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Market Profile

Ali Kabiri November 2007

Profile      



A side view of an object or structure, especially of the human head. A representation of an object or structure seen from the side. An outline of an object. Degree of exposure to public notice; visibility: preferred to keep a low profile. A biographical essay presenting the subject's most noteworthy characteristics and achievements. A formal summary or analysis of data, often in the form of a graph or table, representing distinctive features or characteristics: a psychological profile of a job applicant; a biochemical profile of blood. Geology. A vertical section of soil or rock showing the sequence of the various layers

Market Profile Brief description of a person, publication, broadcast station, or group in terms of a number of relevant parameters. An editorial profile describes a magazine in terms of it departments, features, and general focus. Advertisers use editorial profiles to evaluate the suitability of a publication for their message. A station profile would describe the programming and music offered by a radio or television station.

Market Profile A market profile describes the prospective buyers or audience for a product or service in terms of the demographic and/or psychographic characteristics of the individuals constituting the market. For example, the market profile for a luxury sedan might be statusconscious, affluent, professional couples aged 35-55, living in single-family homes valued at $500,000 or more, in and around densely populated urban areas.

Market refers to a mechanism or an arrangement that enables both buyer and seller to transact / exchange in order to satisfy their needs.

Boundary

Product

Buyer

Seller

Money

Feedback

Market Environment: Political , Economical, Social , Technological

Market Structure

Market Structure 

Market structure – identifies how a market is made up in terms of: – – – – – – – –

The number of firms in the industry The nature of the product produced The degree of monopoly power each firm has The degree to which the firm can influence price Profit levels Firms’ behaviour – pricing strategies, non-price competition, output levels The extent of barriers to entry The impact on efficiency

Market Structure Pure Monopoly

Perfect Competition

More competitive (fewer imperfections)

Market Structure

Perfect Competition

Pure Monopoly

Less competitive (greater degree of imperfection)

Market Structure

Perfect Competition

Monopolistic Competition

Pure Monopoly

Oligopoly

Duopoly Monopoly

The further right on the scale, the greater the degree of monopoly power exercised by the firm.

Market Structure Importance:  Degree of competition affects the consumer. – will it benefit the consumer or not?  Impacts on the performance and behaviour of the company/companies involved.

Market Structure Models – a word of warning! – Market structure deals with a number of economic ‘models’ – These models are a representation of reality to help us to understand what may be happening in real life – There are extremes to the model that are unlikely to occur in reality – They still have value as they enable us to draw comparisons and contrasts with what is observed in reality – Models help therefore in analysing and evaluating – they offer a benchmark

Market Structure Characteristics of each model: –

Number and size of firms that make up the industry

–

Control and influence over price or output Degree of Freedom of entry and exit from the industry

– –

Nature of the product – degree of homogeneity (similarity) of the products in the industry (extent to which products can be regarded as substitutes for each other)

–

Diagrammatic representation – the shape of the demand curve, etc.

Market Structure: Characteristics Look at these everyday products – what type of market structure are the producers of these products operating in? Electric Guitar – Jazz Body Mercedes CLK Coupe

beverage

Bananas

Canon SLR Camera

Remember to think about the nature of the product, entry and exit, behaviour of the firms, number and size of the firms in the industry. You might even have to ask what the industry is??

Perfect Competition One extreme of the market structure spectrum  Characteristics: – Large number of firms – Products are homogenous (identical , Similar ) – consumer has no reason to express a preference for any firm / product – Freedom of entry and exit into and out of the industry – Firms are price takers – have no control over the price they charge for their product – Each producer supplies a very small proportion of total industry output – Consumers and producers have perfect knowledge about the market – Demand curve is relatively elastic ( Relatively High Price sensitive)

Monopolistic or Imperfect Competition 





Where the conditions of perfect competition do not hold, ‘imperfect competition’ will exist Varying degrees of imperfection give rise to varying market structures Monopolistic competition is one of these – not to be confused with monopoly!

