A Market Feasibility Study

1. A Market Feasibility Study • Phase 1Target Market Identification • Phase 3 • Implementation Planning • Phase 2Prospective Positioning 1. Define Customer Needs Conduct Competitive Analysis 4. 8. 7. Define Potential Markets Evaluate Financial Viability Determine Target Market Plan Value Optimization 3. 6. 2. Conduct Internal Analysis Evaluate Industry Environment 5. Data Gathering Analysis & Evaluation Consistent Client Interaction & Input

2. 1. Define Customer Needs Sub-Process Define the benefit to be provided or the void to be filled with the new alternative Translate perceived benefit into necessary features & attributes Rank the measurable attributes by their respective importance to customer Evaluate client’s product performance in terms of weighted attributes Objective • Evaluate alignment of provided benefit with the needs of customers Briefly examine the level of customer satisfaction provided by existing alternatives Consider the relative customer risks and costs of switching from existing benefit-provisionary source, if any, to new alternative Make preliminary judgments as to the product’s overall attractiveness in light of existing alternatives Tips & Key ?s Tools Outputs • Approach this objectively—avoid a “client bias” • Is this a B2B or B2C situation? • What do customers want? Does this new product give it to them? • Does this new alternative better serve their needs? • Interest/ Needs Survey • Laddering Interviews • Prototyping • Perceived benefit desired/ required by customer • Product attributes associated with said benefit & relative importance to customer • Early determination of client product’s marketability (attractiveness to customer)

3. 1.1 Interest/ Needs Survey Tool 1. Please rate the importance of the following attributes in your selection of a retail store by circling the appropriate number. Not At Extremely All Important Important Price 1 2 3 4 5 6 7 Product selection 1 2 3 4 5 6 7 Operating hours 1 2 3 4 5 6 7 Payment methods 1 2 3 4 5 6 7 Merchandise quality 1 2 3 4 5 6 7 Product Refundability 1 2 3 4 5 6 7 Customer service 1 2 3 4 5 6 7 Location 1 2 3 4 5 6 7 Representative questions from a recent survey pertaining to Target vending machines Process • Develop for distribution and reclamation a survey targeted for the informational needs of the team • Assign appropriate and meaningful metrics for ready compilation • Accumulate and interpret acquired data without bias The Objective: to determine a target market need for vending machines of this nature, as well as consumer receptiveness to vending machines of this nature 16. The following is a list of items that can be purchased from a Target vending machine. Please rate the likelihood that you would purchase these products from the vending machine by circling the appropriate number. Not at All Extremely Likely to Purchase Likely to Purchase Sun block 1 2 3 4 5 6 7 Aspirin 1 2 3 4 5 6 7 Lip balm 1 2 3 4 5 6 7 Hand Lotion 1 2 3 4 5 6 7 Mouthwash 1 2 3 4 5 6 7 Toothpaste 1 2 3 4 5 6 7 Toothbrush 1 2 3 4 5 6 7 Soap bar 1 2 3 4 5 6 7 Music CD 1 2 3 4 5 6 7 CD carrier 1 2 3 4 5 6 7 Notebook 1 2 3 4 5 6 7 Disposable Camera 1 2 3 4 5 6 7 Camera Film 1 2 3 4 5 6 7 Notes/ Implications • Be careful during survey creation not to inadvertently formulate or include questions that may contain a bias • Collecting data is important, but the analytical interpretation is essential to the engagement

4. 1.2 Laddering Interviews Tool Representative interview questions (posed to Diet Coke champion) Hierarchical Value Map: Diet Coke (1 champion/ 2 attributes) ACCOMPLISHMENT SELF ESTEEM SOCIAL ACCEPTANCE Process • Interviewer elicits as many product attributes from the respondent as possible and then probes further… • Interviewer: You indicated that you enjoy Diet Coke because it doesn’t have calories. Why is this important to you? • Respondent: I like to stay fit. • Staying fit is important to you? • Sure, I like to look good. • Why is looking good important to you? • I want to look good; people are judged by their appearance. I care what others think o f me. • Do you feel that you are being judged? • Of course! People are constantly judging me; and as a woman it is all about appearance. • What specifically about appearance do you think is important? • For women? Weight is the biggest issue. Reward / Compensation Self-evaluation determined by appearance • 1-on-1 interviewing technique capable of establishing key consumer associations between product attributes and meaningful values • By repeatedly asking probing questions of consumers, a value map specific to the relevant provided benefit can be developed that associates attributes to consequences, and consequences to values • This probing allows greater understanding of consumer behaviors, wants, and needs • The resulting ladder of perceptual orientations is useful for distinguishing between products in a given product class Weight is key determinate of social acceptance for women Immediate fulfillment of need Gain respect of others through physical appearance Society values youthful appearances Available almost anywhere Bright, energetic, youthful appearance Ready-to-transport containers Desire to be athletic and attractive No Caloric Content Bottle Notes/ Implications • Key Questions: “Why do people not buy my product?” & “Why do people buy my product?” • It is most beneficial to conduct multiple interviews, with both non-users and product champions to acquire the most valuable insights into consumer motivations and behaviors • Marketing, specifically advertising efforts should be focused upon consequences (middle ladder levels); i.e. Diet Coke ads should illustrate a consumer gaining the respect of others through physical appearance

