FW1 - Mental Imagery
FW14-THE SUPPLIER ANALYSIS
Look at the map
261 days before opening.
The supplier analysis describes your competitors on the market and allow you to define a positioning.
External readings: 4 hours
Do it yourself: 10 hours
Total: 15 hours
Our objectives are to give you the fundamental notions about:
-Product life cycle
-Perceptual mapping and positioning.
By the end , you will be able to fix your own positioning on your market segment regarding to the existing competition.
1-PRODUCT LIFE CYCLE
You have a segment for your product. Right now, you must evaluate how your segment is evolving.
-Definition: The product life cycle describes the different phases of a segment with regard of the product: introduction of the product, growth of its segment, maturity, decline.
In some books, the product life cycle means the time taken by a material to disappear. For example, it takes hundred years to have the plastic dissolved in the sea. It would be better, in this case to say" the product life pollution".
Sometimes, it means also the manufacturing process of a product: It begins with raw materials, manufacturing process, packaging, shipping , selling and so on. In this case it would be better to call it "the manufacturing process".
Finally, some authors confuse the product life cycle with the starting process of a business: idea, project, marketing, business plan, fundraising and start up. In this case it would be better to call it" the project life cycle"
A product life cycle evolves according to the following curve:
Curve analysis: This curve is quite meaningful because according to the phase, the number of expected prospects are not the same and their psychological characteristics strongly differ from one phase to another. On the other hand, you do not find the same competition according to the different phases.
- Situation A : It means that you are entering a new market. Obviously, it will be the case if your product is an invention. Anyway, among your estimated number of prospect only a few will be interested by a new product: The innovators. So you have to focus on the people who enjoy novelty and progress. It is an important point because it would help you to target effectively your advertisement.
In situation A, sales are low and you risk to endure negative cash flow. Think about it in building your financial plan! What is more, you do not know exactly when the sales are going to rise: Many products remain in their introductory phase, do not win market acceptance and are failure. It means that entering the market during the introductory phase is always a serious stake.
- Situation B : The product is winning a market acceptance: Early adopters join the first innovators and sales are growing fast. When you enter during this phase, you get a better overview of the situation but unfortunately, you are no longer alone. There are already many competitors on the segment and they will try to put barriers to your entry. Nevertheless, as the flow of customers is rising, most of your sales can come from new prospects. It means that promotion and advertisement are quite important.
- Situation C : There is right now a big flow of customers and you cannot expect that their number will rise significantly in the next future. The product is well known and the psychological features of the customers do not matter very much.
When you enter during this phase, you can only expect to get a share of the existing market. You have to win the customers and you can't expect new one because there is a maturity market. Moreover, there is a well established competition with some powerful leaders. Of course, you have to differentiate your product (quality, service, packaging) but the competitors have not been waiting you to do the same improvements.
Nevertheless, you get a joker. The well established corporate's have certainly going fat: Too much staff, bureaucracy, and consequently they have certainly high cost and low margins. In such a situation, you could enter the market with a cost strategy and low selling prices. Thanks to a mass advertisement, you should by this way get a significant market share: Be an agile wolf among too much well fed dogs!
- Situation D: The market is declining because there are new alternatives to the product and simpler because fads are changing. The competitors are leaving the market and it is easier to get a vanishing market share. With further time, you will look like the unique saloon in some deserted mining town. It can be a comfortable rent for some years but do not expect to make big money!
You can understand why it is so important to determine the present phase of the market: Is it a growth market or a maturity market ? Right now you just know the size of the market ( the number of fun board sold in Arizona by 2002). How could you determine in what phase you are?
First look at the data of the US population, Arizona population, and sport articles sales in US. Calculate as above the volume of sales in Arizona by 1997, 1998,1999, 2000, 2001. Calculate the increase in growth for each year: May be you get 20%, 15%, 14%, 13%, 13% again. Compare these results with your typical product life curve: Clearly it means that you are entering in the maturity phase. So you cannot expect a big rise of sport articles in the next future.
Now, visit again your three big retailers and just ask them the following question: For $10,000 sales, what was the percentage of fun board five years ago. How do you expect it will be in the future years? Dot not go beyond five years in the future because as Keynes said we all shall be dead in the long term and do not go beyond five years in the past because the universal history is not your real matter!
