Have you considered the product life cycle? Are you ahead of the trend or has your idea already had it?
What market are you selling into? I had one client, a catering butcher, who told me his market was limitless as he estimated that the UK meat and poultry market to be worth £13.5 billion. It probably is but an analysis of his competitors’ turnover (by pulling their accounts at companies house) valued his part of the market his market at around £200M this was further reduced as he only sold in London because he had no national distribution, his London market was further limited because the national chains would not buy from him and he did not want to sell to the buying groups because it strained the margins too much. From all of this I estimated that his market was actually around £80M and that trying to grow the company from £6M to £12M (7.5% to 15% share) in a market place with no growth was going to be a very hard thing to do.
This provides a useful way of screening the opportunities open to you, and helps you think about where you can best allocate your resources to maximize profit in the future.
To understand the Boston Matrix you need to understand how market share and market growth interrelate. Â Market share is the percentage of the total market that is being serviced by your company, measured either in revenue terms or unit volume terms. The higher your market share, the higher the proportion of the market you control.
The Boston Matrix assumes that if you enjoy a high market share you will be making money. (This assumption is based on the idea that you will have been in the market long enough to have learned how to be profitable, and will be enjoying economies of scale that give you an advantage).
The question it asks is, “Should you be investing additional resources into a particular product line just because it is making you money?” The answer is, “not necessarily.”
You should also consider Anshof’s Matrix which provides four different growth strategies:
This strategy is the least risky since it leverages many of the firm’s existing resources and capabilities. In a growing market, simply maintaining market share will result in growth, and there may exist opportunities to increase market share if competitors reach capacity limits. However, market penetration has limits, and once the market approaches saturation another strategy must be pursued if the firm is to continue to grow.
The options include the pursuit of additional market segments or geographical regions. The development of new markets for the product may be a good strategy if the firm’s
are related more to the specific product than to its experience with a specific market segment. Because the firm is expanding into a new market, a market development strategy typically has more risk than a market penetration strategy.
product development
This strategy may be appropriate if the firm’s strengths are related to its specific customers rather than to the specific product itself. In this situation, it can leverage its strengths by developing a new product targeted to its existing customers. Similar to the case of new market development, new product development carries more risk than simply attempting to increase market share.
The most risky of the four growth strategies since it requires both product and market development and may be outside the core competencies of the firm. In fact, this quadrant of the matrix has been referred to by some as the “suicide cell”. However, diversification may be a reasonable choice if the high risk is compensated by the chance of a high rate of return. Other advantages of diversification include the potential to gain a foothold in an attractive industry and the reduction of overall business portfolio risk.
Price is obviously a key factor but the important connection here is its relationship with quality and market position, not how cheap it is, or it costs less than the competition. Obviously you need to be competitive and whilst a buyer always puts price at the top of the list, it usually is around number 5. Think of yourself, do you only concentrate on price when buying or are there other factors? Also consider pricing for different markets, the consumer market might pay more than the education market, tweak the product to meet the market.
If we look at pricing there are hundreds of ways to arrive at a selling price:
Well, as you can see there is a lot to think about when it comes to marketing and you need to strike a balance. Obviously not all of this needs to be in your business plan. Something above will be relevant and should be thought through for your plan. By demonstrating that you have given it serious thought potential investors or lenders will be more confident about wanting to find out more about you and your business ideas.
Can you really afford the complacency of believing you are better than the competition? Do you really think that all you need to do is submit your business plan and the job’s done? Have you really thought this through and checked out the other runners?
The problem is that everyone, including me, has told you to be unique. This may tempt you into playing down the competition to the extent that they don’t matter, but they really do. Last week we went through your USP, but if you are now so unique, will the investor become sceptical and start wondering whether there is a market for your product or service at all?
Competition is healthy. Without it you will become stagnant and lose focus. Being the first in market takes a lot of courage and money to educate people. I would love to have been the first Fax salesman who sold his product on the basis that everyone will have one soon. The trouble is that not many people will believe you. It can be a tough mountain to climb!
On the other hand an ‘improved offer’ will be talking to an educated market that understands the benefits of your new product or service. This means market entry costs are lower and the customer will want to be part of it (for example: IPod v Walkman)