5. 1.3 Customer Prototypes Tool Not-For-Profit Adult English-Language Education--segment-specific customer Process Horacio Castro has just entered the United States illegally at the age of seventeen. Crossing the border with the aid of an established smuggling organization, Mr. Castro is eager to recover his US$3,500 cost of entry into America. Mr. Castro has settled in Chicago to reap the benefits of the city’s large labor market, and to utilize his existing familial ties within the city. Mr. Castro is here primarily to earn money, the vast majority of which will be sent to his rural home in the Durango Province of Mexico. In Mexico, his mother and five younger siblings will use the money to improve the drainage of their small field and purchase those necessities which they cannot provide for themselves. Horacio’s motivations are clear: earn as much money as possible to facilitate a quick return to his Mexican homeland. He has chosen this path as opportunities in Mexico are limited for a man lacking formal education and familial influence. Learning the meat-packing trade from his uncle, Horacio has secured a position in the same plant in which his uncle has labored for twelve years. While his expenses are low (he lives with his uncle’s family free of charge), Horacio recognizes the economic advantages associated with English abilities. His supervisor is a bilingual immigrant from Mexico City, valued for his ability to understand and communicate the motivations of both laborers and management. Horacio wants to emulate this successful supervisor and not his uncle, who having never learned English is still a laborer. In his mind, Horacio struggles with the barriers: he has little educational training, no English-speaking acquaintances, little disposable income with which to procure an education, no knowledge of the available educational opportunities, and little available time with which to take any classes. Horacio is discouraged by the barriers, but he feels there must be a way to learn English. • Imagine and define people within specific target segments in an attempt 1) to gain a multi-dimensional view of the customer for whom the client will provide benefit and 2) to gain insight into the unarticulated needs of said customer • Base profile on certain key ?s: Why does she/he use require this benefit? How does this person see her/himself? What is important to her/him? What are her/his ambitions? Who does she/he want to impress? What is her/his idea of the perfect vacation? • Repeat this process until customer profiles begin to overlap, and then compile common characteristics/ goals/ values for client’s marketing mix Notes/ Implications • The results of this profile-layering have significant importance to the client’s ultimate marketing strategy

6. 2. Evaluate Industry Environment Sub-Process Determine chief economic traits of the industry (growth rates, trends) Identify the drivers of change within the industry Determine the impact of external entities upon the industry (government regulation, social goodwill, etc.) Identify barriers to entry, if any, & evaluate them with respect to client’s strengths/ weaknesses Objective • Determine the client’s ability to enter and compete within the industry • Identify potential opportunities for further exploration Identify the relative strengths & weaknesses of existing industry players Identify key success factors within industry Make a judgment as to overall industry attractiveness Tips & Key ?s Tools Outputs • Do existing industry players actively discourage new entrants? • Is the industry growing? Has the industry been stable? Is growth likely to continue? • Is technology an issue? If so, where along the curve are current alternatives? • Structure-Conduct-Performance Articulation • Porter’s Five Forces Model • Externalities Mapping • List of industry players ranked according to strength/ position • Clear understanding of resources & capabilities required for industry success

7. 2.1 Structure-Conduct-Performance Articulation Tool • Structure • Numbers of buyers • Numbers of sellers • Barriers to entry facing new firms • Product differentiation • Vertical integration • Diversification Process • To identify the structure of the industry, the dominant conduct of incumbents, and the resulting performance of firms • To define the relationships illustrated at right, the following industry conditions must first be considered: • Consumer • Elasticity of demand • Substitutes • Seasonality • Rate of growth • Location • Lumpiness of orders • Method of purchase • Production • Technology • Raw materials • Unionization • Product durability • Location • Scale economies • Scope economies • Conduct • Advertising and marketing • Research and development • Pricing behavior • Plant investment • Legal tactics • Product choice • Collusion • Performance • Profits • Product quality • Production efficiency • Technical progress/ progressiveness • Allocative efficiency • Equity Notes/ Implications • Threat of entry is stronger when…entry barriers are low, a sizable pool of entry candidates exists, incumbents are unwilling or unable to contest a newcomer’s entry efforts, and/or newcomers can expect to earn attractive profits

