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Chapter Three
Marketing Opportunity Analysis
Opening Case: Colorado Ricardo Mountain Bikes
Colorado Ricardo Mountain Bikes was founded by Ricardo Francisco in 1992. He was a keen
cyclist who spent his weekends with many friends cycling and having fun in the mountains of
Colorado. He was very competitive and loved to take his bike off-road to test his strength and
endurance.
Ricardo’s company needs strategies for growth before it is too late. Use Ansoff’s matrix to
examine the options for Colorado Ricardo.
However he found that the bikes themselves kept on breaking-down under the strain. So
Ricardo designed and built a number of bikes to overcome this problem. Many failed but
eventually he came up with the ultimate in off-road bike, which he called the ‘Colorado
Ricardo’. People liked Ricardo’s bike and he was asked to build and sell them to other cyclists
in the Colorado region. It went so well that soon he was able to give up his own job as a DJ to
focus on the construction of the bikes.
As the mountain bike sport took off, Ricardo’s business grew to produce 10,000 units in 1996.
However sales have fallen annually since then and forecasted sales for 2000 are only 4,000
units.
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Department of Marketing Management Ibrahim F.
St. Mary’s University Strategic Marketing Management
Opportunity analysis is the process of defining the exact nature of the opportunities available in
an organization’s operating environment in terms of external, financial, and internal
considerations.
Opportunity analysis is a comprehensive analysis of all aspects of an alternative before decisions
are made to pursue that alternative. The results of such an analysis put the decision maker in a
position of having a strong data base from which to choose among the various alternatives
present in the environment in line with financial and internal considerations that are specified by
management.
Figure 3.1 Opportunity Assessment Process
The analysis begins with a detailed study of the environment in which the proposed business
would operate. This includes not only the legal, political, economic, social, cultural, and
technological environment, but also market size, growth trends, and consumers’ attitudes and
behavior. It also involves a study of current and potential competitors who may be going after
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St. Mary’s University Strategic Marketing Management
the same customers you propose to attract. These factors are external to the organization or
person contemplating the new venture and therefore a great deal of diligence is required for a
thorough analysis of these factors. This usually involves a substantial commitment of time and
money to collect the information used in the analysis.
If these analyses indicate that these factors are favorable to the potential business, then an
analysis of the financial implications of the opportunity should be undertaken. The financial
analysis is the key to determining the potential profitability of the business and the expected
return on investment the results of this analysis provide the information which can be used to
attract investors and/or lenders who may be approached to obtain capital for the venture.
The final area of analysis involves a study of internal factors which affect the decision to pursue
a given opportunity. The organization or individual’s purpose, objective, and resources must be
analyzed in relation to the proposed opportunity. An opportunity, even a potentially profitable
one, may not “fit” with the purpose, the objectives, or the resources of the organization. Such
opportunities are foregone for others that do “fit.”
As the diagram emphasizes, a thorough study of the opportunity is completed before a decision is
made to pursue it. Rushing into a decision without the type of analysis increases the chances of
failure. While failures cannot be completely eliminated because of unforeseen circumstances, the
chance of success can be greatly enhanced by thoroughly assessing the opportunities before
commitments are made. An article in changing times dealing with factors that lead to failure
listed “guessing instead of digging” as the number one way to scuttle a new business.
3.1 Identifying Attractive Markets
The most successful organizations maximize opportunities by identifying attractive markets and
developing the organizational strengths required to appeal to those markets.
Four types of opportunities can be distinguished:
➢ Build opportunities are those present activities that warrant more investment because they
improve audience interest and/or size, attract more funds, and so on.
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St. Mary’s University Strategic Marketing Management
➢ Hold opportunities are those that warrant maintaining the present level of investment.
Although full-subscription purchases and renewals have slackened in recent years,
organizations are maintaining their subscription efforts at present levels while offering
new, smaller packages to encourage frequent attendance and loyalty to the organization.
➢ Harvest and divest opportunities are activities that should be reduced or dropped in order
to free up resources that can be better used elsewhere.
