by Kenneth Rudich

In Part 1, we established the background circumstances that were in effect when Dr. John Sperling undertook a market opportunity scan (MOS) in the 1970’s to determine if a better product could be fashioned for serving the needs and motives of the adult learner than was being provided by traditional universities at the time.

The results of the MOS led Dr. Sperling to found the University of Phoenix in 1976.

In Part 2, we’ll look at the market characteristics analysis of Sperling’s MOS to demonstrate the purpose it served, and to illustrate how and why you might perform one for your own business.  Prior to reading this part, however, you may first want to review Part 1, and also possibly skim an earlier blog post that describes what a market opportunity scan is.  In addition, you may wish to view the video “A Big Picture Perspective for Marketing Excellence” as well. 

the market characteristics analysis

The potential for U of P rested with the premise that a better higher education product could be offered to working adults than was currently available, and that there was a sufficient market to make it a sustainable for-profit business.

The market characteristics analysis set out to investigate the second part of this premise in particular.  It sought to identify a potential target market that was either underserved or un-served; or otherwise conceivably ready to entertain the idea of trying a new and different value proposition.

It also wanted to put a face on the potential size of the market by creating quantified estimates for it.  This task brought into play “the rule of materiality” for determining what data to collect, how to collect it, how much of it to collect, and at what level of detail.  This was a critical consideration.  The primary objective was to avoid any omission of data that could unearth valuable information.  Such an omission would be akin to a detective overlooking one or more key clues in a crime investigation.

In an article titled “Time for Nationally Authorized Universities,” authors Robert Tucker and John Sperling discussed the need for them to navigate the rule of materiality.  With no immediately available data beyond what was typically kept for the 18-24 year old age group, they knew they had to expand their assessment if they were going to adequately explore the true potential market for contemporary higher education. 

They wrote: “While we know that many consumers of higher education are working adults, there are no national data on students’ current position in their career path or on their near and long-term career goals.  Having this kind of information makes little sense if one assumes that students are 18- to 24-years old, nonworking youth.  We have asked these fundamental questions about student demographics and, in doing so, have found six distinct groups that make up most college and university populations.”

Here’s what they reported based on their findings:

• Group 1: 3.9 million traditional undergraduate students — ages 17 to 24, seeking a bachelor’s degree and enrolled full-time at a campus.
• Group 2: 650,000 traditional graduate students — ages 22 to 34, seeking either an academic or professional master’s or doctoral degree and enrolled full-time at a campus.
• Group 3: 2.9 million semi-traditional undergraduate students — ages 17 to 24, seeking a bachelor’s degree and enrolled part-time at a campus, usually working part-time in a non-career, entry-level job.
• Group 4: 487,000 semi-traditional graduate students — ages 22 to 34, seeking an academic master’s or doctoral degree and enrolled part-time at a campus. (Employment varies among this population.  Some have part-time work in a variety of campus and off-campus non-career jobs. Others work in full-time careers, e.g., school teachers, principals and superintendents or college teachers completing their doctoral degree.)
• Group 5: 5.3 million non-traditional undergraduate students — ages 25 and up, they are career-oriented members of the labor force, usually seeking a first degree in an on-campus or off-campus program, enrolled full- or part-time.
• Group 6: 880,000 non-traditional graduate students — ages 25 and up, working full-time in a chosen career, enrolled full- or part-time, seeking a professional master’s or doctoral degree in an on-campus or off-campus program.

They explained that Groups 1 through 4 tended to be regarded as the typical consumers of higher education, but that they comprised only 56 percent of the total market potential.  Groups 5 and 6, meanwhile, represented 44 percent.  More importantly, traditional universities had a longstanding tendency to under serve these last two groups. 

Tucker and Sperling wrote: “They do not provide the educational systems and services needed and wanted by working adult students, nor do they have the capacity to satisfy this growing segment of the student population. The mismatch between the needs of working adult students and youth-centered institutions extends beyond missing components; many of the same facilities put in place to serve youth — e.g., dormitories, gyms, and extensive commons –impede the efficient access of working adult students.”

