emydocumentsadvancedmarketingconceptsandapplicationsjuly2010lecturenotes july 2010 s lecture notes...

8/3/2019 Emydocumentsadvancedmarketingconceptsandapplicationsjuly2010lecturenotes July 2010 PDF Files Lecture Notes Lecture Two Environment and Industry Analysis 10072903290

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Lecture TwoEnvironment and Industry Analysis

MKTG 1265

Advanced Marketing Concepts andApplications

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AgendaAgendaAgendaAgenda

Understanding macro-environmental

forces and its impact on marketing PEST and SWOT Analyses

Industry Analysis

Application of the Porters Five Forces

Model in marketing

Market Analysis and Market Segmentation

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Reference for Lecture Two:

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Week 2 - Environment and Industry AnalysisPorter, M.E. (2008). The Five Competitive Forces thatShape Strategy, Harvard Business Review, January,

78-93.

Note: this is the 2008 update of the classic strategy article that appeared inthe HBR written by Professor Michael Porter


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Areas of External Analysis:

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: covered in this module

STP: covered inyour previous

marketingcourses

Covered in yourprevious BB

course


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Moving from macro to micro

aspects.

Market and CustomerAnalysis

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INDUSTRYANALYSIS


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PEST and SWOT Analyses

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Micro and Macro Environmental Factors

(Professor Philip Kotler)

Micro Factors: Direct influence

on the firms marketingoperations and to some extentare controllable factors (notice

that the first factor is thecompany (internal operations)

Macro Factors: Indirect

influence and are mostlyuncontrollable. These factorsmake up the typical PEST forces

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Macro Factors:Macro Factors:Macro Factors:Macro Factors:

Political Factors / Legal

Factors Economic Factors

Social/ Cultural Factors

Technological Factors

It is important to always FOCUS your PEST factors to the specific industry thatyou are studying and not stray into vague and irrelevant or very broad macrofactors that are not related to your business operations.The PEST factors that you list in your marketing report should be closelycorrelated to the nature of your market, products and business operations

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PEST and Marketing (some examples)

Political Factors Impact on Marketing

Stability of government

Policies

Determines market attractiveness-

should the form move into thiscountry? (global marketing)

Legal Factors Impact on Marketing

Laws relating to conduct of

business

Product standards

Product labelling

Regulations on advertising andpromotions

Pricing

Types of direct marketing allowed

Strategy in Marketing (Pearson Asia 2009)

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Economic Factors Impact on Marketing

National Income/GDP/Economic Growth

Interest rates

Level of competition

Affordability levelsPurchasing power and outlook

Price level

Social Factors Impact on Marketing

Changing demographics

Lifestyles

Culture and subcultures

Segmentation/Targeting

Advertising and promotional

appeals

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Technology Factors Impact on MarketingNew breakthroughs/ innovations New product development (NPD)

strategies

Identifying innovators and early

adopters

Note that not all the PEST factors will be the same for all

markets and industries. It is important to fit the productyou are studying to specific types of PEST factors that have

a direct connection to that product

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Linking PEST and Marketing StrategyLinking PEST and Marketing StrategyLinking PEST and Marketing StrategyLinking PEST and Marketing Strategy Make the PEST Industry specific

Write the examples of PEST using onlyinformation related to the business and the

product category

Show trends and changes

Identify which PEST factors will have significantsignificantsignificantsignificant

impactimpactimpactimpact on your marketing strategies

Think of how these PEST factors will havelinkages to marketing strategies in the future

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(source: Kotler, Armstrong and da Silva 2006: Pearson Asia) 2-13


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Areas of Internal Analysis:

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= will be covered in Lecture Five (Marketing Metrics)


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SWOT analysisSWOT analysisSWOT analysisSWOT analysisAfter you have completed the External and Internal Analyses, you

can bring all the factors together into a SWOT framework

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Conducting SWOT analysis involves identifying the key issues facingthe company. These issues must be RELEVANT to the business andshould avoid talking about generalities. A good SWOT analysis shouldthrow up some IMPLICATIONS for future action..