➢ New product opportunities are programs or services that might well be added to the
organization’s current offerings, such as Rush Hour and Saturday afternoon casual
concerts, singles nights, and other events planned for special interest groups.
These opportunities should be classified according to their attractiveness and their probable
success. Market attractiveness is made up of factors such as those listed here.
➢ Market size: large markets are more attractive than small markets.
➢ Market growth rate: high growth markets are more attractive than low growth markets
➢ Surplus building: larger surplus-building programs are preferred to lower surplus-
building programs. An organization may wish to present programs that are widely
attractive to help subsidize its artistically driven programs that have narrower appeal.
➢ Competitive intensity: markets with fewer or weaker competitors are more attractive than
markets that include many or strong competitors. This does not mean that weak
competition justifies entry; the market must also be attractive on other grounds.
➢ Cyclicality: cyclically stable art forms and art organizations enjoy relatively consistent
levels of demand over long periods of time. Unstable art forms go through periods of
high and low attendance, reflecting change in demand. The most unstable markets attract
quick and broad attention but peak early and decline rapidly.
➢ Seasonality: seasonality provides opportunities for special programming; on the other
hand, it may lead to uneven attendance and cash flow.
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➢ Scale economies: programs for which unit costs fall with large-volume production and
marketing or that build on previous efforts are more attractive than constant-cost
programs.
➢ Learning economies: programs that get better or more efficient with each performance or
new startup are more attractive.
Opportunities can also be identified through the use of a product/market opportunity analysis. An
organization may look at its present offerings in terms of building on what already exists, making
modifications to current offerings, or developing entirely new products. Markets may be
analyzed in the same way: building current markets that have potential for growth, modifying
current markets, or developing new markets.
Market penetration consists of broadening the organization’s infiltration (gradually enter or gain
access) of current markets with current products. This is often the easiest strategy; it requires the
fewest changes. This strategy is most workable when there is significant room for growth in
currently sizable markets with existing offerings. Offering better programs and increasing
advertising and promotion to the target market will help the organization deepen its market
penetration. For example, a chamber music group gave four free tickets to each board member
and encouraged them to introduce their friends and business associates to the organization. The
promotion included a post-performance reception with the artists to build involvement and
enthusiasm.
3.2 Industry Analysis and Competitive Advantage
Competitor analysis is a big topic and has an important role to play at the level of corporate
strategy as well as in the marketing strategy process. In the context of developing a marketing
strategy, there are particular areas of competitor analysis to be considered. The specific questions
which competitor analysis must answer at this market specific level are:
➢ What does the customer buy when he/she does not buy my product?
➢ What is his/her perception of these alternatives and how does it compare with his
perception of my product?
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➢ What do I know or what can I infer about my competitors' strategies in relation to their
products?
In answering the first question, it may help to consider at what level does the competition pose a
threat in this market? There are a number of different possible levels of competition:
➢ Budget level. The customer is choosing between spending his/her budget in two
completely different ways, to meet completely different needs. To use an example from
the regional newspaper industry: does the customer buy the local paper or a bar of
chocolate?
➢ Generic competition. The competitive product delivers the same benefit but in a
different way: instead of buying the local paper, the customer listens to local radio.
➢ Product category competition. Here the customer may choose between different
product categories within the same industry: the customer buys a national daily
newspaper instead of the local one, or reads the free local paper delivered through his
door, instead going out and buying one.
➢ Brand competition. This is the most direct form of competition: does the customer buy
one local title or the other?
Organisation's will often be aware of direct brand competition, but less knowledgeable about the
encroaching threat of competition at a lower level. The level at which the competitive threat is
the strongest will obviously have serious implications for the organisation's strategic priorities.
The second question relates more to the positioning of competitive products in the mind of the
customer. The use of perceptual maps may help. Perceptual maps use the results of market
research to map consumers' perceptions of competing brands in relation to attributes they
consider important in determining value.