And with that summation of the market characteristics, Tucker and Sperling not only put a face on the strategic segments within the higher education market, but they isolated a sizable niche of underserved working adults that the University Of Phoenix could pursue. 

Still, there were some lingering questions about the U of P’s economic viability, and the answers to those questions would lay nestled within the external forces analysis.

the rest of the market opportunity scan

In part 3, we’ll explore the external forces analysis of the market opportunity scan for the University of Phoenix.  As you’ll discover when reading it, it also had a major role in making this opportunity look inviting.  See you then.  

by Kenneth Rudich

Neil Rackham, a known speaker and writer in sales and marketing circles, is fond of advancing the idea that customers are not simply buying products and services; they are really looking for solutions that satisfy their needs, motives and/or preferences.  In other words, they are searching for the created value I’ve talked about in several other posts.  I’ve spent a good deal of time on this topic because it is the cornerstone to a good marketing initiative. 

The search for solutions puts a premium on businesses who are able to pinpoint the motives of the customers they serve (both implicit and explicit), and then use those motives to fashion an offering that promises fulfillment beyond anything a generic product or service can provide.  So much the better if the same information can also be used to establish a competitive advantage as needed. 

The best solutions attempt to identify and tap the right set of customer motives even as – or when – they vary among a business’s current and potential customers.  This includes being able to distinguish between those things that truly add value and those that only add costs.  In today’s environment of spoiled consumers, the mistake of failing to provide a solid customer experience at every step along the way will almost always call attention to itself, even in cases where the lapse may be seemingly subtle.

the market characteristics analysis does matter

The market characteristics analysis observes the dynamics of the customer base in a manner that helps to regularly unlock insights about it.  You may recall from an earlier post that the market characteristics analysis is part of the larger market opportunity scan.  It, along with an assessment of the external forces, seeks to discover key implications for smartly fashioning the value chain into a complete (and competitive) end-to-end solution. 

Consequently, the market characteristics analysis is of critical importance to businesses both large and small.

market segmentation

One popular method for performing a market characteristics analysis involves the application of market segmentation techniques.

The general intent of segmentation is to reduce goal ambiguity by moving away from a one-size-fits-all mentality.  It does this by identifying groups of customers with similar characteristics, values, needs, aptitudes, motives, behavior patterns or preferences; and then using the information to improve the level and quality of interaction with each group, while also improving the effectiveness and efficiency of the marketing initiative.

Said another way, segmentation assumes each group has its own ideas about what constitutes value for them,  and their perceptions carry implications for shaping and molding the value chain.  The Balanced Scorecard authors Robert Kaplan and David Norton say, “Organizations that do not segment their market run the risk of doing nothing well for anybody.”  In The Marketing Imagination, Theodore Levitt contends, “If you’re not thinking segments, you’re not thinking.  To think segments means thinking beyond what is out there to see.”

using market segmentation

Market segmentation is a fairly expansive topic, and it will probably take at least a few posts just to convey an introductory level of information about it.

But even an introductory level of understanding will be enormously helpful to those currently unfamiliar with, or only slightly familiar with, this topic.  It will definitely support your strategic learning cycle once you begin to frame your thinking in this manner, let alone begin to formally use it as a decision-making tool.  And it will help bolster your business strategy not just a little, but to a substantial degree.

In future posts about market segmentation, we’ll explore the larger universe of concepts associated with it, how to choose the right approach for your business concern, and how it can be used to keep your value chain vibrant with end-to-end solutions.

market opportunity scan case study

by Kenneth Rudich

With a steady churn of breakthrough innovations constantly affecting product life-cycles, it has made the market opportunity scan as important as ever.  Any number of examples could be used to illustrate this point.  Few, however, are likely to show it in more vivid detail than the video rental industry over the past 25 years.

You may recall the MOS primarily concentrates on the market analysis and external forces parts of the value chain.  The objective is to retrieve relevant information that may affect the outlook of your business, for better or worse.  It aims to support the strategic learning cycle, to gain a leg-up for deploying effective strategies and tactics along the value chain – whether as a countermeasure to a threat, or to take advantage of a new opportunity.