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Very often all we do is a mere

SWOT ListingListingListingListing

Strengths........

..

Weaknesses:........

..

Opportunities..

........

Threats..

........

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There are severalThere are severalThere are severalThere are several limitations:limitations:limitations:limitations:

SWOT is historical- what happened before

SWOT may tell us what is already happening;

nothing new that we dont know SWOT is descriptive-does not help the

planner to identify issues and implications

SWOT may be too broad-brush (overallcompany based rather than issue based)

SWOT may be based on inaccurate

information SWOT does not incorporate competitors

perspective

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The arising

from SWOT analysis

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Diagnosis and Prognosis.

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The implication for Strategic MarketingThe implication for Strategic MarketingThe implication for Strategic MarketingThe implication for Strategic Marketing

We can do as much investigation as we can in

order to dig up information about the company

and its marketing operations

But once we gather this information we need to

carry out recommendations as to what is the

NEXT course of action

This means that SWOT should not be just a

historical or concurrent review (what is

happening now) but should also be able to

extrapolate what is likely to happen in future.

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Making SWOT more effective: 1. Find outMaking SWOT more effective: 1. Find outMaking SWOT more effective: 1. Find outMaking SWOT more effective: 1. Find out whichwhichwhichwhich factorsfactorsfactorsfactors

carry more weight or impact (be discriminating; usecarry more weight or impact (be discriminating; usecarry more weight or impact (be discriminating; usecarry more weight or impact (be discriminating; use

judgment)judgment)judgment)judgment)

Strengths........

..

Weaknesses:........

..

Opportunities..

........

Threats..

........

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Making SWOT more effective: 2. Try to determine howMaking SWOT more effective: 2. Try to determine howMaking SWOT more effective: 2. Try to determine howMaking SWOT more effective: 2. Try to determine how

best tobest tobest tobest to match or linkmatch or linkmatch or linkmatch or link the SWOT factors such that we arethe SWOT factors such that we arethe SWOT factors such that we arethe SWOT factors such that we are

able to see possible action strategies emergingable to see possible action strategies emergingable to see possible action strategies emergingable to see possible action strategies emerging

Strengths........

..

Weaknesses:........

..

Opportunities..

........

Threats..

........

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Strengths Weaknesses

Opportunities Threats

S1:Strong brand reputation

S2:Substantial financialbacking

S3:Service managementexpertise in hospitalitybusiness

W1: Limited

number ofproperties(locations)

O1: Growth in air travel dueto emergence of budgetairlines

O2: Emergence of thefrequent/repeat leisuretraveler on intra-Asiandestinations

T1:Competitor hotelsopening up in locations

where we are absentT2: Growth in no-frills hotels

Exam

pleofa

n

Asian

Hotel

Strategy in Marketing (Pearson Asia 2009)2-24


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ApplyingApplyingApplyingApplyingSWOT to Marketing Strategies

(source: Kotler, Armstrong and da Silva 2006: Pearson Asia)2-25


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How to analyze the key competitiveforces in a given industry

Industry AnalysisIndustry AnalysisIndustry AnalysisIndustry Analysis

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IndustryIndustryIndustryIndustry Group of firms that produce products and

services that fall within a specific category/

categories

Example the auto industry; the airline industry;

the hospitality industry

Within the industry there are many players

Each fighting for a slice of the market share

Within the industry, market and technologicalforces can shift market conditions

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What factors determine an industrys

attractiveness?

The growth prospects in the industry- whatenvironmental factors will be impacting theindustry (favorable/ unfavorable?)

The size of market demand/ purchasing power

Number and size of competitors

Intensity of rivalry- what kinds of strategies arebeing used by competitors?