Then collect information's from your retailer about the average price of a fun board in the past years and make the calculations of the number of fun board sold in arizona fives years ago and the number expected in the future years. Establish the curve and compare it with the global sport article curve. Maybe it is the same. Maybe it looks quite different. Anyway you have a rough idea about the phase of your segment market.
You know the size and the evolution of your market segment. Now you have to identify your competitors on the segment.
-Definition: A competitive analysis is a program for gathering and analyzing information about your competitors, their strengths and weaknesses.
Let's us go on with our fun board example. Our segment market is defined and we observe some competitors already present in our segment. Clearly, they target the same customer profile as we are going to do. Firstly, among many competitors, we have to identify the market leaders who dominate the segment. May be they represent 80% of the total sales. So it's worth to focus on them.
Suppose you list five leaders: Skyboard, Sunboard, Seaboard, Maxboard and Kboard. We shall now examine their products, evaluate their market share through their turnover, and investigate about their organization.
There are many criteria to define a product: Price, durability, appearance, cost maintenance, service, packaging and so on. You should need a computer program or the costly help of a consulting firm to deal with so much criteria. As you are a starting business, we recommend to focus only on two criteria: Price and quality. Of course, one could be said that quality depends on many sub criteria but every people, thanks to intuition, knows exactly what he means when he is saying that a product offers a good or a bad quality!
Then, you examine the products in the shops, you collect the prices and you rate each competitor from 1 to 4:
Price: 4= very low price, 3= low price, 2= high price, 1= very high price
Quality: 4= very good, 3= good, 2= bad, 1= very bad.
Then you add the two notes and the sum gives you the global quality/price criteria. In a world of utopia, some product could get 8 that is to say the better quality and the lower price. In a perfect economical world, all the products would get the same note 5, because the higher price ( 1) should correspond to the greater quality (4) and inversely. In fact, you will certainly observe some important distortions:
Companies------- Price------- Quality------- Total
Skyboard :--------- 3 ----------3-------------6
As you can see Maxboard offer the best quality at a very low price. We could expect that it is the star of this market! In fact, things are more complicated.
Suppose that the total market amounts for $10 millions. Our five leaders make 80% of the sales, that is to say $8millions. How does it split between our competitors?
Keyboard: $4 millions, Skyboard: $2 millions, Maxboard: $1 million, Seabord: $0,7 million, Sunboard: $0,3 million.
Firstly, we can observe that despite their low prices, Seaboard and Sunboard offer poor results. It means that the consumer is seeking for the quality. If you practice a low cost policy with a bad quality, you will not have any chance to get a share in this market.
Secondly, what's happening with Maxboard? It gets the best note and however he arrives only in the third position far behind Keyboard. Inversely, Keyboard who had a bad note because of its very high price appears to be the leader running far ahead. Certainly, we should rather take a look about their organizations.
Organization means how marketing, sales force, distribution channels, advertisement, are used for the customer benefit.
In this case, you will observe that Maxboard is led by some out dated family group deprived of any dynamism. Its sale force is not motivated: The salesmen enjoy in making jokes in the saloons rather than prospecting the customers!
On the contrary, the CEO of Keyboard is a brilliant young man. Sport like, he prospects his customer leaders on the gulf green. He has developed a fashionable image linked to sea adventures. No matter the price, the customers prefer Keyboard!
We can resume this analysis. You have to take notice of price and quality but you must also focus on your competitor organization.
Real life example:
The french TGV offers one of the best quality in the world (speed and safety). The cost of a travel ticket is quite low and then the ratio price /quality appears to be very good.
Nevertheless many consumers have better to take their own car. The reason relies on the fact that the staff is too often on strikes. It means that a bad organization can destroy the best product.
In addition, you could read a paper dedicated to the competitive analysis applied to non profit organizations. Some features are also good for starting business. Click on: www.allianceonline.org . Then clicks on "FAQS", Then on "strategic planning" and finally on "How can we do a competitive analysis"
In real situation, the competitive analysis provides with many data and it can be difficult to summarize them. The perceptual mapping is a technique which allows us to represent these data on a map. It provides with a visual representation of the major relationship among different subjects.
It's worth to underline the adjective "perceptual". It means that the map represents the perception the customer has of the different products. It is a mind map and not a geographical map!