They are a useful tool in determining strategies, because marketers can see the major threats to
their brand as well as the different directions in which they could move. Perceptual maps are
discussed in more detail in David Arnold's book, The Handbook of Brand Management (1992)
Century Business, pp.84 ff.
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St. Mary’s University Strategic Marketing Management
The third question requires some thinking around the role of the particular competitive product
in the competitor's portfolio as a whole. Portfolio management tools such as the Boston
Consulting Group Matrix or the Directional Policy Matrix will probably be useful here.
They are described briefly below.
Figure 3.2 the product portfolio matrix
The Directional Policy Matrix is also a two dimensional model but incorporates a number of
different elements into each dimension. It is therefore more complex and also more subjective
than the BCG model. (See Fig.3.2) It can be used to plot brands, products, geographical areas or
market segments and helps managers to think through their strategy for each element in the
company's portfolio (or to make assumptions about their competitors' likely strategy). The size of
each circle drawn on the matrix may represent size of turnover or, if known, profit margin.
Figure 3.3 the directional policy matrix
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© Adapted from Abell, Derek F. & Hammond, John S. (1979) Strategic Market Planning:
Problems and Analytical Approaches, p213. Reprinted with permission of Prentice Hall Inc.
The two axes of this matrix are market attractiveness and relative strength versus the
competition. Clearly, an organisation will aim to have as many products as possible in the top
left hand corner, i.e. in a strong competitive position in an attractive market. It will almost
certainly have other products in the middle of the matrix (in an attractive market but in a
relatively weak competitive position) and even in the right hand corner (a weak product in an
unattractive market).
Looking at the portfolio in this way will help with deciding priorities and allocating resources.
For example, how much will it cost to keep a product in the top right position? What other
products may threaten it? If a product is in the top middle square, what resources or tactical
moves would it take to shift it over to the right? And for the product in the bottom left – should it
be harvested? Or is it possible to shift it?
Figure 3.4 Igor Ansoff’s Model
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3.3 Market Opportunity Analysis
Opportunities are need to be analyzed and capture in order to make the profits. Changing market
opportunities must be explored and pursued. In order to correctly identify opportunities and
monitor threats, the company must begin with a thorough understanding of the marketing
environment in which the firm operates. The marketing environment consists of all the actors
and forces outside marketing that affect the marketing management’s ability to develop and
maintain successful relationships with its target customers. Though these factors and forces may
vary depending on the specific company and industrial group, they can generally be divided into
broad micro environmental and macro environmental components. For most companies, the
micro environmental components are: the company, suppliers, marketing channel firms
(intermediaries), customer markets, competitors, and publics. The macro environmental
components are thought to be: demographic, economic, natural, technological, political, and
cultural forces. The wise marketing manager knows that he or she cannot always affect
environmental forces. However, smart managers can take a proactive, rather than reactive,
approach to the marketing environment.
As marketing management collects and processes data on these environments, they must be ever
vigilant in their efforts to apply what they learn to developing opportunities and dealing with
threats. Studies have shown that excellent companies not only have a keen sense of customer but
an appreciation of the environmental forces swirling around them. By constantly looking at the
dynamic changes that are occurring in the aforementioned environments, companies are better
prepared to adapt to change, prepare long-range strategy, meet the needs of today’s and
tomorrow’s customers, and compete with the intense competition present in the global
marketplace.
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St. Mary’s University Strategic Marketing Management
Figure 3.5 Market Environment
A. Marketing Information System:
Marketing information is a critical element in effective marketing as a result of the trend toward
global marketing, the transition from buyer needs to buyer wants, and the transition from price to
non-price competition. All firms operate some form of marketing information system, but the
systems vary greatly in their sophistication. In too many cases, information is not available or
comes too late or cannot be trusted. Too many companies are learning that they lack an
appropriate information system, still do not have an information system, lack appropriate
information, or they do not know what information they lack or need to know to compete
effectively.
a. The Marketing Information System
No matter what type of marketing organization we refer to, marketing managers need a great
deal of information to carry out their marketing so as to provide superior value and satisfaction
for customers. However, despite the growing supply of information, managers often lack enough
information of the right kind or have too much information of the wrong kind. To overcome
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these problems, many companies are taking steps to improve their marketing information
systems.
