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putting the product-market analysis in perspective

 

business growth strategy

by Kenneth Rudich

Within the context of the value chain approach that we espouse at Marketing-Strategy-Management.com, the product-market analysis feeds information into the market opportunity scan, which then feeds information into the overall value chain analysis.

The specific purpose of the Product-Market Analysis is to identify opportunities for building, sustaining and growing a business over time.  Each of these initiatives comes with its own unique implications.

A Build Initiative focuses on the start-up concerns that must be addressed in order to develop a solid operating foundation.  It moves the effort from an unstable and uncertain state of existence into one that is much more stable and predictable.  It relies on acuity and perseverance to navigate through this typically turbulent period.

The Sustain Initiative refers to those activities that preserve the promise of a successful build.  It alternates between regular maintenance and continuous improvement, within the realm of what is already known and being done.  The primary objective is to generate a steady profit stream (or surplus revenue in the case of a not-for-profit).

The Growth Initiative strives to extend the reach of a business, and/or expand the scope.  It frequently attempts to elevate the currently sustainable aspects to the next higher level of achievement; or it launches a new build initiative to either diversify the business or tap the benefits of integration.

Long term success will often hinge on having a good blend of all three working together.  The challenge rests with determining what constitutes a good blend – or how to allocate the organization’s resources — during any given window of time that is under consideration.

the product-market analysis table

The table at the top of this post summarizes four key areas to consider when performing a Product-Market Analysis.

As you can see, it provides a framework for thoroughly dissecting the possibilities while in search of the best available options.  It does this, in part, by combining Inside-out Thinking with Outside-in Thinking.  These two perspectives, when placed side-by-side, draw attention to the desire for striking a balance between what the marketplace wants and what the business can deliver.

           
inside-out thinking

Inside-out Thinking starts with existing internal competencies and finds related external opportunities.  This is shown in Quadrants I and II of the table.

First, let’s look at Quadrant I – same products/services, same market segments.

If a business is in process of trying to gain a good foothold with a given product or service, it  likely will want to concentrate the bulk of its resources on building a strong customer base within the one or more market segments it is presently targeting.  Until it has proven or disproven the marketability of the core concept in these sought after segments, it is probably better to remain focused on achieving this one outcome.

If it already has established a foothold, then it will need only to allocate enough resources to sustain it.  Any other surplus revenue can be considered available for investment elsewhere.

One performance measure for assessing foothold involves the concept of market saturation, which describes how diffusely the product is being consumed within a market segment.

A highly diffuse consumption pattern, also known as a saturated market segment, is one in which the product has gained a high degree of consumer acceptance and will require a minimal amount of resources to sustain it as is.

A low saturated market segment, one with still untapped potential, may require additional resources while trying to convince more customers to use the product; or perhaps alternatively, getting current customers to use more of the product.

At some point, a business must decide when it has reached its full potential for saturation within a market segment.  This is also known as being able to identify the point of diminishing returns – when further investment does not produce increased saturation, and the marketing costs have grown to exceed the marketing benefits.

Quadrant I is always in play.  It’s a matter of determining how it’s in play and what that means in relation to the other quadrants.

Quadrant II involves same products/services, new market segments.

This quadrant seeks growth by expanding the reach or penetration of the business into new market segments where existing internal competencies can be leveraged.

It may be in the form of geographic expansion, such as opening a new store location; or targeting a different demographic group. 

The energy drink called Lucozade, for example, was initially marketed as a boost for sick children with common illnesses like a cold or influenza.  Later, it was rebranded and targeted to athletes as a sports drink. 

outside-in thinking

Outside-in Thinking starts with identifying market segment needs, preferences and motives, and then relating those findings to the business’s internal activities.  This is shown with Quadrants III and IV.  Both typically aim to increase the scope of the business.

Let’s start with Quadrant III – new products/services, same market segments.

This quadrant encourages the introduction of new products or services into already established market segments.  Since the customers are already familiar with or loyal to a particular brand or product, it merges a sustain initiative with a growth initiative – in this case, tying current customer satisfaction in association with new products/services.  Examples include the addition of new products that promote cross-selling and up-selling opportunities.

Quadrant IV – new products/services, new market segments.

This quadrant unites a growth initiative with a build initiative.  It strives to capture new customers with new products and services. 

It frequently requires the business to develop new core competencies; or alternatively, to acquire another business that already possesses those core competencies. 

It is commonly seen among companies that are aiming for stronger market entrenchment through vertical or horizontal integration; and also among diversified conglomerates that are interested in capturing portfolio effects.

product-market analysis criteria

Finally, no discussion about a product-market analysis would be complete without at least one cautionary note.  Though it is critical for a business to continuously canvass the landscape for opportunities, it also is critical to avoid the danger of chasing every opportunity and possibly wind up doing nothing well for anybody.  This makes knowing what not to do just as important as knowing what to do.

Consequently, a business must develop criteria for evaluating which opportunities represent a good fit with its vision, mission and objectives.  And then it should apply the criteria while using the analytical framework presented in the table at the top of this post.

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