Chapter 6 03 15 2014 Analyzing the Industry and Market Industry A grouping of similar businesses that interact in a common environment Market A grouping of customers that an entrepreneur targets Primary Customer Represents that segment of the marketplace that needs the product or service most How much do industry companies spend on research and development An Overview of Industry Analysis How is the industry described Is the industry growing Where are the opportunities What is the status of any new technology Who are the opinion leaders in the industry Are there young successful firms in the industry What does the future look like Are there any threats to the industry What are the typical margins in the industry Table 6 1 Resources for Industry Analysis Other Resources Industry observers The general business press Trade associations and their journals Government statistics Department of Commerce Suppliers and Distributors Customers Employees of key firms in the industry Professionals like accountants and attorneys who regularly work with particular industry Trade shows Porter s Five Forces Model entrepreneur Barriers to entry if high they may present a significant challenge to the Economies of scale hard for a new venture to achieve Brand loyalty not easy to get loyal customers to switch Capital requirements R D or plant and equipment Switching costs for the buyer time and effort to switch starting over the learning process with a new company Access to distribution channels Example Will retailers sell your Proprietary factors Example Must stick with a supplier who holds the patent to make the product you need Government regulations licensing of airwaves zoning FDA product approval Threats from substitute products Products services which accomplish the same function in a different way or at a different price Bowling alleys compete with miniature golf courses Threats from buyers bargaining power The more large buyers understand the nature of the industry and the more products are standardized the greater the likelihood that these buyers will have significant bargaining power WalMart Threats from suppliers bargaining power If the number of these suppliers is few relative to the size of the industry or the industry is not the primary customer of the suppliers the suppliers potential power to raise prices or change the product quality of goods services supplied to manufacturers and distributors is greater Intel Competitive rivalry among existing firms In general a highly competitive industry will drive down profits and ultimately the rate of return on investment Cell phone service providers Characterizing the Target Market Key questions to answer What are the potential markets for the product or service Of these potential markets which customers are most likely to purchase the product or service at market introduction How much do these customers typically buy how do they buy and how do they hear about the product or service How often do they buy What is their buying pattern How can the new venture meet these customers needs Steps in Market Research identify and profile the first customer estimate potential demand from that customer identify subsequent customer segments and needs toward which to focus the company Primary research techniques Mail and phone surveys Interviews best and most expensive Informal focus groups The Internet Online or in person surveys Chapter 7 03 15 2014 Analyzing Product Service Risks and Benefits The Nature of Product Process Development Sophisticated customers generally exist in fragmented markets customers can differentiate products on a very subtle level they demand products that reflect their individual lifestyles and value systems a company must offer superior performance and value based pricing to even BEGIN to be competitive The Impact of Technology Today the marginal cost of added technology is usually small therefore a growing business cannot build its competitive advantage around technology alone Must keep up with differentiated products that meet specific customer needs in a way that is hard for your competition to Technology has significantly shortened the product life cycle of replicate almost everything How Entrepreneurs Develop Products Services Impact of Insufficient Resources Poor execution when critical due diligence and market analysis are bypassed in favor of speed execution typically suffers Time to market increases not enough people to do the work or the need to re do the work because under or un qualified people did it the first time First to market opportunities are missed game changer opportunities are more expensive and may be bypassed in favor of a cheaper opportunity involving only incremental innovation Projects are made simpler so that more can be done with less projects are dumbed down or key features are deleted Team morale declines it s stressful to feel you must accomplish the impossible on a shoestring budget There is a high failure rate associated with new product ideas Fact New product failure results from o Lack of good market analysis primarily o Technical problems secondarily Strategies to consider to compete effectively in product development o Design products right the first time o Shorten the time to market o Outsource certain product development tasks The Product Development Cycle The process cycle components o Proper opportunity recognition have you identified a niche that has not been served o Technical feasibility analysis does the product service currently exist does it have an application in the market can the product be produced for how much how long will it take o Design and development of platform ideally a platform product will provide for many derivative products and their corresponding revenue streams o Prototype building and field testing almost every new product service requires some type of prototype which may resemble the finished product service only in function not appearance get QUALIFIED people only to develop your prototypes o Initial market tests with your prototype use this as opportunity to get feedback don t get angry or depressed and modify refine your product service o Market introduction and ramp up time to consider how to replicate your product service at the lowest possible cost Intellectual Property Definition of Intellectual Property Rights The group of legal rights associated with patents trademarks copyrights and trade secrets Patents Patents are the primary means of protecting an