Monopolistic or Imperfect Competition Characteristics: – –

– – – –

Large number of firms in the industry May have some element of control over price due to the fact that they are able to differentiate their product in some way from their rivals (such as Branding , Image , …) – products are therefore close, but not perfect substitutes Entry and exit from the industry is relatively easy – few barriers to entry and exit Consumer and producer knowledge about market is imperfect Brand loyalty exist Demand curve is relatively inelastic (Relatively Low Price Sensitive)

Monopolistic or Imperfect Competition Some important points about monopolistic competition: – May reflect a wide range of markets – Not just one point on a scale – reflects many degrees of ‘imperfection’ – Examples: Industries with less than 100firms

Monopolistic or Imperfect Competition           

Restaurants Plumbers/electricians/local builders Solicitors Private schools Plant hire firms Insurance brokers Health clubs Hairdressers Funeral directors Estate agents Damp proofing control firms

Monopolistic or Imperfect Competition    

In each case there are many firms in the industry Each can try to differentiate its product in some way Entry and exit to the industry is relatively free Consumers and producers do not have perfect knowledge of the market – the market may indeed be relatively localised. Can you imagine trying to search out the details, prices, reliability, quality of service, etc for every plumber in the UK in the event of an emergency??

Oligopoly 

Competition between the few –



May be a large number of firms in the industry but the industry is dominated by a small number of very large producers

Concentration Ratio – the proportion of total market sales (share) held by the top 3,4,5, etc firms: –

A 4 firm concentration ratio of 75% means the top 4 firms account for 75% of all the sales in the industry

Kinked Demand Curve Price

£5

Kinked D Curve

D = elastic

D = Inelastic 100

Quantity

Oligopoly Example:  Music sales

The music industry has a 5-firm concentration ratio of 75%. Independents make up 25% of the market but there could be many thousands of firms that make up this ‘independents’ group. An oligopolistic market structure therefore may have many firms in the industry but it is dominated by a few large sellers.

Oligopoly 

Features of an oligopolistic market structure: – – – – – – – – –

Price may be relatively stable across the industry – kinked demand curve? Potential for collusion Behaviour of firms affected by what they believe their rivals might do – interdependence of firms Goods could be homogenous or highly differentiated Branding and brand loyalty may be a potent source of competitive advantage Non-price competition may be prevalent Game theory can be used to explain some behaviour AC curve may be saucer shaped – minimum efficient scale could occur over large range of output High barriers to entry

Duopoly Market structure where the industry is dominated by two large producers – –

– – –

–

Collusion may be a possible feature Price leadership by the larger of the two firms may exist – the smaller firm follows the price lead of the larger one Highly interdependent High barriers to entry Cournot Model , French economist – analysed duopoly – suggested long run equilibrium would see equal market share and normal profit made In reality, local duopolies may exist

Monopoly     

Pure (state) monopoly – where only one producer exists in the industry In reality, rarely exists – always some form of substitute available! Monopoly exists, therefore, where one firm dominates the market Firms may be investigated for examples of monopoly power when market share exceeds 25% Use term ‘monopoly power’ with care!

Monopoly Monopoly power – refers to cases where firms influence the market in some way through their behaviour – determined by the degree of concentration in the industry – – – – – –

Influencing prices Influencing output Erecting barriers to entry Pricing strategies to prevent or stifle competition May not pursue profit maximisation – encourages unwanted entrants to the market Sometimes seen as a case of market failure

Monopoly Origins of monopoly: – – – –

Through growth of the firm Through amalgamation, merger or takeover Through acquiring patent or license Through legal means – Royal charter, nationalisation, wholly owned plc

Monopoly Summary of characteristics of firms exercising monopoly power: –

–

Price – could be deemed too high, may be set to destroy competition (destroyer or predatory pricing), price discrimination possible. Efficiency – could be inefficient due to lack of competition (X- inefficiency) or… 

could be higher due to availability of high profits

Monopoly 





Innovation - could be high because of the promise of high profits, Possibly encourages high investment in research and development (R&D) Collusion – possible to maintain monopoly power of key firms in industry High levels of branding, advertising and non-price competition

Monopoly Problems with models – a reminder: –

– – – –

Often difficult to distinguish between a monopoly and an oligopoly – both may exhibit behaviour that reflects monopoly power Monopolies and oligopolies do not necessarily aim for traditional assumption of profit maximisation Degree of contestability of the market may influence behaviour Monopolies not always ‘bad’ – may be desirable in some cases but may need strong regulation Monopolies do not have to be big – could exist locally

Segmentation , Targeting , Positioning

Market Segmentation, Targeting, and Positioning

Steps in Segmentation, Targeting, and Positioning

6. Develop Marketing Mix for Each Target Segment 5. Develop Positioning for Each Target Segment 4. Select Target Segment (s) 3. Develop Measures of Segment Attractiveness 2. Develop Profiles of Resulting Segments 1. Identify Bases for Segmenting the Market

Market Positioning

Market Targeting Market Segmentation

Market Segmentation Represents an effort or process to identify and categorize groups of customers and countries according to common characteristics. Segmentation: “Aggregating prospective buyers into groups that: (2) have common needs and (3) will respond similarly to a marketing action.”

