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 status-
conscious, 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

Perfect Pure
Competition Monopoly

More competitive (fewer imperfections)

Market Structure

Perfect Pure
Competition Monopoly

Less competitive (greater degree of imperfection)

Market Structure

Perfect Pure
Competition Monopoly

Monopolistic Competition 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?
Remember to
Electric think about the
nature of the
Guitar
product, entry
– Jazz and exit,
Body behaviour of the
Mercedes CLK Coupe firms, number
and size of the
firms in the
industry.
beverage You might even
have to ask
what the
industry is??
Bananas
Canon SLR Camera
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

D = elastic
Kinked D Curve
D = Inelastic

100 Quantity
Oligopoly

Example: The music industry

has a 5-firm
 Music sales 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 Market
5. Develop Positioning Positioning
for Each Target Segment
4. Select Target
Segment (s)
Market
3. Develop Measures
of Segment Attractiveness
Targeting
2. Develop Profiles
of Resulting Segments
1. Identify Bases Market Segmentation
for Segmenting the Market
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 Industrial
Market 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 Demographics

Bases
for Segmenting
Business
Situational Operating
Markets
Factors Characteristics

Purchasing
Approaches
Step 1. Market Segmentation
Bases for Segmenting International Markets

Industrial Markets

Geographic Political/
Economic Legal

Cultural 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

Low Convenience High

Low
Fancy Restaurants High-end
Price Sensitivity

--e.g., Ritz Carlton delivered food

Denny’s
Local, “unbranded” McDonald’s
fast food restaurants
Taco Bell
High
Step 1. Market Segmentation
Requirements for Effective Segmentation

• Size, purchasing power, profiles

Measurable of segments can be measured.

• Segments must be effectively

Accessible reached and served.

• Segments must be large or

Substantial profitable enough to serve.

• Segments must respond

Differential differently to different marketing mix
elements & actions.

• Must be able to attract and serve

Actionable 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

Company Marketing Mix Market

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 G

H
C Benefits Offered

D
E
B
Against a Competitor F Usage Occasions

Users
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

Criteria
Profitable for Distinctive
Determining
Which
Differences
Affordable to Superior
Promote

Preemptive 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

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 (non- IP telephony

IP) tariffs tariffs

Domestic long 0.9-1.1 Rmb/min 0.3 Rmb/min

distance (US$.04)

International 12-15 Rmb/min 4.8 Rmb/min

(US$.58)