Business Market Characteristics

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Successful marketing strategies depend on a clear understanding of market characteristics. Before budgeting marketing dollars, management needs to know the size of the market, the competitive environment, the customer profile, the distribution system and the key success factors. This type of market analysis is often done while a product is still in the concept stage or when a company is about to enter a new geographic market.

Size

Market size is defined by current and projected total industry sales. It can be estimated from trade association data, public company financial statements, government data and customer surveys. Maintaining and increasing the company's market share is usually a key management objective.

Competition

Competitive environments are defined by the identity, track record, financial strength and market share of key competitors. Harvard professor Michael Porter's Five Forces model can be used to evaluate a company's competitive position. These five forces are barriers to entry (the ability of new players to enter the market), buyer power (the ability of customers to influence price), supplier power (the ability of suppliers to influence quantity and price), threat of substitutes (availability of comparable products) and competitive rivalry (number and size of competitors).

Segmentation

Marketing strategies usually involve dividing the total market into multiple segments by demographic factors (e.g., age, gender and race); geography (e.g., city, state and country); and other factors such as lifestyle and socioeconomic class. Advertising and promotional campaigns can then be designed specifically for each segment.

Distribution

Distribution systems determine how efficiently products reach customers. Before launching a new product, management evaluates how the existing distribution channels work and how they can be improved; the trends in emerging channels that can offer a competitive advantage (e.g., social media and ecommerce); and the negotiating power of distributors and retailers (i.e., a new player, desperate to capture market share, will probably not have a negotiating advantage with big-box retailers, but a more established player might).

Key Success Factors

Key factors that determine the success of marketing strategies include the ability to recruit qualified people (e.g., a pharmaceutical company may need to hire qualified scientists quickly to launch a clinical trial); grow sufficiently quickly to achieve profitability (i.e., achieve economies of scale); access distribution channels (e.g., a new player may be blocked from supplying into a channel that is already filled with more established brand names); and keep pace with innovation (e.g., launch comparable products at the same time as the competition).