Step 1. Market Segmentation: Levels of Market Segmentation (Strategy) Mass Marketing Same product to all consumers (no segmentation) Segment Marketing Different products to one or more segments (some segmentation) Niche Marketing Different products to subgroups within segments ( more segmentation) Micromarketing Products to suit the tastes of individuals or locations (complete segmentation)

Market Segmentation

Consumer Market

Industrial Market

International Market

Step 1. Market Segmentation: Bases for Segmenting Consumer Markets Geographic Nations, states, regions or cities

Demographic Age, gender, family size and life cycle, or income

Psychographic Social class, lifestyle, or personality

Behavioral Occasions, benefits, uses, or responses

Using Multiple Segmentation: Bases: Geo- demographics

Step 1. Market Segmentation Bases for Segmenting Business Markets

Personal Characteristics

Situational Factors

Demographics

Bases for Segmenting Business Markets

Purchasing Approaches

Operating Characteristics

Step 1. Market Segmentation Bases for Segmenting International Markets

Industrial Markets

Geographic

Cultural

Economic

Political/ Legal

Inter. Market

Segments--Examples (1) Air Travel – –

–

Business/Executive: Inflexible; relatively price insensitive (Small number of people, but travel often) Leisure Traveler/Student: Relatively flexible; very price sensitive (other methods of travel--e.g., bus, car, train--are feasible; travel may not be essential) (Very large segment) Comfort Travelers: Comfort (e.g., space, food) important; willing to pay (Small segment)

Examples (2): Restaurant Diners Examples (2): Restaurant Diners

Price Sensitivity

Low

High

Low

Convenience

Fancy Restaurants --e.g., Ritz Carlton

High

High-end delivered food

Denny’s Local, “unbranded” fast food restaurants

McDonald’s Taco Bell

Step 1. Market Segmentation Requirements for Effective Segmentation Measurable

• Size, purchasing power, profiles of segments can be measured.

Accessible

• Segments must be effectively reached and served.

Substantial

• Segments must be large or profitable enough to serve.

Differential

• Segments must respond differently to different marketing mix elements & actions.

Actionable

• Must be able to attract and serve the segments.

Targeting The process of evaluating segments and focusing marketing efforts on a country, region, or group of people that has significant potential to respond

Step 2. Market Targeting Evaluating Market Segments 





Segment Size and Growth  Analyze sales, growth rates and expected profitability. Segment Structural Attractiveness  Consider effects of: Competitors, Availability of Substitute Products and, the Power of Buyers & Suppliers. Company Objectives and Resources  Company skills & resources relative to the segment (s).  Look for Competitive Advantages.

Step 2. Market Targeting Market Coverage Strategies A. Undifferentiated Marketing

Market

Company Marketing Mix

B. Differentiated Marketing Marketing Mix 1

Segment 1

Marketing Mix 2

Segment 2

Marketing Mix 3

Segment 3

C. Concentrated Marketing Segment 1 Marketing Mix

Segment 2 Segment 3

Step 2. Market Targeting Choosing a Market-Coverage Strategy Company Resources

Product Variability

Product’s Stage in the Product Life Cycle

Market Variability

Competitors’ Marketing Strategies

Positioning The process or act of locating a brand in consumers’ minds over and against competitors in terms of attributes and benefits that the brand does and does not offer Attribute or Benefit  Quality and Price  Use or User  Competition 

Step 3. Positioning for Competitive Advantage



Product’s Position - the place the product occupies in consumers’ minds relative to competing products; i.e. Volvo positions on “safety”.



Marketers must: – Plan positions to give products the greatest advantage – Develop marketing mixes to create planned positions

Step 3. Positioning for Competitive Advantage: Strategies Product Class

Product Attributes

Away from Competitors

H

G

Benefits Offered

C A D

E

B

Against a Competitor

Users

F

Usage Occasions

Steps to Choosing and Implementing a Positioning Strategy



Step 1. Identifying a set of possible competitive advantages; Competitive Differentiation.



Step 2. Selecting the right competitive advantage.



Step 3. Effectively communicating and delivering the chosen position to the market.

