CHAPTER 4: MARKET IDENTIFICATION AND ANALYSIS

At the end of this module, the learner should be able to:

1. Identify the classes of competitors.

2. Classify the product differentiation and positioning.
3. Define market structures, its characteristics and types.
4. Define Market Segmentation & Size.
5. Explain the beachhead market and creating your market.

Market Identification

Market identification is the process of choosing which groups of customers a company will focus
on in its marketing mix. It involves figuring out why customers would buy from you, dividing
the market into segments based on demographics and other characteristics, and then finding the
most profitable segments to include in your target market. This process leads to a more effective
marketing mix that increases your reach and profits.

Marketing Mix (5 P's)

The Marketing Mix 5 P's is a tool used to select and create the right marketing strategies for a
business. It makes you consider which areas of your business you can change or improve to meet
the needs of your target market, add value, and differentiate your product or service from
competitors. The 5 areas to make decisions about are: PRODUCT, PRICE, PROMOTION,
PLACE, and PEOPLE.

1. PRODUCT/SERVICE
o This element refers to what you are offering to your customers. Product decisions
include the product's functionality, branding, packaging, service, quality,
appearance, and warranty terms.
2. PRICE
o The price element refers to how you set prices for your products or services. It
should include all parts of your overall cost, such as the advertised price,
discounts, sales, credit terms, or other payment arrangements.
3. PROMOTION
o Promotion refers to all the activities and methods you use to promote your
products or services to your target market. This includes sales, public relations,
direct marketing, advertising, sponsorship, and social media.
4. PLACE
o The place element refers to how you get your product or service to your
customers at the right time, at the right place, and in the right quantity. It includes
distribution channels, location, logistics, service levels, and market coverage.
 5. PEOPLE
o The people element refers to your customers, yourself, and your staff. You need
to consider both your staff and customers if you are thinking about growing your
business. This includes understanding customer needs and wants, setting targets,
and measuring customer service levels to attract and keep loyal customers.

Benefits of Target Market Identification

1. More effective marketing mix.

2. Helps you choose the right marketing channels.
3. Uses limited time, money, and resources more efficiently.
4. Maximizes sales and profits.

Steps for the Identification of the Target Market

1. Assess product or service characteristics.

2. Identify why customers would buy from you.
3. Identify the most relevant dimensions of segmentation.
4. Segment the market according to specific criteria.
5. Choose the most profitable segments to include in the target market.

Examples of Market Identification of Leading Firms

1. Nike Target Market

 Nike sells apparel, equipment, shoes, and accessories to athletes and people who play
sports. Their products are high-quality and long-lasting, which drives up the price range
so that only people with disposable income can afford them. They specifically target
young aspiring athletes and runners, who are groups that rely on motivation to push
beyond their normal limitations.

2. Netflix Target Market

 A lesson from Netflix is less about its evolving target market and more about its approach
to reaching that market. They continuously research their audience and provide them with
what they want. Netflix has pivoted from mail-in DVD rentals to an online streaming
service and has relied on word-of-mouth marketing to fuel sales.

Market Analysis

Market analysis is a significant part of market research and a key component of a business plan .
It is a quantitative and qualitative assessment of a market, which looks at the market size in terms
of volume and value, customer segments, buying patterns, competition, and the economic
environment, including barriers to entry and regulation. Market analysis provides the basis for
developing a marketing strategy and concrete marketing measures.
Why Conduct a Market Analysis?

1. A market analysis allows you to support your business idea with figures, data, and facts,
creating a convincing business plan.
2. It helps you recognize market potential early on and avoid making incorrect decisions.
3. You can identify and fill in existing knowledge gaps in a timely manner.
4. A market analysis reveals which competing products are already in the market.
5. You can identify market entry barriers and estimate the market's attractiveness.

How to do a Market Analysis?

The objectives of the market analysis section of a business plan are to show investors that you
know your market and that the market is large enough to build a sustainable business.

To do this, follow these steps:

1. Demographics and Segmentation

2. Target Market
3. Market Need
4. Competition
5. Barriers to Entry
6. Regulation

How to do a Market Analysis?

1. Demographics and Segmentation

o The first step is to assess the market's size. The approach to assessing market size
depends on the type of business you are presenting to investors.

2. Target Market

o Once the market size is estimated, you need to explain which market segment(s)
you view as your target market. The target market is the specific type of
customers you are targeting within the market. For example, a jewelry seller could
be a generalist or focus on either the high-end or lower-end of the market. In the
jewelry example, "value for money" would drive demand in the lower-end
market, while "exclusivity and prestige" would drive the high-end market. This
section is important when your market has clear segments with different drivers of
demand.

3. Market Need

o This section of the market analysis is qualitative and focuses on what drives
demand. It is where you demonstrate to a potential investor that you have a
detailed understanding of your market and know why customers buy.
THE 5 DRIVERS OF DEMAND

1. PRICE of the good or service: The law of demand states that when prices rise,
the quantity of demand falls.
2. INCOME OF BUYERS: When income rises, the quantity demanded will also
rise.