8. 2.2 Porter’s Five Forces Model Tool Personal Computer Industry Substitutes: Low to Moderate Increasing competition from hand held/ portable computing devices Process Supplier Power:Very High Intel and Microsoft extract all industry profits. Buyer Power: High and Rising Low switching costs, Less brand loyalty. Resellers and retailers have grip on end users • Assess strength of each of the five competitive forces (Strong? Moderate? Weak? ) • Explain how each force acts to create competitive pressure. What are the factors that cause each force to be strong or weak? • Decide whether overall competition (the combined effect of all five competitive forces) is brutal, fierce, strong, normal/moderate, or weak Rivalry: Very High Intense price competition Excess capacity and saturation. Some brand recognition, but PCs thought of as commodities Threat of Entry: Moderate to High Low capital costs of manufacturing Relatively easy to assemble PCs Some brand recognition and loyalty Notes/ Implications • Key questions to better understand the ferocity of competition within the industry: Is price competition vigorous? Active efforts to improve quality? Are rivals racing to offer better customer service? Lots of advertising/sales promotions? Active product innovation? Active use of other weapons of rivalry?

9. The Economy at Large Legislation and Regulation Technology Suppliers Substitutes CLIENT Rival Firms Buyers Potential Entrants Societal Values and Lifestyles Population Demographics  IMMEDIATE INDUSTRY AND COMPETITIVE ENVIRONMENT 2.3 Externalities Mapping Tool Process • Define and evaluate the impact of existing and potential forces outside of the industry that may impact the industry and/ or the firm • With externalities more clearly defined, threats and opportunities can be more easily identified and anticipated Notes/ Implications • It is important to evaluate external forces in both the near and far terms, as the client’s survivability and sustainability are key foci for analysis

10. 3. Define Potential Markets Sub-Process Objective Define the markets available to client in terms of size, age, maturity, technology, etc. Specify the characteristics of each market and their overall alignment with the client’s product and goals Identify the key players in each potential market and their respective positions within said market Rank the available markets by attractiveness/ receptiveness to client’s product • Define markets within which the client’s product is appropriate and potentially well-received • Divide the large market into smaller ‘pieces’, or customer groups with similar needs and/or desires Tips & Key ?s Tools Outputs • Where can we play, and who is playing already? Against whom will we compete most successfully? • Is this a B2B or B2C situation? • Quick calculations with realistic assumptions often prove useful: • To estimate market size for new garage storage devices we have the following… • 65M garages, 68% of which are ≥2 car; given 1.5% of available population invests $1K; potential for $1B sales • Segmentation Scheme • Product Sector Articulation • List of markets by potential receptiveness • Ranked list of existing competitors within identified markets

11. 3.1 Segmentation Scheme Tool Determine Which Segmentation Variables to Use Process Develop Market Segment Profiles • Define distinct customer groups with that have one or more problems/ needs which could be solved/ serviced in one or more ways • Establish segment variables that yield mutually exclusive and exhaustive segments • Develop Segment Profiles • Evaluate Segments for their viability and preliminary “attractiveness” Evaluate Relevant Market Segments Are acquired segments viable? Segmentation Variables • Measurable • Size, purchasing power, profiles of segments can be measured • Actionable • Must be able to attract and serve the segments • Substantial • Segments must be large or profitable enough to serve • Differential • Segments must respond differently to different marketing mix elements & actions • Accessible • Segments must be effectively reached and served • User-Related • Demographics: Age, Gender, Race, Ethnicity, Income, Education, Occupation, Family Size, Family Life Cycle, Religion • Social Class • Geographic: Region, Urban, Rural, City Size, County Size, State Size, Market Density, Climate, Terrain • Lifestyles & Psychographics • Behavioral • Benefits • Usage • Price • Brand • Situational Notes/ Implications • Segmentation scheming not only defines potential markets, but also serves as an essential component of the client’s ultimate marketing mix decision

