Tag Archives: market

All Markets Are Not Created Equal– How to Compete: Understand Importance of Target Market (s)…

Targeting a market is a complex process with many variables, and choosing a model for targeting a market is crucial especially in the current global economic environment… But first; What is a Market? According to dictionary; it’s a set-up where two or more parties engage in exchange of goods, services and information… Ideally a market is a place where two or more parties are involved in buying and selling…

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At its core, every market is similar: On one side, there’s a seller (supply), on the other side a buyer (demand). The market acts as an intermediary to bring these two sides together… and, there can be much innovation in– How a market handles these transactions… How it takes care of its sellers and buyers… How it approaches monetization…

According to Khaled Almgren; targeting a market relies on capability of a market to ‘produce’ consumers that are willing to pay for a certain product or service… The factors of size, growth, stability, competition are the market variables that translate into growth. Markets are tough to identify and develop, but once they reach liquidity, they can be even tougher to kill. Perhaps the two most important strategic decisions a business can make is where and how to compete…

Different markets have different winning formulas. In some markets, brand strength may be the best competitive differentiator, in others a low-cost position, and yet others comprehensive product/ service offering or an ability to innovate more quickly than rivals…

In the article How to Identify a Target Market by Katey Ferenzi writes: Clearly defining a target audience (market), and creating a customer profile(s) is an imperative… You must not only determine– why someone would want to buy the product or services, but also who is most likely to buy… Often, its discovered that those who find the product or service appealing share similar characteristics, which will help in fine-tuning business messaging… When you are designing a product or service, one of the many questions ask ed is; Who is this going to appeal to? Who do I want to appeal to the most?

Knowing the target audience (market) determines which marketing tools to use… No business can just put up a marketing campaign and be done with it. It requires a lot of fine-tuning and adjusting and keeping in touch with consumer trends– all to keep adapting to change. Good marketing begins and ends with; Knowing your market… Knowing your customers profile(s)…

There are two basic areas of inquiry when defining customer profile, namely;

  • Demographic will get you started: Knowing– Age, Location, Gender, Income Level, Education Level, Occupation, Ethnic Background…
  • Psychographic will go a little deeper, bringing to light more of your target audience’s psychology: Knowing– Interests, Hobbies, Values, Attitudes, Behaviors, Lifestyle Preferences…

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In the article Factors To Consider When Evaluating a Market by Bill Gurley writes: A true market needs natural pull on both consumer and supplier side of the market. Aggregating suppliers is a necessary, but insufficient step on its own. You must also organically aggregate demand. With each step, it should get easier to acquire incremental consumer and supplier…

Highly liquid markets ‘tip’ towards becoming a clearinghouse where neither the consumer nor the supplier would favor an alternative. That only happens if momentum is increasing, and both consumers and suppliers are sensing an increasing importance of their place in the market…  Here are few factors to consider when evaluating the potential success of a market opportunity:

  • Experience vs. Status Quo: Great companies do not simply aggregate a market; they enhance it. They leverage the connective tissue to offer the consumer a user experience that simply was not possible before the arrival of this new intermediary…
  • Economic Advantages vs. Status Quo: Some markets provide enhanced economic advantages. If you can change the economics of a market, it gives a huge advantage when it comes to tipping a market…
  • Opportunity for Technology to Add Value: In many markets, the technology offering greatly enhances the user experience. Facilitating work-flow through the use of technology reduces work for the customers, and increasing switching costs…
  • Size of the Market Opportunity: A proper TAM (total available market) analysis is imperative, but it is easy to make mistakes looking only at TAM… For some markets it may not matter that the market is large, since an oligopoly of large players may control a massive percentage of the market and is unlikely to support a new entries…
  • Network Effects: Network effects are tricky and hard to describe but fundamentally it turn on the following question: Can a market provide a better experience to customer– ‘n+1000’ than it did to customer ‘n’ directly as a function of adding 1000 more participants to the market? You can pose the question to either side of the network– demand or supply. If the answer is yes,  then it’s magic, and you will get stronger over time…

In the article How To Identify a Market and Size-Up Competitors by Rebecca O. Bagley writes: Several of questions you try to answer are: How big is the overall market? How rapidly is it growing? What segments are most interesting? But it’s also important to distinguish between ‘addressable’ and ‘available’ market. The ‘addressable’ market is total revenue opportunity for a product or service. The ‘available’ market is the portion of the addressable market for which you can realistically compete.

