C

H
4
A
P
T
E
R

FOUR
Understanding
Market
Opportunities

McGraw-Hill/Irwin
©2008 The McGraw-Hill Companies,
1-1
All Rights Reserved
Exhibit: 4.1

The Seven Domains of Attractive

Opportunities
Market Domains Industry Domains

Macro Market Attractiveness Industry Attractiveness

Level
Mission, Ability to
Aspirations, Execute
Propensity on CSFs
for Risk
Team
Domains
Micro
Connectedness up
Level and down Value Chain

Target Segment
Sustainable Advantage
Benefits
and Attractiveness
1-2 4-2
Difference between Markets and
Industries
‡ A market is a group of individuals or
organizations having the willingness
and ability to buy goods or services
to satisfy a particular class of wants
or needs
‡ An industry is a group of
organizations offering goods or
services that are similar and close
substitutes for one another

1-3 4-3
Macro Trend Analysis
 The macroenvironment can be divided
into six major components:
 Demographic
 Sociocultural
 Economic
 Regulatory
 Technological
 Natural

1-4 4-4
Macro Trend Analysis (continued)
 Demographic trend examples/businesses
affected:
 Graying of the population/nursing homes,
hospitals
 Increase in ethnic population/food, clothing
industries
 Sociocultural trend examples/businesses
affected:
 Evolution of the family structure/food,
women’s apparel
 Exercise for both genders is in/exercise
clothing, sports beverage

1-5 4-5
Macro Trend Analysis (continued)
 Economic trend examples/businesses
affected:
 Increase or decrease of interest rates/capital
goods, real estate
 Free trade agreements/goods and services
 Regulatory trend examples/businesses
affected:
 Government regulation/food, drug
 Government deregulation/airlines, trucking,
railroads, telecommunications, and banking

1-6 4-6
Macro Trend Analysis (continued)
 Technological trend examples/businesses
affected:
 Development of fiber-optic
cables/telecommunications, computers
 Production of more disease-resistant
livestock and plants/farming and ranching,
food
 Physical trend examples/businesses
affected:
 Global warming/ ski resorts, winter tourism

1-7 4-7
Exhibit 4.7

The Major Forces that Determine

Industry Attractiveness

Threat of new
entrants

Rivalry among Bargaining

Bargaining
existing industry power
power
firms of buyers
of suppliers

Threat of substitute
products

1-8 4-8
Porter’s Five Competitive Forces
 Rivalry among present competitors
 Rivalry is greater under the following
conditions:
 There is high investment intensity
 There are many small firms in an industry or
no dominant firms exist
 There is little product differentiation
 It is easy for customers to switch from one
seller’s products to those of others

1-9 4-9
Porter’s Five Competitive Forces
(continued)
 Threat of new entrants
 Entry is more difficult under the following
conditions:
 When strong economies of scale and
learning effects are present
 When strong product differentiation exists
among current players
 If gaining distribution is particularly
difficult

1-104-10
Porter’s Five Competitive Forces
(continued)
 Bargaining power of suppliers
 Their power is increased under the
following conditions:
 If the cost of switching suppliers is high
 If prices of substitutes are high
 If suppliers can realistically threaten
forward integration
 When the supplier’s product is a large part
of the buyer’s value added

1-114-11
Porter’s Five Competitive Forces
(continued)
 Bargaining power of buyers:
 The extent to which buyers succeed in their
bargaining efforts depends on several factors:
 The extent of buyer concentration
 Switching costs that reduce the buyer’s
bargaining power
 The threat of backward integration
 The product’s importance to the performance
of the buyer’s product
 Buyer profitability
 Threat of substitute products

1-124-12
Information Sources for Macro-
Level Analyses
 Trade associations
 Trade magazines
 General business and popular press
 The Internet

1-134-13
Understanding Markets at the
Micro Level
 Opportunities are attractive when
market offering meets most/all of the
following tests:
 There is a clearly identified source of
customer pain, for some clearly identifiable
set of target customers, which the offering
resolves
 The offering provides customer benefits
that other solutions do not
 The target segment is likely to grow
 There are other segments for which the
currently targeted segment may provide a
springboard for subsequent entry
1-144-14
Understanding Industries at the
Micro Level
 Opportunities are attractive when the
company itself meets most/all of the
following tests:
 It possesses something proprietary that
other companies cannot easily duplicate or
imitate
 The business has or can develop superior
organizational processes, capabilities, or
resources that others would find it difficult
to imitate or duplicate
 The company’s business model is
economically viable
1-154-15
The Team Domains
 Opportunities are only as good as the
people who will pursue them
 Key questions:
 What are the missions, aspirations and risk
propensity of the team?
 Does the team have the ability to execute
on the industry’s critical success factors?
 Is the team well connected up and down the
value chain?

1-164-16
Exhibit 4.15

Opportunity/Threat Matrix for a

Telecommunications Company in the U.K.
in 2007
Probability of Occurrence (2012)

Level of Impact
on Company*
High Low

High 4 1
Low 2 3

1. Wireless communications technology will make networks based on

fiber and copper wires redundant.
2. Technology will provide for the storage and accessing of vast quantities
of data at affordable costs.
3. The prices of large-screen (over 36-inch) digitalized TV sets will reach
mass-market prices.
4. Voice-over-Internet Protocol (VoIP) will emerge as a dominant force in
the telecommunications industry.
*Profits or market share or both.
1-174-17
Anticipating and Responding to
Environmental Change
 Impact and timing of event
 Many environmental events that could have
an impact on the firm can be detected
 Probability of events occurrence and the
degree of impact can be determined by
using opportunity/threat matrix.

1-184-18