Topic 6

Market research and strategy

formulation

Prepared by Thierry Volery

Swiss Institute of Entrepreneurship and Small Business
University of St Gallen
 Chapter outline
• Explain the types of secondary research
sources commonly available
• List some common forms of primary
market research
• Explain the different perspectives on
strategy
• Outline the key steps of strategy
formulation for new business ventures
 Learning objectives
• List the types of secondary information
sources commonly available
• List some common forms of primary
market research
• Explain the different perspectives on
strategy
• List the key steps of strategy formulation
for new business ventures
The role of market research
• One of the most common problems faced
by entrepreneurs is a lack of information
that relates to their business idea
• There is now much evidence to show that
a lack of research is a key inhibitor to new
venture creation
• A lack of effective research can also create
less obvious barriers to business survival
and growth
What is market research?
• Market research refers to the use of
information to identify and define market
opportunities and problems
• It is used to generate, refine and evaluate
marketing-related activities within a small
firm or to help determine future
marketing strategies and sales forecasts
for a new business venture
 What to research?
• One of the first issues to be considered is
exactly what information should be
investigated
• The most conventional framework in
marketing describes the environment of
the entrepreneur in terms of an ‘onion’,
which distinguishes between three
different degrees of interaction:
– the market
– the industry
– the macro-environment
 What to research?
The market
• Consists of the people or firms who could
benefit from the new product, have the
means to buy it and will be offered the
opportunity to do so
• Specific information requirements about
the market include:
– the customer profile(s) and segment(s)
– the product or service
– the price
– sales and distribution channels
 What to research?
The industry

Figure 6.1 Porter’s five forces

 What to research?
The macro environment
• The macro-environment is often not
recognised as a force impinging on
organisations
• These external factors are most often
grouped as the STEP factors
– social
– technological
– economic
– political
 Constraints on research
• Costs- in terms of money, time, personal effort
• Research experience
• Reliability of data – level of confidence in the information
collected.
• Personal prejudices- tendency to seek out self verifying
information, seeking information that proves ones own
bias or claims.
• Uniqueness - new business ideas lack existing research to
help assess its viability.
• Time
Conducting research
• The business researcher has two main
avenues when seeking and collecting
information
– to consult existing sources of data
(secondary information) which will provide a
general picture of the current state of
knowledge about a particular problem
– after this, it may be necessary to investigate
some issues in more detail by undertaking
original research from primary sources
(primary information)
 Secondary data
• Data that has already been collected,
analysed and published by other parties
is broadly defined as secondary data
(sometimes called ‘desk research’); that
is, the reader receives the information
second hand
 Sources of secondary data
• Ppublications
• Reports from private market researchers
• Business directories
• Database vendors
• Government statistics and official reports
• The internet
• Industry associations
 Primary data
• Observation
• Experimentation
• Surveys (telephone, personal, email)
• In-depth interviews
• Focus groups
 Types of primary research
Table 6.3
 Developing a strategy
• Immediate objective of market research is to
determine the feasibility (commercial viability)
of a new start-up business, product offering, or
purchase of a business
• But this information will also help to forecast
likely future events, and will provide the
foundation to develop a strategy for the
business venture
• Strategy matters because of its role in the
direction taken by the firm
Two perspectives on strategy
• A strategy defines the business direction, its
scope, and it will seek competitive advantage
• The strategic fit between the internal aspects of
an organisation and the external environment
determines competitive advantage
• Two dominating perspectives explain how to
achieve a strategic fit:
– the market-led view
– the resource-based view
The resource-based perspective
• This view suggests that the business venture
should assemble and deploy appropriate
resources that provide opportunities for
sustainable competitive advantage
• Competitive advantage is thus created by
distinctive, valuable, firm-specific resources that
competitors are unable to reproduce
The market-led perspective
• Firms gain competitive advantage
through identifying external
opportunities in new and existing
markets and then aligning the firm with
these opportunities
• Competitive changes within an industry
determine which markets the business
venture should enter, stay in, or exit
 The process of strategy
development