In our example, we can portray our different corporate's on the map just like the consumers probably are perceiving them:
A map can convey a big amount of information's in a single picture: For example, we see that keyboard and Maxboard are perceived as similar regarding the quality by the consumer. Nevertheless, the length of each arrow and its magnitude shows that keybord has a strong advantage.
Besides, skyboard is perceived as the better priced. It looks astonishing because its price is higher than Sunboard and Seaboard. It means that the "better price" is perceived by comparing with Keyboard and Maxboard. The two others brands, because their low quality, are simply quite disqualified.
It means that the competitive analysis is not sufficient to establish a map. You have to know, how the consumers really perceive the product. The only way to know that is in realizing some questionnaire. At first glance, and to save money, you can just ask some questions to the retailers.
Perceptual maps are good for:
-Identifying a possible opportunity represented by a vacuum where no competitor exists on the perceptual map. For example, a product offering high quality and a lower price than Keyboard, could occupy a place in the perceptual map of the consumers.
-Determining the competitors ( or the products) which are the closest to your project. In this case, it would be Maxboard and Skyboard.
-Showing by mean of symbols the strengths and weaknesses relative to the main competitors. Obviously, Maxboard is not a real challenger but you have certainly to make a close examination about Skyboard organization.
To see another example of mapping, click on www.sdrnet.com and then on "analytical services", then on "product service/positioning" and finally on "SDR product/service positioning".
You have presently all the information's and time is coming to position your business with regard of your competitors.
-Definition: Positioning is to choose the place your product will occupy in the consumer mind. Effective positioning puts your product first in line in the minds of customers.
Do not confuse the market positioning with the global positioning system! The place of your product is not a space spot but a mental place in the consumer mind. It means: How would you like to be perceived by the customer with regard of your price, quality and organization.
-SWOT: To make a good positioning , you have to realize a SWOT analysis: It means strengths/weaknesses/opportunities/threats. In fact you have just to repeat the same analysis that you have already done above with your competitors. Once again, you rate your previous price, the quality you will offer, and your future organization. You compare these notes with your competitors and then you can identify your strengths and your weaknesses. You can complete is with a PESTEL analysis.
-PESTEL: It means: Political factors, Economic factors, Social factors, Technological factors, Environmental factors, Legal factors. For each set of factors, you need to evaluate what is the situation and what developments are likely to take place in the next future.
Political factors are important in international trade. Economics factors such as growth or recession have an influence on a start up and notably the bank rate as we have seen in economics. Social factors as demographic changes could affect your business. Today, environment is going to be more and more important and "green products" get a competitive advantage, especially among the youth. Finally, the changes expected in legal factors such as taxes, and labor laws must be also underlined.
It is important to be as objective as possible and to keep the customer point of view. Maybe, you are thinking that the weight of your fun board is a guarantee of duration, but it may be more important for the customer that the board should be light, especially if teenagers are supposed to use it.
Then, you report all these data on the perceptual map. It's the same that above but right now you are also in the map. Maybe, you will observe that regarding your notes, your previous positioning is not good. Maybe, you will also take notice of a potential positioning opportunity. Unfortunately, regarding your notes you are far to join this ideal position. What could you do?
-Choice modeling: You have just to determine what you can improve and the choice modeling technique could help you. Knowing how consumers choose a product, you introduce, step by step, little change to your product ( price, quality, distribution) and you examine the effect this changes have on the perceptual map. Do these changes improve the desirability of the product? Are you going closer to the ideal position or are you going back? For example, in our fun board example, it's not a good idea to lower the price. May be it would be better to rise the price and to recruit a famous sailor to advertise the product!
Once again, you are the only person able to perform these studies with respect of your real project. I guess that you are quite impatient to do it!
The product life cycle describes the different phases of a segment.
According to the phase, the competitive analysis shows the situation on your competitors on the segment, mainly with respect of price and quality criteria.
The perceptual mapping pictures show how the consumers perceive the competition.
The SWOT analysis and the choice modeling enable you to simulate the best positioning for your product in the customer mind.
DO IT YOURSELF
1-You have to establish for your own biz:
-The product life cycle.
-The competitive analysis
-The perceptual map with your positioning
You have just to follow the logical process described by the lesson.
2-Put this analysis in your business plan.
Open the plan ware folders and put your analysis under the chapter "suppliers and competitive analysis"
Of course, all these documents must be justified with commentary twice longer than the present lesson. Enjoy it. You will see that it's very exciting! Good luck.
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