3-MarketAnalysis

8/8/2019 3-MarketAnalysis

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1Market Analysis

Market Analysis

Presented by

Steven R. Kopits

April 2002


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2Market Analysis

Agenda

Market Sizing

Market Share

Industry Structure and Profits


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3Market Analysis

Market Analysis

Trying to establish

by market analysis.

Total market size

Your company revenues (mkt. share)

Your company profits


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4Market Analysis

Market Sizing

Where the market is

and where its going.

12

34

1

2

34

Establish current market size

Establish rate and shape of growth

Establish terminal market size (exit point)Establish post-terminal growth (exit value)


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5Market Analysis

Market Size = Your sales + sales of all competitors

Current Market Size

A competitor is defined from the customersperspective

GeographicPrimary Secondary

Pr

od

uc

t/

Ser

vic

e

B

roa

d

Narro

w Current

competitors,who actuallycompete

today for yourcustomers

Current competitors,

who could but dontactively compete in

your marketCurrent competitors,

who compete for part of your

market nearly your product

NOT RELEVANT


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6Market Analysis

Its a summers day, 2pm

on the beach. A customergoes into a convenience store on the boardwalk. He

wants a drink. He can buy a warm Pepsi or a cold

Coke (from a refrigerated case). Do these drinks

compete against each other? What if the Coke is in .33L cans, the Pepsi in a 2L bottle?

Case Study

Market segmentation can be a subtlething but it is the customers perspective

that matters


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8Market Analysis

New Tech Industries

Why this shape?

High unit costs

Poor organization

Changing business model

Long sales conversion cycle

Customer

ignorance/resistance

Slow up-take of

product or service


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9Market Analysis

Selling to corporates: entrepreneur experiences

Good initial meeting

Quick formal proposal

But corporates respond with

Lack of clear decision-making process

No clear decision-makers Lack of urgency

Preference for established suppliers

Turf battles

Risk-averse manager behavior

Lengthy trials to become established supplier

Sales Conversion Cycle

Conversion cycle can take 2 years for corporateclient


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10Market Analysis

Customer Inertia/Ignorance

CustomerPe

rceived

Switching

RiskLow

High

Value-added

One more

NO SALE

A step up

Sounds

complicatedWell, if

High

Value-added

Don't bother

me

Gotta have

it

Low High Low High

Low

NO SALE

No CompetitionCompetitive Environment

Aim for the green boxes.


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11Market Analysis

CustomerInertia/Ignorance

One more

Another product in a broad existing selection

E.g.: FMCGs (Coke, toothpaste)

Critical Success Factors (CSFs): brand awareness, efficient and broad distribution, efficient

production

A step up

Clearly superior product in a broad existing selection

E.g.: broadband internet access, Gevalia coffee

CSF: credibility (brand awareness), demonstration, word-of-mouth recommendations

Sounds complicated

Superior, but complex, product in an existing selection

E.g.: major corporate softwares

Characteristics: long and opaque decision-making process, multiple decision-makers, trials, delays

CSF: track record, financial strength, proven product, sales endurance


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12Market Analysis

CustomerInertia/Ignorance

Dont bother me

Clearly superior product with no strong alternative, but non-material, non-core to client

E.g.: energy efficiency project, alternative telecom provider to corporate client

CSF: right contacts, timing, simple purchasing process

Gotta have it

Clearly superior product with no alternative, core to client

E.g.: Viagra

CSF: show up

Well, if

Clearly superior, complex product with no clear alternative, core to clientclient will work with

vendor for successful outcome

E.g.: new production technology

CSF: client relation skills, trials and R+D focus, good at customization and documentation,

project management skills


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13Market Analysis

Ask potential customers about their needs

For the product or service, identify

Absolute benefit (in $) to customer

Relative benefit (% of expenses)

Strengths and weaknesses of current solution

Perceived risk

Decision making process

Who can approve, who can veto

How approval occurs (p&l ownership, initiator/champion,

rounds/levels

Timing (cycle, length of approval, trials)

Corporate MarketSurveys

Do not speculate. Ask. Get information.


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14Market Analysis

Describes the position of the potential customer with regards to

your product or service Signal customer willingness to buy; useful for VCs

Can be an extension of a marketing surveyasking can be betterthan selling!

Should be specific Detailed description of customer need Detailed description of the proposed product/service Price Timing Required approvals Key conditions Key limitations Risk assumption

Non-binding

Letters of Intent

To have value, an L-o-I must be specific.


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15Market Analysis

Market Share

Based on your relevant market

Your competition from the customers perspective

Your geographic area

The market you can and plan to serve You can refer to total market for establishing market

share in percentage terms

Assess the market both top down, bottom up


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16Market Analysis

Price leader No. 1 in market share

Economies of scale

First mover?

Quality leader

Superior product/technology

Strong organization Middle of pack

Good technology

Reasonable price

Minor player

Niche market

Potential Market ShareStrategies


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17Market Analysis

Industry Structure

Market share depends on industry structure

Geography National, regional, or global

Concentration

Significant economies of scale

Production, sales, advertising, purchasing, financing, R+D,distribution, brand awareness/credibility

More typical in mature industries

Fragmentation

Customer stickiness

High switching costs Low economies of scale, low scalability

What is your current industry structure? What will it be atexit?


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18Market Analysis

Share Strategies by Industry Structure

Which are you?

Strategy Requirements

Concentrated Fragmented

Market leader

Top 3

price leader simple business model,

lots of capital,

acquisitions,

superior technology or organization,

'first mover'

20-60% 15-25%

Quality leaderRank: 2-6

quality leader superior R+D,

good execution,

good mgmt

15-25% 10-15%

Middle of pack

Rank: 4-8

good price,

flexible service,

loyal customers

organic growth,

modest capital,

not too R+D oriented

10-15% 5-8%

Minor player

Rank: below 8

occupy niche,

too small or difficult

for major competitors

good understanding of a specific

market


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19Market Analysis

Situational (Soft) Advantages Smarter, harder working management

No response from competitors

Structural (Hard) Advantages

Based on structural characteristics of the business

vs. competition

Comparative Advantage

VCs prefer good but not necessarily brilliant ormacho management leveraging a structural

advantage


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20Market Analysis

Employee compensationstructure

Geographic coverage

Mix of products

Decision-making process

Brand positioning

Distribution channel

Skill set

Capital

Some Structural Advantages

Credibility

Productionequipment

Unions

Regulation

Cost structure

Ownership

Corporate culture


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21Market Analysis

Profit margin is function of

Market share

Industry structure

Industry growth

Company comparative advantage

Forecasting ProfitMargins

Understanding market forces are key inprojecting future profit margins

External Factorsfrom market analysis

Internal factors


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22Market Analysis

Typical Profits Margins

Pre-tax Net Income/Sales

Low Med High

None(monopoly)

+5% +10% +15%

Limited(mkt. leader)

+0% +5% +10%

Normal(middle of pack)

-5% 10% +5%Low:


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23Market Analysis

A note about valuation

Exit profit margins and post-terminalgrowth prospects will determine post-terminal values

Post-Terminal Values


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24Market Analysis

Terminal Market Size

0

50

100

150

200

250

300

350

YR1 YR5 YR10

Time

Sales

Terminal value: reality check, future growth

prospects

Realitycheck

Post-terminalgrowth25% CGR

15% CGR

8% CGR


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25Market Analysis

Contact Detail

Steven Kopits

mobile: +1 508 685 1200

email: [email protected]

3-MarketAnalysis

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