Once you are clear about this distinction you can begin to collect data to size a market… Be aware that collecting information and finding relevant and accurate data can feel a bit like detective work, e.g.:

  • Customer Targeting: The goal is to identify customers that best fit a value proposition and can best influence broader adoption of the product or service… If you determined that the product’s or service’s primary value is, e.g.; technology, cost…then identify customers that prioritize with these values… Also, determine their influence and identify the decision makers… Use websites, personal connections and other tools to find out who they are and target them…
  • Competitive Assessment: Knowing who competes for customers is essential to assessing opportunities and odds for success. By understanding competitors’ value propositions, you can begin to evaluate top competitive threats and determine the availability of the market… Take broad inventory of competitive landscape, determine who are key competitors and identify their customers. Then, map their value propositions along three key dimensions: Cost, Service, Technology… Successful competitive strategies include highly differentiated value propositions tailored to the needs of a specific target market…

Companies often have a clear picture of their internal performance, but often have little visibility into markets, competitors… According to Karl Stark and Bill Stewart; knowing the attractiveness of your market, your competitive position, and a clear understanding of where and how to compete is critical… According to Finn Kelly; Who is your ideal customer? And if you say the target market is ‘everyone’, then you have a difficult task ahead…

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This is a fundamental mistakes that many businesses make. When you define the target audience (market) correctly and precisely, you focus marketing efforts on the people who are most likely to buy your product or service… hence you use valuable resources in the best way to solve that problem. They define an unmet need or under-served market, and offer a clear benefit to potential target customers…

According to Cindy Schulson; ask– what problem is your company trying to solve… people don’t buy a product or service; they buy a solution. Don’t define your business by what you want to sell, but by what target customers (market) want to buy…

Remember, it’s not about you – it’s about customers. Your audience (market) is not who you think they should be, but who they actually are… which may not be the same at all…

Marketing Authorities and Economists Think Differently: How They View– Market Structure Vs. Market Segmentation…

Market structure: Many companies look to market structure and market segmentation to better understand the composition of markets and to identify and profile groups of people (i.e., potential customers) to grow their business… but is  ‘market structure’ the same as ‘market segmentation’ or do they differ?

Market structure is often defined as interconnected characteristics of a market, such as; relative strength of buyers and sellers, degree of collusion, types of competition, differentiation, barriers of entry… Whereas, market segmentation is defined as process of subdividing, targeting a mostly homogenous market into clearly identifiable segments having similar need, want, characteristic, demand… In segmentation the objective is to design a market mix that precisely matches the expectations of the customers…

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According to Jeanne Grunert; economists and marketing people each define the terms a bit differently: Economists look at the overall market structure with the goal of defining and predicting consumer behavior… Whereas, marketing professionals seek to define the market structure to create competitive strategies as part of their overall marketing plan…

Economists examine market structure to help with decision-making and they seek to analyze broad trends in order to better understand consumer motivation… While marketers also look at trends, but they defer in that economists tend to focus more on the big picture… The economist want to know more about how this information affects large segments of various populations. Whereas, marketing is keen to understand the information, but apply it to their company’s specific marketing strategy…

Economist define market structure according to how an industry– that’s serving a market– is organized, and these structures typically include:

  • Monopolistic competition: Type of imperfect competition such that companies sell products, services… that are not identical with each other, but competitive… they are differentiated from each other by branding, pricing, quality… hence, they are not perfect substitutes…
  • Oligopoly: Market is controlled by small number of companies that together have the majority of market share… Duopoly: Special case of oligopoly with only two controlling the market.
  • Monopsony: Only one buyer in a market…
  • Oligopsony: Many sellers but meet only a few buyers…
  • Monopoly: Only one seller of a product, service…  Natural monopoly: Serves the entire market demand, typically at lower cost than any combination of two or smaller, and more specialized companies…
  • Perfect competition: No barriers to entry, an unlimited number of sellers and buyers, and a perfectly elastic demand curve…

Marketing, in contrast, defines market structure a little differently, when they know that an industry is organized as describe as one of the above restructures, i.e.,  oligopoly, perfect competitive… typically they will dig deeper into industry, searching to better understand other factors, such as; nature of competition, vulnerability, customer behavior, price sensitivity… Understanding the market structure and landscape helps marketers develop relevant and effective marketing strategies… Hence, defining a structure from marketing perspective tends to seek answers to questions, such as:

  • What are the key motivational drivers that determine how, why, what… consumers buy?
  • How do product, service… packaging, features, brand, pricing… and other factors play into the consumer decision to buy?
  • What and where are the opportunities for growth in an industry through major innovation?
  • What are the key market differentiators and competitive factors?
  • Where are the key market opportunities, threats, risks?