If a marketing organization is to produce superior value and satisfaction for customers,
marketing managers need information at almost every turn. They need information about
customers such as resellers, end-users (who tend to be called consumers), as well as competitors,
governmental and other forces in the marketplace. A marketing information system (MIS)
consists of people, equipment and procedures to gather, sort, analyze, evaluate and distribute
needed, timely and accurate information to marketing decision makers. MIS works in the
following way:
➢ A well-designed marketing information system (MIS) begins and ends with the user. The
MIS first assesses information needs by interviewing marketing managers and surveying
their decision environment to determine what information is desired, needed, and feasible
to offer.
➢ The MIS next develops information and helps managers to use it more effectively.
Internal records provide information on sales, costs, inventories, cash flows, and accounts
receivable and payable. Such data can be obtained quickly and cheaply, but must often be
adapted for marketing decisions.
➢ Marketing intelligence supplies marketing executives with everyday information about
developments in the external marketing environment. Intelligence can be collected from
company employees, customers, suppliers, and resellers; or by monitoring published
reports, conferences, advertisements, competitor actions, and other activities in the
environment. Marketing research involves collecting information relevant to a specific
marketing problem facing the company.
➢ Finally, the marketing information system distributes information gathered from internal
sources, marketing intelligence, and marketing research to the right managers at the right
times. More and more companies are decentralizing their information systems through
networks that allow managers to have direct access to information.
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St. Mary’s University Strategic Marketing Management
Figure 3.6 the Marketing Information System
b. The working of the Marketing Information System:
If a marketing organization is to produce superior value and satisfaction for customers,
marketing managers need information at almost every turn. They need information about
customers such as resellers, end-users (who tend to be called consumers), as well as competitors,
governmental and other forces in the marketplace. A marketing information system (MIS)
consists of people, equipment and procedures to gather, sort, analyze, evaluate and distribute
needed, timely and accurate information to marketing decision makers.
I. Assessing information needs:
Marketing organizations must establish what information is needed or likely to be needed. This
is a key feature of the MIS that underscores the importance of information.
II. Developing information:
Internal Records - provide a wealth of information, which is essentially raw data for decision
making. An effective MIS organizes and summaries balance sheets, orders, schedules,
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shipments, and inventories into trends that can be linked to management decisions on marketing
mix changes.
III. Marketing Intelligence:
Provides the everyday information about environmental variables that managers need as the
implement and adjust marketing plans. Sources for intelligence may vary according to needs but
may include both internal and external sources.
IV. Marketing Research:
Marketing research links the consumer, customer, and public to the marketer through an
exchange of information.
c. Subsystems of Marketing Information System:
A well-designed market information system consists of four subsystems.
➢ The first is the internal records system, which provides current data on sales, costs,
inventories, cash flows, and accounts receivable and payable. Many companies have
developed advanced computer-based internal reports systems to allow for speedier and
more comprehensive information.
➢ The second market information subsystem is the marketing intelligence system,
supplying marketing managers with everyday information about developments in the
external marketing environment. Characterized by the scientific method, creativity,
multiple methodologies, model building, and cost/benefit measures of the value of
information.
➢ The third subsystem, marketing research, involves collecting information that is relevant
to specific marketing problems facing the company. The marketing research process
consists of five steps: defining the problem and research objectives; developing the
research plan; collecting information; analyzing the information; and presenting the
findings.
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St. Mary’s University Strategic Marketing Management
➢ The fourth system is the Marketing Decision Support System (MDSS marketing system)
that consists of statistical and decision tools to assist marketing managers in making
better decisions. MDSS is a coordinated collection of data, systems, tools, and techniques
with supporting software and hardware. Using MDSS software and decision models, the
organization gathers and interprets relevant information from the business and the
environment and turns it into a basis for marketing action. MDSS experts use descriptive
or decision models, and verbal, graphical, or mathematical models, to perform analysis
on a wide variety of marketing problems.
d. Why to acquire information:
Managers mostly want to be able to predict the future for a company and its products. That future
embraces the total market demand and the nature of such demand, the company’s share by brand
and what competitors will be doing. They want this information so they can chart their own
firm’s future and thereby are proactive rather than be forced into reacting to a competitor’s
actions.