The video rental industry has seen its fair share of measures and countermeasures.  What follows is an abbreviated version of that story.

the value chain story for video rentals

In 1985, newly launched Blockbuster, Inc. identified a market opportunity for customers wanting to rent their choice of movie titles on videotape.  Its value chain included a wide dispersion of company-owned stores as the means for distribution.  Customers would come to the physical location, make their selection, take the videos home, watch them, and then return them to the store. 

By 2004, it had over 8,900 stores and had grown into a $900 million company.  It was regarded as the industry leader for nearly two decades.

But now, in 2010, Blockbuster, Inc. is contemplating Chapter 11 to eliminate debt.  Its woes are such that a recent finance article suggested it may become one of ten disappearing brands in 2011.  Though others contend that that is unlikely to happen, the article does point out that one of its chief rivals, Movie Gallery, the parent company of Hollywood Video, announced in February 2010 it would be closing its 2415 stores and liquidating all assets.  Movie Gallery was using the same kind of value chain model as Blockbuster.

so what happened?

Three key dynamics, all of which were visible within the realm of the market opportunity scan, can be held up as having had a hand in Blockbuster’s reversal of fortune.  They insinuated themselves on the marketplace almost simultaneously.

The first notable one of them was the technology factor – namely, the growth of the internet and also video on-demand for satellite and cable. 

The second was the foresight of competitors who saw an opportunity to re-design the Blockbuster value chain and create new forms of perceived value, particularly as it pertained to the distribution and transaction channels.  Netflix combined the internet with traditional mail for their transaction and distribution channels, and Redbox later came along and put vending kiosks in pharmacies, fast food restaurants, grocery stores and convenience stores.  Neither built their own stores.  Both also improved upon the transactions component by lowering the rental price.  

The third dynamic – and possibly the most painful in retrospect – was Blockbuster’s inability to adequately appreciate the first two.  There was an undeniable lapse within the context of its own market opportunity scan.   

Blockbuster was a latecomer to the Internet compared to Netflix and Amazon.  It also could have employed vending kiosks ahead of Redbox, which passed Blockbuster in 2007 in number of U.S. locations.  Unfortunately for Blockbuster, it was so thoroughly entrenched in its bricks-and-mortar model that it forfeited the opportunity to seize whatever first-entry advantage it might have gotten by branching out into new channels sooner.  It failed to heed the external forces and the market analysis of the MOS.   

The company lost $65 million last quarter.  Its revenue continues to rapidly decline with Netflix and Redbox chipping away at it, not to mention the losses also suffered due to cable and satellite video on-demand.  Despite that, many industry analysts believe it still has a chance at remaining viable as a company, but only with distribution channels consisting of DVD’s via mail, vending kiosks, and internet delivery.  Convenience (consider the social lifestyle factor under external forces) and low price is the new success formula, and that’s not something the bricks-and-mortar model can do nearly as well.  Blockbuster is down to about 6000 stores and is continuing to close them. 

much of the story still remains to be written

The composition of the value chain for the video rental business has been forever changed from its original formula, and it’s still evolving.  Every one of the current players needs to stay atop of what’s going on via the Market Opportunity Scan.  And they need to keep an open mind for converting that information into sound strategy and tactics all along their value chains.            

customer fulfillment imperatives

by Kenneth Rudich

I once heard it said that people use products but experience services.  For instance, an individual purchases a shovel with the intent of using the product.  A reservation at an haute cuisine restaurant, on the other hand, carries the expectation for a fine dining experience.

Whether you agree with that assessment or not, it does bring up an important point.  Marketing must consider the role of these two – use and experience – as it pertains to delivering customer value fulfillment and satisfaction.  A failure to properly think this through could result in a poorly executed value fulfillment proposition.

Here are five examples of scenarios where customer use and customer experience influence the value proposition:

1. Is one clearly more dominant than the other in importance?  Consider the case of the shovel and the fine food restaurant.  As long as the shovel serves its intended function, it’s hard to imagine anything you could do to make it a better, more agreeable, or memorable digging experience.  The restaurant, meanwhile, sits at the opposite end of that spectrum.
  