12. 5% 13% 19% 9% 7% 9% 6% 9% 9% 2% 4% 8% 3.2 Market Sectoring Analysis Tool Dolls/Figures Toy Market Sectors Process Activity/ Construction Games • Establish current market make-up in hopes of identifying sectors within which client could best position for success Indoor Games Infant/Pre-School Toys Model-Wheeled Vehicles Soft/Plush Toys Outdoor Games Other Toys and Games Intelligent Toys Consoles Console Games Computer Games Notes/ Implications • Sectoring provides a nice snapshot of customer groups as defined by the existing market; it can also be used to identify “holes” in structure representative of unfulfilled customer groups

13. 4. Conduct Competitive Analysis Sub-Process Objective Determine the strengths/ weaknesses of each competitor within each available market Understand the characteristics of each competitor that grants survivability in short and long terms Identify voids within the market for possible exploitation by client Determine the ability of competition to counter client's introduction • Determine the conditions upon client’s industry entrance • With conditions established, threats and opportunities can be better evaluated and anticipated • Identify opportunities for client introduction Tips & Key ?s Tools Outputs • Will competitors have the ability to react? How quickly? • Will customers make the switch? What are their costs of switching? • Do not underestimate the speed and ferocity of competitive reaction • Positioning Articulation • Perceptual Mapping • Value Mapping • List of those factors which dictate and indicate success within the industry • Clear understanding of which existing players will move/ be able to counter client’s actions

14. Primarily Fortune 500 Quality Management Consortium MBA Consulting Program OSBI Austin Power Center for Experiential Learning Carlson High Student Participation Low Student Participation Business Consulting Network Community Consulting Darden Business Projects The MBA Consulting Project Freeman Consulting Group Primarily Start-up Companies 4.1 Positioning Articulation Tool Student-Staffed Consulting Process • Determine the competitive positioning within the marketplace • Identify holes, potentially representative of untapped markets, for further exploration Notes/ Implications • With positioning articulated, unfulfilled customer groups or needs can more readily be identified

15. Most pleasant fragrance Long-lasting suds Mildness Overall Cleaning 50% Best Value for money 100% Leaves dishes shiny Competitor #1 #2 #3 Cutting Grease Removing baked-on foods 4.2 Perceptual Mapping Tool Liquid Detergent Market Process • Evaluate the current players and their respective abilities in light of all-important consumer perceptions Notes/ Implications • By mapping perceptions, the relative strengths & weaknesses of competitors becomes clear • What are the respective foci of competitors, and how do consumers perceive them in the marketplace?

16. Price Value Map of the Toothpaste Industry, 1992 Price Perceived Performance 4.3 Value Mapping Tool Process • Determine the current value-price orientation prevalent in the industry • Define the customer groups to which major competitors cater (price-sensitive or quality-focused) • Identify areas of the existing value orientation scheme within which client could capture value Notes/ Implications • Use the acquired value map to identify holes in the market’s current pricing scheme; where large gaps exist between products on the value line, there exists opportunity for new product introduction

17. 5. Conduct Internal Analysis Sub-Process Objective Determine internal strengths & weaknesses of client Identify areas to be improved in both the short and long terms and prescribe methods to effect stated improvements Evaluate the client’s existing and likely resources and capabilities with respect to key success factors of industry and available markets Make judgments as to the viability of client’s success (begin formulating likely scenarios representative of varying degrees of success) • Determine the client’s ability to successfully launch her/his provided benefit Tips & Key ?s Tools Outputs • Take care to avoid the “client-bias;” all analysis should be realistic and not overly-optimistic • Is now the time? Does the client have in place what is necessary to be successful? • Activity Map • TWOS Matrix • Understanding of client’s ability to effect a successful product launch • Realistic view of existing resources & capabilities, and the relative strength or weakness of each

18. 5.1 Activity Map Tool Southwest Airlines No assigned seats No connections No transfers Process No meals Limited Passenger Amenities • Evaluate the existing strategic coherence of the client’s current and planned activities • Identify the higher-level activities and then list those actions undertaken and policies adopted to support main actions/ initiatives Point-to-Point flights Frequent Departures Limited use of travel agents Standard fleets 15 min. turnaround Automatic Ticketing machines Flexible Union contracts Low prices Lean and productive crew High employee compensation High aircraft utilization Employee Stock ownership Notes/ Implications • The more relationships/ linkages that exist among current activities, the more coherent and integrated is the firm’s strategy • Planned activities can and should be evaluated for cohesion with existing activities

19. 5.2 TWOS Matrix Tool Process • Complete the matrix as shown, with careful focus upon recommendations arising from the analysis Notes/ Implications • This model can at times seem academic in nature, but the recommendations that can be created as a result of completing are often of use; however, avoid specific references to SWOT/TWOS matrices analysis in client communications and deliverables