1. The firm’s internal record system should be set up in such a way as to easily provide
information in a form the manager can act on. But this is largely historical information
such as sales by account, by territory, by salesperson and so on. Acquiring forward-
looking information is the name of the game. By monitoring the relevant intervening
variables, firms are able to monitor intentions to purchase among many other factors such
as competitor’s activities. Such intervening variables differ by industry sector and
company. For consumer goods companies’ measures of awareness, attitudes toward the
brand, and distribution levels — among others — are indicators of future sales
performance. In the case of industrial companies, relationships between buyers and
sellers are all important. So measures of customer service levels, product performance
measures and acceptability of the technical knowledge of the salespeople will be partial
indicators of whether particular suppliers will be chosen. In both instances, economic
indicators are scanned before companies decide on the level of marketing expenditure.
That is, whether an expanding or contracting local and global economy faces the industry
and firm.
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St. Mary’s University Strategic Marketing Management
2. Well accepted salespeople invariably have stronger relationships with their clients, and
being closer to them, are privy to more information on the buying company’s
performance, expectations of the future and even the views on the supplying companies’
strengths and weaknesses as well as their competitors. Often it is necessary to establish
performance rankings in a formal manner.
3.4 Targeting Attractive Markets
Having evaluated the different segments, any operator can consider five patterns of target market
selection, as shown in the following figure. There patterns are described below.
Figure 3.7 Patterns of Target Market
Single-segment concentration: many operators concentrate on a single segment. Through
concentrated marketing, the firm gains a thorough understanding of the segment’s needs and
achieves a strong market presence. Furthermore, the firm enjoys operating economies by
specializing its production, distribution and promotion; if it attains segment leadership, it can
earn a high return on its investment.
However, concentrated marketing involves higher than normal risks if the segment turns sour
because of changes in buying patterns or new competition. For these reasons, many operators
prefer to operate in more than one segment.
Selective specialization: here, the operator can select a number of segments, each objectively
attractive and appropriate. There may be little or no synergy among the segments, but each
segment promises to be a moneymaker. This multi-segment coverage strategy has the advantage
of diversifying the firm’s risk.
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St. Mary’s University Strategic Marketing Management
Product specialization: another approach is to specialize in making a certain product for several
segments. Through a product specialization strategy, the firm builds a strong reputation in the
specific product area. The downside risk is that the product may be supplanted (replaced).
Market specialization: with market specialization, the firm concentrates on serving several
needs of a particular customer group. An example would be a firm that sells an assortment of
products, including microscopes, oscilloscopes and chemical flasks, only to university
laboratories. The firm gains a strong reputation in serving this customer group and becomes a
channel for further products that customer group could use. The downside risk is that the
customer group may have its budgets cut.
Full market coverage: here, a firm attempts to serve all customer groups with all of the products
they might need. Only very large firms can undertake a full market coverage strategy. Large
firms can cover a whole market in two broad ways: through undifferentiated marketing or
differentiated marketing.
➢ In undifferentiated marketing, the firm ignores market-segment differences and goes after
the whole market with offer.
➢ In undifferentiated marketing, the firm operates in several market segments and designs
different programmes for each segment. Differentiated marketing typically creates more
total sales than undifferentiated marketing.
3.5 Differentiating and Positioning
3.5.1 Differentiation
In marketing, differentiation is the process of distinguishing the differences of a product or
service offereing from others to make it more attractive to a particular target market. This
involves differentiating it from competitors’ products or services as well as from one’s own
product or service offerings.