2. Are the two so closely intertwined that fulfillment requires both?  A luxury automobile fits into this category.  You may use a car to get from point A to point B.  But unlike an economy car, the experience of a luxury automobile leaves an indelible impression.  Who would pay the higher sticker price if it didn’t?

3. Are the customers who use the product or service different from the ones that experience it?  Education is a good example.  Students typically experience the education process.  But employers, governmental and community agencies, and society use the product.  Educators must fashion a learning experience with that end product in mind.

4. Do the customer touchpoints differ between use and experience?  A business website falls into this category.  A business’s customers tend to experience the website – it’s look, feel, usability – more than simply use it.  The business, meanwhile, uses it to drive sales.  If the business has outsourced the development and maintenance of the website, it experiences the services of the web provider.  In this case, the web services provider must factor in each of these three differentials for achieving value fulfillment.
           
5. Is the use of the product dependent upon the quality of a related service or vice versa?   It’s possible to have a great product but lack the services-based technology to support its use.  Imagine how disappointing a streaming video application experience would be if internet access was limited to the slower speed of a phone modem connection.

marketing use, experience, or both

After walking through the use and experience dimensions of a product or service, marketers must then frame their offering to meet the customer fulfillment expectations.

click on image to enlarge

click on image to enlarge

Editor’s Note: This is actually the third posting in a set of three.  It builds on the content contained in the first two titled, “Creating Value with Modular Thinking,” and “4 Value Creating Scenarios,” as shown in slide 1 above.  

By Kenneth Rudich

Be it for-profit or not-for-profit, the overarching aim of marketing is to cultivate interactions that produce value creating outcomes.  The interactions themselves are the engines that help drive a business toward meeting its objectives, and they tend to be grounded in either one of two perspectives: the outside-in perspective or the inside-out perspective. 

the common ground

Though the two perspectives do differ, they also share some common ground:  

1. both are focused on the implementation of the value creating scenario. 
2. both seek to identify and address the six W’s — who, what, where, when, why, and how – as it pertains to their vantage point.
3. lastly, most importantly, both tap into an identifiable market opportunity as their primary source of motivation.   

After that, they diverge in their thinking with the intent to converge in the end.  

outside-in perspective  

The outside-in lens identifies the nature, breadth and scope of the market opportunity.  This is sometimes referred to as a market opportunity analysis and it involves market research.  At the outset, it seeks to unearth the key characteristics of the opportunity, including what will be needed to deliver value fulfillment, and the requirements for building and/or maintaining competitive advantage.   

Over time it evaluates the extent to which the product or service is actually achieving value fulfillment, and whether there are gaps that need to be filled or other considerations that should be addressed.  It also looks for key directions and trends that are currently influencing or will influence the opportunity in the months and years ahead. 

Here is a sampling of questions it would explore:  

• would it be advantageous to segment the market and, if so, how?
• how might prospects and customers prefer to access the product/service?
• how will they learn about the product/service?
• how will transactions occur?
• will support services be needed?
• how will pricing influence customer decision-making?
• who is the competition and how do we stack up?
• what other external forces merit attention?  

inside-out perspective  

The inside-out lens concentrates on what the provider should do in order to satisfy its objectives.  

This includes, first and foremost, deciding whether it’s viable and worthwhile, especially if it’s a new market opportunity.  Or, if it’s already been mined or being mined, should it continue to be pursued.  These are product life cycle issues and they require a thorough understanding of the market opportunity analysis.  In a rapidly changing business world, the timely phasing in or out of an offering can be critical to the maintenance of the product/service portfolio.  

There’s also an array of decisions concerning things like marketing strategy and tactics, return on investment expectations, funding requirements, quality assurance, market share, the potential for growth, competitive stance, and so forth. 

