectiveness rather than efficiency. It is most suitable for relatively
small firms and has much in common with.
The most successful nichers tend to have the following characteristics:
They tend to be in high value added industries and are able to obtain high
margins.
They tend to be highly focused on a specific market segment.
They tend to market high end products or services, and are able to use a
premium pricing strategy.
They tend to keep their operating expenses down by spending less on R&D,
advertising, and personal selling.
2. COST LEADERSHIP STRATEGY
This strategy emphasizes efficiency. By producing high volumes of standardized
products, the firm hopes to take advantage of economies of scale.
Maintaining this strategy requires a continuous search for cost reductions in all
aspects of the business.
To be successful, this strategy usually requires a considerable market share
advantage or preferential access to raw materials, components, labor, or some
other important input.
Successful implementation also benefits from:
o Process engineering skills
o Products designed for ease of manufacture
o Sustained access to inexpensive capital
o Close supervision of labor
o Tight cost control
o Incentives based on quantitative targets
3. DIFFERENTIATION STRATEGY
• Differentiation involves creating a product that is perceived as
unique.
• The unique features or benefits should provide superior value for
the customer if this strategy is to be successful.
• Customers tend to be more brand loyal.
To maintain this strategy the firm should have:
Strong research and development skills
Strong product engineering skills
Strong creativity skills
Good cooperation with distribution channels
Strong marketing skills
Incentives based largely on subjective measures
Be able to communicate the importance of the
differentiating product characteristics
Stress continuous improvement and innovation
Attract highly skilled, creative people