3. PRICES OF RELATED GOODS OR SERVICES: This includes

complementary goods purchased with a specific item or substitutes bought instead
of a product.
4. TASTES or preferences of consumers: When public desires, emotions, or
preferences change in favor of a product, the quantity demanded increases.
5. CONSUMER EXPECTATIONS: When people expect the value of something
to rise in the future, they demand more of it.

4. Competition

o The purpose of this section is to give a fair view of who your competitors are.
You need to explain your competitors' positioning and describe their strengths and
weaknesses. This should be done alongside the Competitive Edge part of the
Strategy section. The goal is to analyze your competitor's approach to the market
to find a weakness that your company can use in its own market positioning.
 5. Barriers to Entry

o These protect your business from new competition.

Examples of barriers to entry include:

1. Investment
2. Technology
3. Brand
4. Regulation
5. Access to resources
6. Access to distribution channels
7. Location

6. Regulation

o Regulation refers to licenses, concessions, or requirements from the authorities to

start a business, and is a type of barrier to entry. You need to explain the main
regulations that apply to your business and the steps you will take to stay
compliant.

Methods of Market Analysis

1. Primary Research: Experts from a target market are interviewed to collect new data.
2. Secondary Research: This method uses existing data records from previous surveys.

Market Identification and Analysis

When performing market identification and analysis, five categories must be considered:

1. Classes of Competitors
2. Product Differentiation, Positioning
3. Market Structure
4. Market Segmentation & Size
5. Beachhead Market and Creating your market

A. Competitors

A competitor is a person, business, team, or organization that competes against you or your
company. A "rival" is a close competitor that is the same size and makes similar products. "Arch
rivals" are two companies that are leaders in their field.
There are 5 types of competitors:

1. Direct competitors: A firm that sells the same products and services as you in the same
markets.
2. Potential competitors: A direct, indirect, or replacement competitor that currently has no
distribution in your markets.
3. Indirect competitors: A firm that sells different products and services but is in the same
industry and same markets.
 4. Future competitors: A firm with business capabilities that would allow them to quickly
take market share if they entered your markets.
5. Replacement competitors: A firm that sells products and services in a different industry
that could be used as a substitute for your products.

B. Product Differentiation and Positioning

POSITIONING

 Positioning is a strategic process that marketers use to determine the place or niche a
product should occupy in a given market, relative to other customer alternatives.
 It involves marketing efforts to situate a product favorably in the minds of potential
consumers compared to competitors. The marketing and promotional plan uses symbols,
such as in displays and packaging, and communicates tailored messages to people most
likely to value the product being marketed.

DIFFERENTIATION

 Differentiation is the process companies use to make a product or service stand out from
its competitors in ways that provide unique value to the customer.
 It identifies a set of characteristics and benefits that make a product different and better
for a target audience.
 The goal of product differentiation is to create a competitive advantage or to make your
product superior to alternatives on the market.

FOUR TYPES OF PRODUCT

1. Valuable but not Undifferentiated

2. Differentiated but not Valuable
3. Undifferentiated and not Valuable
4. Differentiated and Valuable

C. Market Structure

Market Structure refers to how different industries are classified and differentiated based on their
degree and nature of competition for goods and services. Economic market structures can be
grouped into four categories: perfect competition, monopolistic competition, oligopoly, and
monopoly.

TYPES OR CATEGORIES OF MARKET STRUCTURE

1. Perfect Competition
2. Monopolistic Competition
3. Oligopoly
4. Monopoly
D. Market Segmentation and Size

A market segment is a group of people in a homogeneous market who share common marketable
characteristics, such as interests, geography, age, demographic, or lifestyle. Market segments are
often used in marketing strategies to help companies optimize their product or service to a
specific segment's needs and to identify a target market.

Market Segmentation

 Market segmentation is the process of separating, identifying, and evaluating the layers of
a market to identify a target market.
 It seeks to identify targeted groups of consumers to tailor products and branding in a way
that is appealing to the group.
 It helps companies minimize risk by identifying which products are most likely to gain a
share of a target market and the best ways to market and deliver those products.

Three (3) Criteria to Identify Different Market Segments

1. Homogeneity - common needs within a segment.

2. Distinction - being unique from other groups.
3. Reaction - a similar response to the market.

Market Segmentation Strategies

1. Geographic Segments: Customers are targeted locally, statewide, regionally, or

nationally.
2. Demographic Segments: Customers are targeted by their age, gender, race, income, and
education level.
3. Psychographic Segments: Identification based on attitudes, beliefs, emotions, lifestyle,
and hobbies.
4. Behavioral Segments: Identification based on various patterns such as purchasing
occasion and loyalty status.
Market Size

 The "market size" consists of the total number of potential buyers of a product or service
within a given market, and the total revenue these sales may generate.

E. Beachhead Market and Creating your own Market

Beachhead

 This term is from a military strategy where, when approaching enemy territory, you focus
all your resources on winning a small border area that can be a stronghold from which to
advance.