Still another set of decisions will typically revolve around design matters like:   

• the people (expertise) or human resources that are needed?
• what the organization will look like?
• the processes that should be put in place or revised?
• the type of facilities that are required?
• what technologies should be involved? 
• what should be the design of the product/service offering?

when outside-in and inside-out converge 

The answers to these questions will help to identify the activities that should be plugged in to the value chain for any given interval of time.  The more elegantly this is done, the better off your business will be.

generic value chain for marketing

by Kenneth Rudich         

Part 1 of this article discussed the background to proposing a generic value chain for marketing.  If you read it, you may recall that the chain above is an adaptation of a concept originally introduced by Harvard Business School professor Michael Porter.         

a generic value chain for marketing

The task of effectively implementing a marketing strategy hinges on being able to identify – and link together – the various activities required to deliver value fulfillment.  For our purposes, a linkage exists if the performance or cost of one activity affects that of another.  The intent of the generic value chain is to have a tool that helps to isolate the value-creating activities within a marketing strategy, then map them, link them, and track them with time.         

The generic activities or components shown in this value chain are common to the marketing function in general, though the specific implementation of them will vary as marketing strategies differ.
 
Bear in mind that value might be improved from within an individual activity, or it might be enhanced by strengthening the relationships between activities.  As such, each separate activity becomes a lever for fine-tuning the value proposition.
 
Take, for example, the transactions component.  What if customers are extended an optional payment plan rather than having to pay for something in full upon receipt?  Will it make the product or service more affordable or appealing to some segment of potential customers?
 
If so, then successfully promoting this value-added benefit depends on making sure there is a strong link between it, the communications component, and the market characteristics component.  Getting these three to work in concert with one another – communicating the right message to the right people – is necessary for optimizing the overall value of the optional payment plan.  This is known as synergy or a synergistic effect, and it will benefit both the consumers and the business.
   
In future posts, I’ll flesh out more ways to use the value chain approach in far greater detail.  For now, let me briefly introduce the construct of this chain.  It is comprised of five generic components, whereby each is but one piece of an integrated strategy for delivering value:         

• Market Characteristics: This entails understanding the unique needs and motives that exist within your actual and potential customer base, and then targeting the product benefits accordingly.  A market analysis can yield the vital information that is required to do this well.
• Distribution Channels: A distribution channel is the primary delivery path from the provider to the customer.  There can be more than one distribution channel in play (indeed, modern technology makes it virtually impossible to ignore the potential value of new delivery applications).  Each dissimilar pathway from the provider to the consumer indicates the presence of a separate channel.  For example, something might be downloaded from the web, or it might be purchased at a store – which could be either a retail or wholesale outlet.  Thus, there are three different distribution channels in this example, and each will possess its own distinct set of resource demands and value fulfillment potential.
• Communications:  The activities generally associated with conveying information, managing understanding and expectations, and creating dialogue.  It comes with internal and external responsibilities.  For example, the internal know-how for effectively handling customer care, versus the external responsibility of conveying the product benefits over appropriate channels or media.
• Transactions/Operations: The activities that support the business aspects of the marketing function (they keep it running) – measured by cost, productivity, and efficiency.  It includes the core competencies, inputs, and internal design the organization needs to carry out its marketing mission from a business perspective.  One key design aspect is the customer interface for initiating or completing the business transaction.
• Product/Service Attributes: The characteristics that are required to uniquely fill a need, and/or deliver optimum value. 

external forces

The external forces are the contextual conditions that impact this process.  These forces can significantly influence an organization’s marketing strategy – sometimes favorably, other times not.  It is important to identify the external forces that are germane to your product or service, and then closely monitor them over time.         

three reasons for adopting a value chain approach

At least three reasons favor the adoption of a value chain approach:         

1. It asks strategic decision-makers to identify all the critical links and alignments associated with the marketing function, including the external factors that bear upon it;
2. It conditions people to think in the broader context of how all the pieces and parts of a marketing strategy fit together;
3. It encourages a systematic strategy analysis process – what’s working, what’s not working, what can be fixed, what are we unable to do.      

As stated in the “About M-S-M” page, these three reasons coincide with the reasons for incorporating the hyphens in the name of this blog.  I chose to include them so as to emphasize each word’s stand-alone importance within the larger context of having them work well together.             

• Marketing entails the entire universe of concepts that can be tapped.
• Strategy involves choosing the right ones for your particular concern or endeavor.
• Management speaks to the need for constantly tweaking the strategy in response to market dynamics.