20. 6. Determine Target Market Sub-Process Objective Match the clients resources & capabilities with those of the available markets Best align the benefit to be provided with the needs of customer comprising each available market Identify key aspects of target market above, on, and below the surface (size, income levels, complementary preferences, etc.) Select given analysis the necessary and appropriate target to maximize impact for client • Select the appropriate target customer group by evaluating alignment of the client’s provided benefit and resources/ capabilities with the needs of customers Tips & Key ?s Tools Outputs • What benefit is the client providing, and to whom can she/he best provide it? • Who is the client selling to? Who is the end-consumer? • Refine judgments as to the market’s receptiveness • Use sound judgment and offer recommendation based in previous analytical outcomes • Final determination of target market replete with major/ minor characteristics

21. 7. Evaluate Financial Viability Sub-Process Define all investments necessary to launch and beyond Establish likely scenarios for analysis by defining key variables (customer reception, pricing issues, distributor acceptance market penetration) Assess the financial viability of launch with respect to each scenario and with due consideration to client’s stated objectives Assign probabilities where possible and calculate a range for client’s return on investment Objective • Define likely scenarios and determine immediate and long-term survivability given each • This is the “go” or “no go” stage, in which the team must make final judgments as to overall feasibility Make final judgment: Should the client go ahead with this project? Tips & Key ?s Tools Outputs • Be careful to include for analysis all costs, immediate and future, actual and opportunity • What do customers want? Does this new product give it to them? • Does this new alternative better serve their needs? • Make informed assumptions as necessary • Pro Forma Financials w/ Scenario Analysis • Sensitivity Analysis • Monte Carlo Simulation • Perceived benefit desired/ required by customer • Product attributes associated with said benefit & relative importance to customer • Early determination of client product’s marketability (attractiveness to customer)

22. 7.1 Pro Forma Financials Tool New Restaurant…Yes or No? Process • Establish the available facts and allow for the necessary variables • Devise a form which accounts for these considerations at different variable values • Employ facts/ fixed numbers wherever possible, constraints whenever applicable, and various revenue states dependent upon penetration scenarios • Assign probabilities where possible to allow for final determinations • Make assumptions when necessary to further the analysis (oftentimes the number of assumptions far outweigh hard facts) Notes/ Implications • Fixed costs and per-unit variable costs can usually be treated as facts, while revenues are entirely dependent upon the degree of market penetration • Projects that do not meet established objectives (profit %, break-even, positive NPV, risk mitigation, etc.) should not be pursued further

23. 7.2 Sensitivity Analysis Tool NPV Analysis using 2 variables to evaluate the introduction of a new brand Process P&G Liquid Detergent Market • Identify the variables to be used and establish ranges for their likely values • Use these ranges to calculate the multiple outcomes dependent upon variable levels • Eliminate those variable combinations, if any, that are unlikely are immaterial • Use the remaining outcomes to calculate a representative final figure Notes/ Implications • Dependent upon the values assigned to each variable, NPV results are positive or negative; in the above example the outcomes are most often positive • Eliminating unlikely scenarios often helps to clarify the resultant outcomes (ie those values close to zero for each variable are unlikely given P&G’s dominance, and can therefore be eliminated from actual consideration)

24. 8. Plan Value Optimization Sub-Process Business Strategy: How will the client extract value by providing benefit? (Differentiation or Cost Strategy?) Marketing Strategy: How can the client best position the benefit to be provided? Operating Strategy: How should the client deliver the benefit to be provided? Risk Strategy: Identify the elements of risk and account/ prescribe for their mitigation as possible Objective • Develop key recommendations to capture value • Dependent upon project scope, this may be only preliminary in nature while still reflecting the wealth of accumulated analysis Exit Strategy: Provide for the client options for abandonment if/ when exit becomes appropriate Determine the efficacy of staged involvement to minimize overall risk exposure during pre-launch Develop for application a means of monitoring success on relevant measures to facilitate continuous improvement Tips & Key ?s Tools Outputs • Perceived benefit desired/ required by customer • Product attributes associated with said benefit & relative importance to customer • Early determination of client product’s marketability (attractiveness to customer) • What benefit is the client providing and to whom, and how will he/she extract value (ie make money)? • Is now the time for an “all-in” commitment? Or is the client better-positioned by waiting for market forces and/or additional capabilities? • Strategic planning cumulative of all acquired information and completed analysis