Defining market structure isn’t always easy. Definitions remain fluid and subject to change even among various functions-groups within a company…  and it’s common that different companies view the same market structure differently… As may be observed, both marketing and economists confuse the terms; segments and structures, so much so that the line between the two is nearly obliterated. You can have a conversation with some of these people and, at the end, not only will you not know what they are talking about, but you feel completely confused about both subjects…

In the article What Can Economics Learn From Marketing Market Structure Analysis?  by Charles Fischer writes: The concept of market structure is central to both economics and marketing. The problem for economists and marketing professionals is that a meaningful operational definition of market structure is elusive… Each discipline takes a different methodological approach toward the definition… and each has its own strengths, limitations.

Economics is concerned with broad socio-economic,  micro-economic issues, e.g., competitive fairness, predatory pricing… Whereas, marketing is more concerned about the managerial aspects of market structure… Although, each discipline touches on the primary domain of the other, the primary distinction between the two is just a matter of relative emphasis… 

In economics, markets are classified according to the structure of the industry serving the market… Industry structure is categorized on the basis of market structure variables which are believed to determine the extent and characteristics of competition… In the traditional framework, these structural variables are distilled into the following taxonomy of market structures:

  • Perfect Competition: Many sellers of a standardized product, service…
  • Monopolistic Competition: Many sellers of a differentiated product, service…
  • Oligopoly: Few sellers of a standardized or differentiated product, service…
  • Monopoly: Single seller of a product, service… for which there is no close substitute…

These four market structures each represent an abstract (generic) characterization of a type of real market… Market structure is very important because it affects business outcome through its impact on the– motivations, opportunities and decisions of economic players participating in the market… A key element of the economic market structure is product substitutability, which is strategically linked to market definition… however, this also complicated by the fact that consumers have their own perceptions of product substitutability…

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In the article Market Structure Analysis by Steven Struhl writes: Some of the confusion surrounding market structures arises from the fact that two contrasting traditions of– marketing and economics– have embraced it… Comparing and contrasting the marketing vs. economic methods are briefly summarized as:

  • Marketing approach: Basic elements– analyze the relationships among– target markets and segmentation, potential customers, competing brands, risks, opportunities, business strengths and weaknesses, pricing strategy…
  • Economic approach: Basic elements– analyze the trends of buyers and sellers, extent to which products, services… are substitutable, analysis of comparative costs, market barriers to entry, extent of mutual interdependence– extent to which buyers and sellers depend on each other…

One important point that the economists have in common with marketers is that they include demand elasticity and cross-demand elasticity (or words meaning the same thing) in market structures. Also, how economists get to their answers is usually very different from marketing practices, for example; economists can do much of their work without ever talking to an actual person, and some even act as if asking people what they do or think is, in fact, superfluous to understanding what is happening in a marketplace.

This may seem slightly ridiculous, but we should remember that these people win ‘Nobel’ prizes, while humble marketers and market researchers do not, but perhaps they are onto something… The basic consideration in market analyses is reaching a definition of exactly what constitutes the market… Traditionally this is done by focusing on these factors:

  • Degree to which products, services… can substitute for each other, based on consumer perceptions…
  • Extent to which products, services… are intended to serve similar purposes…
  • Impact of products, services… on each other and as measured by elasticity of demand and its effects on each other, as well as cross-elasticity

In typical marketing approaches, it always start with the consumers… but, to reach an overall market structure, the needs of each consumer must be aggregated… This is an aggregated list of each consumer’s– behaviors, perceptions… The  two main aggregation methods are:

  • Behavioral aggregation; (linked to studying market impact)…
  • Subjective aggregation; (linked to the extent to which products, services… can substitute for each other, ratings, opinions, and perceptions)…

Aggregation is problematic: One question often asked is– what happens when aggregation consists of many idiosyncratic consumer opinions; in other words, how do you meaningfully aggregate all the individual consumer choices or opinions when these often reflect great diversity?  Since most marketing authorities do not consider market structures to be the same as market segments, hence finding segments almost always is taken to mean looking for groups that fit these following criteria:

  • Defined product, service… related needs different from those of all other groups…
  • Characterized or identified specific customer– needs, wants…
  • Reachable selectively (or targeted) through communications and marketing efforts…

Different segments of a market, may structure a market differently, since their needs are different… A clear understanding of a market’s structure and segmentation is paramount to understanding it’s– needs, buying processes, preferences, value perceptions, revenue potential… but then, as important, translating these insights into an actionable strategy is precursor to developing a successful business…

Frontier Markets– Moving Beyond Emerging, BRICs, Developed Countries: Unpredictable, Volatile, Risky, Irresistible

Frontier markets are underdeveloped emerging markets in nations with economies lagging behind the industrialized world, but showing potential for future development… Countries around the world are broadly classified into various categories based on their economic development. These categorizations are based on a number of criteria ranging from per capita income to life expectancy and literacy rates…

According to Justin Kuepper; there are many different measures of development used by a wide variety of institutions. For instance, the United Nations has few conventions for distinguishing between developed and developing countries, while the World Bank makes specific distinctions using gross national income (GNI) per capita, though other analytical tools may also be used.

In general, the International Monetary Fund’s (IMF) definition may be the most complete, taking into account per capita income, export diversification, and the degree of integration into the global financial system. In 2011, the IMF published a research report on the topic of classification called Classification of Countries Based on Their Level of Development... As a hard example, the World Bank considers countries with per capita income of less than US$12,275 as developing countries…

Different organizations use different measures to determine how countries are classified, but there are a few common denominators in the mix. For example, the so-called BRICs are generally considered developing countries and include; Brazil, Russia, India, China, and South Africa, but other commonly considered developing countries go far beyond the BRICs: Some of these countries are: Argentina, Chile, Malaysia, Mexico, Pakistan, Philippines, South Africa, Thailand, Turkey, Ukraine. Frontier markets are considered a type of emerging market but are considered less prominent or important than BRICs markets…

The concept of frontier markets was developed by the International Finance Corporation (IFC) in the 1990s to describe a specific subset within the larger group of emerging markets. Emerging markets in general are economies in the process of developing rapidly and showing explosive potential for growth…

Within the emerging markets around the world, small markets with poor liquidity and low market capitalization are considered frontier markets… The implication of a country being labeled as frontier is that, over time, the market will become more liquid and exhibit similar risk-return characteristics as the larger, more liquid developed emerging markets…

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Emerging and Growth-Leading Economies (EAGLE) is a grouping of key emerging markets that include: Brazil, China, Egypt, India, Indonesia, South Korea, Mexico, Russia, Taiwan, Turkey. The EAGLE economies are expected to lead global growth in the next 10 years, and to provide important opportunities for business. EAGLE is a grouping acronym created in 2010 by BBVA Research to identify all emerging economies, whose expected contribution to world economic growth in the next ten years is expected to be larger than the average of the G6 economies (i.e., France, West Germany, Italy, Japan, UK, Canada).

This is a dynamic concept where country members can change, over time, according to their forecasted performance relative to developed economies. Over the years there have been several attempts to try to implement the economic concept that will best reflect the potential of emerging markets in the coming years. After BRIC concept was coined by Goldman Sachs in 2001, there were other endeavors to find the best grouping acronym such as: CIVETS, Next Eleven, 7% Club, EAGLE…

In addition, as part of the EAGLE proposal, they identified the EAGLE’s Nest as a second set of countries with expected incremental GDP in the next decade to be lower than the average of the G6 economies but higher than the G6 minimum… The membership of the EAGLE’s Nest is subject to a yearly revision and can change according to forecasted economic performances, currently the EAGLE’s Nest countries includes: Argentina, Bangladesh, Chile, Colombia, Egypt, Malaysia, Nigeria, Pakistan, Peru, Philippines, Poland, South Africa, Thailand, Ukraine, Vietnam…frontier spring09_frontiermarkets_figure1

In the article Frontier Emerging Markets by Ed Marsh writes: Basing future business expectations on past success is indeed a very risky proposition, particularly as market conditions change quickly and the economic center of mass shifts from developed markets to emerging markets… Perhaps a dose of emerging markets, carefully selected and strategically engaged with risks mitigated really should be part of your business plan… And, before you say– sure, but we must stay focused– here’s a point to ponder: On what are you focused? Strategic growth or simply myopic execution of the domestic strategy that you have convinced yourself that it’s been masterfully crafted…The point is; do it right–don’t just do it…

In 2011 a growing number of business people tried to distinguish between the old emerging markets and new emerging markets, and asked themselves; which are the real emerging markets? Where they the old ones, the group that Goldman Sachs dubbed the BRICs, but they are  now suffering from the law of diminishing returns… So then why not look elsewhere, such as; new emerging markets? These come in two varieties: overlooked countries that can rival the BRICs in terms of prosperity, as well as, the frontier countries that are only just beginning to emerge from their chrysalis.