Differentiation is a source of competitive advantage. Althogh research in a niche market may
result in changing a product or service offering in order to improve differentiation, the changes
themselves are not differentiation. Differentitation is the process of describing the differences
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St. Mary’s University Strategic Marketing Management
between products and services or the resulting list of differences. This is done in order to
demonstrate the unique aspects of a product and to create a sense of value. Any differentiation
must be valued by buyers. The term “unique selling proposition” refers to advertising to
communicate a product’s differentiation.
The major sources of product differentiation are as follows.
➢ Differences in quality, which are usually accompanied by differences in price
➢ Differences in functional features
➢ Ignorance of buyers regarding the esential characteristics and qualities of goods or
services they are purchasing
➢ Sales promotion activities of sellers and, in particular, advertising
➢ Difference in avalebility
Differentiation variables
➢ Form
➢ Features
➢ Performance
➢ Conformance
➢ Durability
➢ Reliability
➢ Reparability
➢ Style
➢ Design
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St. Mary’s University Strategic Marketing Management
Characteristics of Differentiation Strategies
There are a variety of ways to differentiate. Whatever the route, the successful differentiation
strategy should have three characteristics.
➢ Generate customer value
➢ Provide perceived value
➢ Be difficult to copy
Differentiation strategy needs to add value for the customer. A distinction is needed between the
apparent value and the actual [Link] key to a successful differentiation strategy is to develop
the point of differentiation from the customer’s perspective rather than from the perspective of
the business operation. How the point of differentiation affects the customer’s experience of
buying and using the product and does it serve to reduce cost, add performance, or increase
satisfaction are some important aspects to be considered.
Another method for differentiating a product is to employ market research to systematically
understand the customer and to test the ideas and assumptions. One role of market research is to
ensure that the value added justifies the price premium involved. A differentiation strategy is
often associated with higher price, because it usually makes the price less critical to the customer
because differentiation usually costs something. The question is whether that price premium
works in the marketplace. The perceived value problem is particularly acute when the customer
is not capable of evaluating the added value. Consider the airline safety or the skill of a dentist.
The customer is unable to evaluate them without investing significant time and effort. Rather
than expand such effect, the customer looks for the signals such as the appearance of the aircraft
or the professionalism of the dentist’s front office. The task is then to manage the signals or the
cues of value added. User association and endorsements help (product recommendation or
association of professionals).
3.5.2 Positioning
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After selecting target markets, the next step involves developing positioning objectives and then
developing these into a detailed marketing mix. However, developing the positioning objective
needs to be done only after the brand identity and value proposition has been developed with the
help of a successful differentiation strategy. In exploring the idea of positioning, it is useful to
understand Aaker’s definition of positioning as “the part of the brand identity and value
proposition that is to be actively communicated to the target audience and that demonstrates an
advantage over competing brands. Professor Philip Kotler refers to it as the unique selling
proposition. In other words, the positioning statement is the point where the bundles of attributes
join to form one concept that aims at capturing the essence of what the target tourists seek in the
tour package offered.
STRATEGIC PLANNING: KEY TO SUCCESS
Many of the large business combinations of the 1920s did not survive into the 1950s. Some economists
have predicted that between now and the turn of the century, we can expect to see a faltering of many of
our large corporate institutions. There is trouble in Detroit and difficulty with some large equipment
manufacturers and some financial institutions. This trend is likely to continue many of our current
institutions have developed excessive overhead costs, which is a negative development. Strategic
planning development must not lead to a larger and larger number of people creating reports for people
to read. It cannot become an appendage activity that has little direct impact on the actual making of
goods and services. Strategic planning is consistent with decreasing overhead and increasing
productivity. In fact, the lack of strategic orientation is considered by many as the biggest problem
facing industry today. In order to successfully compete, a company must strategically eliminate its high
overhead structure that is characteristic of the end of an economic long wave.
Planning is of the keys to success of any undertaking and nowhere is it more important than in business.
Every study which has dealt with business failures uncovers the same basic problem whether it is called
undercapitalization, poor location, or simply a lack of managerial skills. All of these problems have their
root in poor planning. Strategic planning of operations from a market perspective can become a key to
long-term survival and growth of an organization.
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