Figure 6.2
The market-led perspective
• The essence of strategic planning revolves
around three questions:
– setting objectives ( vission& mission
statement)
• where do you want to go?
– doing a situation analysis (SWOT)
• where you are now?
– selecting a strategy
• how to get there?
Formulating a vision, a mission,
objectives and goals
• Vision: picture of the business’s activities in
three or more years’ time
• Mission: purpose and nature of the business
• Objectives: what the business wants to
achieve in the medium term (growth,
profitability, offerings and markets)
• Goals: SMART (specific, measurable,
achievable, realistic and time-bound)
measurements
 Situation analysis: SWOT

Table 6.4 SWOT analysis matrix

 Selecting a generic strategy
• A new business venture positions itself by
leveraging its strengths.
• According to porter, strengths are divided into
two categories: Cost advantage and
differentiation.
• The application of this strengths result in three
generic strategies:
 Selecting a generic strategy
• Cost leadership. This strategy emphasises efficiency
(high volumes of standardised products or services)

• Differentiation. This strategy involves creating a

product that is perceived as unique

• Focus. This strategy concentrates on a narrow

segment and within that segment it attempts to
achieve either a cost advantage or differentiation
Towards 'blue ocean' strategies
• Contrary to most corporate strategies based on
military models and direct confrontations, ‘blue ocean’
strategies build new business where none existed,
giving innovative entries clear sailing
• The core element of a ‘blue ocean’ strategy is ‘value
innovation’, that is, tangible product advancements
accompanied by demonstrable savings
• A strategy aiming to develop compelling value
innovations that create uncontested market space.
 Towards 'blue ocean' strategies
• The six principles of a ‘blue ocean’ strategy:
[Link] market boundaries
[Link] on the big picture, not the numbers
[Link] beyond existing demand
[Link] the strategic sequence right
[Link] key organisational hurdles
[Link] execution into the strategy
Principles of resource-based
theory
• Resources are necessary to exploit
opportunities and to create
entrepreneurs
• The resource-based theory considers that
firms have different starting points for
resources (called resource heterogeneity)
and that other firms cannot get them
(called resource immobility)
 Principles of resource-based
theory
• In order to be successful, entrepreneurs must
exploit market imperfections based upon
imperfect information or variations in
expectations about prices, while adhering to
the following simple formula:
– buy (or acquire) resources and skills cheaply
– transform the resources into a product or service
(production)
– deploy and implement (strategy)
– sell dearly (value creation)
 Resources types
• Financial resources – money, share etc
• Physical resources – location , equipment etc.
• Human resources
• Technological resources- example patents,
unique software products
• Reputation – people’s perception of the firm
• Organisational resources – firms structure,
routines and systems
Attributes of strategic resources
• Sustainable competitive advantage is
created when firms possess and use
resources that are:
– valuable
– Rare – not widely available to competitors
– non-substitutable
– hard to copy (historical conditions, ambiguous
causes and effects, complex social
relationships)
 Business model
• Business models and strategy are linked
but yet distinct concepts
• A practical distinction describes business
models as a system that shows how the
pieces of a business fit together, while
strategy also includes competition
• Therefore a business model is the
conceptual and architectural
implementation of a business strategy
 The four components
of a business model
• The customer (target customer, distribution
channel, customer relationship)
• The firm (core resources and competencies, key
processes, partner network)
• The value proposition bridges the gap between
the firm and the customer (job to be done and
offering)
• Profit formula (revenue streams, cost structure,
margin model)
 Summary
• Comprehensive market research with both
primary and secondary data creates the
foundation for a successful business venture
• Information gathered from market research
will help guide you in choosing between a
resource-based strategy views or market-led
strategy views
• Blue ocean strategy is a new strategy
approach that deviates from the militaristic
and generic corporate approaches