Beachhead Market

 A small market with specific characteristics that make it an ideal target to sell a new
product or service. The choice of the market is based on the compatibility between the
available resources, the product, and the market itself.

Conditions that Define a Beachhead Market

1. Customers purchase similar products.

2. Customers have similar sales cycles.
3. Word-of-mouth communication between customers.

Strategies for Creating New Markets

1. Sell the market concept before building a product.

2. Highlight positive social and environmental impacts.
3. Incentivize your team to continually think "outside-the-box".
4. Work to build a compelling story around your new idea.
5. Use social media and traditional media to build demand for change.

Major Types of Market

 CONSUMER MARKET: Individuals and households who buy goods for their own use
or benefit.
o FAST-MOVING CONSUMER GOODS SECTOR: Purchases are low-value
items bought regularly, goods have a relatively shorter shelf life, profits are low
by distributing large volumes, and there is intense price competition.
o CONSUMER DURABLES SECTOR: A category of products designed to last a
long time, and purchased less frequently.
o CONSUMER NON-DURABLES SECTOR: Purchased for immediate use,
items typically have a lifespan of several minutes to three years, and are products
that must be purchased regardless of the state of a country's economy.
  BUSINESS MARKET: All organizations that acquire goods and services used in the
production of other products or services that are sold, rented, or supplied to others. The
business market does not purchase for personal consumption.
o INDUSTRIAL MARKET: The main criterion is keeping production satisfied so
that materials and components are available for incorporation into the production
process.
o RESALE MARKET: The principal criterion is the mark-up percentage that can
be added to goods bought from manufacturers and wholesalers in bulk and then
resold to individual customers.
 GOVERNMENT MARKET: The government organizations are a major buyer of goods
and services. Examples are major infrastructural projects and production are government
undertakings. Government markets are very important, and government organizations
typically require suppliers to submit bids and normally award the contract to the lowest
bidder.
 INSTITUTIONAL MARKETS: This consists of schools, hospitals, nursing homes,
prisons, and other institutions that must provide goods and services to people in their
care.

Distribution of the Product or Service

Distribution refers to how and when to move a product from the warehouse to the customer's
home, store display, or wholesaler. Distribution strategies are intensive, selective, or exclusive.

1. INTENSIVE PRODUCT DISTRIBUTION

o Involves widespread placement of the product at low prices.
o The goal is to saturate the entire market with the product.
o This can be an expensive and very competitive strategy.
o Large-scale producers who market nationally or internationally often use this
method.
o Examples: biscuits, wheat, chocolates, soaps, soft drinks, cigarettes.
2. SELECTIVE PRODUCT DISTRIBUTION
o Selecting a small number of intermediaries, usually retailers, to handle the
product.
o This offers advantages of lower marketing costs and the ability to establish better
working relationships with customers and intermediaries.
o Examples: cars, clothing, watches.
3. EXCLUSIVE DISTRIBUTION
o An extreme version of selective distribution.
o The producer agrees not to sell to another buyer.
o In exchange, the buyer may agree to only buy the product from the producer.
o This has promotional advantages, such as creating a prestigious image for your
product, and often involves reduced marketing costs.
o Examples: automobiles, women's apparel, major appliances, furniture.

Product Pricing Strategies

Prices are generally set by determining the production cost and adding a fair price for the
benefits the customer will receive.

Product Pricing Strategies for Differentiated Products

1. Competitive Pricing
2. Cost-Oriented Pricing
3. Flexible or Variable Pricing
4. Penetration or Promotional Pricing
5. Product Line Pricing
6. Relative Pricing
7. Price Skimming
8. Contract Pricing

PRODUCT PRICING STRATEGIES

1. Competitive Pricing

o Common among large companies and aimed at undermining the competition.

o Predatory pricing, where a company sets its price below cost to force competitors
out of the market, is a typical competitive pricing strategy.

2. Cost-Oriented Pricing

o The most straightforward strategy.

o Based on production costs plus a mark-up.

3. Flexible or Variable Pricing

 o Setting a range of prices for the product.
o Common when individual bargaining takes place.
o Prices may vary depending on the individual buyer, time of year, or time of day.

4. Penetration or Promotional Pricing

o Initially setting the product price below the intended long-term price to help
secure the market.

5. Product Line Pricing

o Setting a limited range of prices for all products in a line.

o One product line may be promoted and priced as "affordable" while another may
be a premium line with higher prices.

6. Relative Pricing

o Setting the price above, below, or at the prevailing market price.

7. Price Skimming

o Setting a high market-entry price to recover costs quickly before lowering the
price to the long-term price.
o This is used when there are few or no competitors.

8. Contract Pricing

o Arrangements between the buyer and the seller made in advance that usually
include the price, payment conditions, and shipping arrangements.

Common Pricing Mistakes:

1. Pricing too high relative to customers' existing value perceptions.

2. Failing to adjust prices from one area to another based on fluctuating costs and the
customer's willingness and ability to pay.
3. Attempting to compete on price alone.
4. Setting prices too low with the intention of raising them later.
5. Discounting prices.