Frontier markets are by their very nature unpredictable… but they present numerous things that are irresistible to the West’s growth-starved companies, for example; they offer huge opportunities for investment in infrastructure… Africa contains a disproportionate share of the world’s mineral wealth at a time when mineral prices are soaring…

True, the growth is volatile, but an increasing number of companies, looking at the West’s flat markets, will decide if that volatility is at least a sign of life. Above all, the overlooked and frontier markets offer businesses a chance to get in on the ground floor.

Companies that move first will enjoy lots of advantages: They will be able to forge deals with aggressive young companies, strike infrastructure deals with local governments, and  shape the tastes of future consumers… Companies that succeed in these neglected emerging markets are not only putting down roots in the world’s most fertile soil. They are giving themselves a chance to establish business habits for years to come…

In the article The Frontier Beyond BRIC by Richard Rittorno writes: The Report Global Growth Generators: Moving Beyond Emerging Markets and BRIC by Willem Buiter and Ebrahim Rahbari begins with the statement: We expect strong growth in the world economy until 2050. Now when I read this statement– I couldn’t stop scratching my head. It’s so difficult for economists to guess what is going to happen next year in U.S., let alone in 2050 in undeveloped markets…

The report predicts frontier markets growth to average 4.6% annually for the next 17 years, then drop to 3.8% for following 20 years afterwards in an explosion of the developing economy. The report goes on to say eleven economies are currently set to see the strongest of the growth rates. Five of the countries named are classified as emerging markets by the research firm MSCI: China, Egypt, India, Indonesia, and Philippines.

The other six countries are found on the MSCI list for frontier markets: Bangladesh, Iraq, Mongolia, Nigeria, Sri Lanka, and Vietnam. All six of these countries are politically unstable with mismanaged economic policies causing widespread poverty; not to mention that most are considered hotspots with little to no education systems established. However, the authors of the report see something in these countries in the long-term.

My initial reaction is if one or two of these countries truly take their places on the world stage, it would put more pressure on natural resources already running in high global demand with limited quantities, such as; crude oil, fresh water… Granted, frontier countries may only have room to move upwards, but caution is strongly advised. History has taught us that emerging markets may have a lot of room to improve, but they do not always match expectations or the same in return on investment (ROI)…

The term frontier markets may be ubiquitous, but its criteria are not very well-defined. As a result, there are many different lists of frontier markets that are put together by various organizations. The most common lists used by investors are those assembled by the FTSE, MSCI, and S&P, which vary in number from 25 countries to more than 30 countries.

The common countries between these lists in 2010 included: Argentina, Bahrain, Bangladesh, Bulgaria, Croatia, Estonia, Jordan, Kenya, Lithuania, Mauritius, Nigeria, Oman, Qatar, Romania, Slovenia, Sri Lanka, Tunisia, and Vietnam. However, it’s important to note that the list of these countries is subject to regular change as economic and political climates change.

Frontier markets are rarely stable, and the very notions of frontier– appeals to  much of the inherent human desires to– push ahead, explore and discover new things. In human history, important discoveries  are mostly about physical boundaries– conquered by explorers, or knowledge boundaries– overcome by scientists; so it’s the same with expansion in business markets…

Frontier markets are constantly in a state of flux; such that, as little-known opportunities in countries, technologies, industries are uncovered they evolve into established business markets and assets with measurable properties. In these cases; the risk, return and correlated properties are central to the management of business investment…

Frontier markets are dynamic: As countries grow and mature they evolve along different paths, and they either, move-up (or -down) the risk-return market development categories; while other newer countries emerge to take their place at the frontier market level…

The phenomenon of globalization has resulted in a broad-deep pool of business opportunities, and the increased importance of these countries as measured by a number of macro-economic indicators necessitates their consideration as important additions for serious business considerations and market investments…