Developing Competitive Differentiation

Product

Service

Areas for Competitive Differentiation

Personnel

Image

Selecting the Right Competitive Advantages

Important

Profitable

Affordable

Preemptive

Criteria for Determining Which Differences to Promote

Distinctive

Superior

Communicable

IP Telephony case studies Ben Petrazzini Strategies and Policy Unit ITU

Agenda  Introduction  Cases 1. China 2. Colombia 3. Peru 4. Thailand  “Lessons”

Why case studies?  In depth examination of a particular market and/or policy process  Concrete experience on the regulatory response to market challenges  Countries with interesting regulatory developments related to IP Telephony  Solved similar problems in different ways  Developing countries face the hardest problems to integrate IP Tel to their tel agenda

China’s telecom market profile Population:

1,255 million(99)

GDP per capita:

US$ 734 (98)

Tele-density:

6.96 (98)

Cell subscribers:

1.90 (98)

Ownership of incumbents:

Public

Competition in LD & int.:

As of 1999

China’s Internet market profile Internet hosts x 10,000 people:

0.14 (98)

Users x 10’000 people:

16.7 (98)

Nro. of ISPs:

200 (98)

PCs x 100 people:

0.89 (98)

Began:

1988

Int. capacity:

351 Mbps (1/00)

Internet hosts in China 3000 2500 2000 1500 1000 500 0 Jul-97

Jul-98

Jan-99

Jul-99

Jan-2000

China’s Internet subscribers 9000 7000 6000 5000 4000 3000 2000 1000 0 1994

1995

1996

1997

1998

1999

Promoting the Internet Gov. cut twice in 1999 the cost of IP access 

switching stations rental: from 600 to 280 yuan / month



nat. LD digital lines: from 431,000 to 80,000 yuan / month.



Digital data line fees: reduced by 45%



2 Mbp/s nat. connection to an international digital line US$26,579 p/mth.Europe 99: 2 km=US$ 750; 200 km=US$ 5,000 / month]



US$2.5 billion investment in broadband during 2000



US$24 billion by 2005:

1. transmission systems = US$15 billion, 2. access networks = US$6 billion 3. data communications hardware = US$3billion

The Chen brothers 

Chen brothers begun offering IP phone service in 1998 at half of China Telecom’s rate



China Telecom succeeded in getting them to jail



The Chen’s lost their original hearing at the court of first instance, but won on appeal.



For the judge the activity was not covered by criminal law, and was at most an administrative matter.



Local court officials found no administrative rules or regulations that prohibited IP telephony

China’s IP Tel market  MII licensed 3 operators in April 1999 for a 6 month trial in 26 cities  These licenses ended a de facto long distance and legal international monopoly by China Telecom  Four IP Tel licenses granted in March 2000 China Telecom China Unicom Jitong Communications China Netcom  Forthcoming IP Tel license to China Mobile.

China Telecom’s IP Tel  First to launch services in April 1999  Initial roll-out 25 cities  US$ 2 million network (100 E1s - each E1 = 2.048 Mbps) [US$ 6 million if circuit-switched].  Set up time = 60 days [1.5 year if circuit].  IP Telephony cards: only one sales counter and very limited number of IP cards.  Over 500 people per day sign up after the announcement [previously about 20 telephone subscriptions per day].

Unicom’s experience  According to Unicom: US$ 241 million invested in 12 cities. Plan to expand to 90 additional cities.  Between June and November, Unicom acquired nearly 700’000 customers for its IP Tel services.  The network reached full capacity in only 80 days, instead of the 180 days initially.  By Nov. 99 Unicom was generating several million minutes in monthly China/US traffic and internat. calls accounted for 50% of its IP business.

Jitong’s IP Tel business  More than 2,000 people lined up from 2:00 am to buy IP telephony cards on the first day of sale.  Sold some 50,000 IP Tel cards in just five cities.  From June to August 1999 the total revenue from sales of IP phone cards stood at US$ 35 million.

Netcom’s IP Tel developments IP telephony trials in 15 cities since October 1999  20Gbps fiber-optic network backbone  More than 6,000 miles and 15 Chinese cities  Ready for operation by late-2000.  Linking corporate and government buildings in major cities directly to the IP backbone  Providing 2-10 Mbps to the desktop – enough to download video in real time.  Become a wholesaler of broadband capacity.

MII’s IP Telephony tariffs Services

Telephony (nonIP) tariffs

IP telephony tariffs

Domestic long distance

0.9-1.1 Rmb/min

0.3 Rmb/min (US$.04)

International

12-15 Rmb/min

4.8 Rmb/min (US$.58)