Risk factors / unforeseen circumstances

Government policies

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Most popular model used in

industry analysis:Professor Michael Porter (Harvard Business School)

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Consider what this model means:Threats in an industry comes fromall sides or corners

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Detailed version of the model:

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Rivalry Among Existing

Firms

Source: Thomson and Strickland (2006)2-32


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Threat of New Entrants



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Supplier Power



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Buyer Power



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Substitutes


St t i M k ti (P A i 2009)


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Using the Porter Five Forces Model as a example:

Where are wenow?

Where are we

going?

How do we get

there?

SituationAnalysis

StrategyFormulation

Marketing MixStrategies


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Where areWhere areWhere areWhere are we nowwe nowwe nowwe now ???? To assess what forces are impacting on

our industry?

Note: it is important to use those factorsit is important to use those factorsit is important to use those factorsit is important to use those factors

that are only specific to your industrythat are only specific to your industrythat are only specific to your industrythat are only specific to your industry

What are the bigger or biggest threats? Is the market attractive overall?

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Five Star versus Five Skull Industries all the industry forces appear to beattractive and support growth andprofit opportunities

all the industry forces appear to be

unattractive and pose great threats to

the company in all aspects4-392-39


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How to apply the model to an industry:

Asian Airline Market

Source: Kotler and da Silva (2006) Pearson Asia4-40

Learning point: use only those factors that are

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Where areWhere areWhere areWhere are we goingwe goingwe goingwe going???? Will there be new players coming into the

market?

Will more power move into the hands of the

buyer?

Will technological improvements introduce new

substitutes?

Will existing players exit the market? And will

existing competitors grow or decline?

Will suppliers pose greater or lesser threats in

the longer term?

How do we see the industryforces shifting over time?

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Bargaining Power ofSuppliers:

.

.

.

Bargaining Power ofBuyers:

.

.

.

Threat of NewEntrants:

.

.

.

Threat ofSubstitutes:

.

.

.

Rivalry in the Industry:

..

.


.

.

.


.

.

.


.

.

.


.

.

.


..

.


.

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.

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.

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.

.

.


..

.


.

.

.


.

.

.


.

.

.


.

.

.


..

.

Time Period t(present) Time Period (t+1)(future)

The industry analysis model can be used to track changes inforces over time (where is our industry heading?)

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The industry analysis model can be used to estimate which


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Bargaining Power of

Suppliers:

.

.

.

Bargaining Power of

Buyers:

.

.

.


.

.

.


.

.

.


.

.

.

Bargaining Power of

Suppliers:

.

.

.

Bargaining Power of

Buyers:

.

.

.


.

.

.


.

.

.


.

.

.

y yset of forces will become greateror lesserthreats

Note: The size of theboxes and arrows indicate

which forces becomebigger or lesser threats

Less threat

Greater threat


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H d t th ?H d t th ?H d t th ?H d t th ? M k ti St tM k ti St tM k ti St tM k ti St t


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How do we get there?How do we get there?How do we get there?How do we get there? Marketing StrategyMarketing StrategyMarketing StrategyMarketing Strategy

Implications:Implications:Implications:Implications:

The Five Forces model must also be

analyzed from a marketing point of view

Think of some of the areas of the

marketing mix that could impact the five

forces1.1.1.1. Product differentiation is one of the keyProduct differentiation is one of the keyProduct differentiation is one of the keyProduct differentiation is one of the key

strategiesstrategiesstrategiesstrategies

2.2.2.2. Changes in consumer buying behaviorChanges in consumer buying behaviorChanges in consumer buying behaviorChanges in consumer buying behavior3.3.3.3. The distribution channel and the supply chainThe distribution channel and the supply chainThe distribution channel and the supply chainThe distribution channel and the supply chain

3

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Examples of marketing strategies linked to the

five forcesIndustry Force Marketing Strategies Impacting

Threat of new entrants What kinds of marketing strategies could we use toblock competitors or discourage them from entering a

market? Price? Product differentiation?

Rivalry within the industry What kinds of marketing strategies are used among

firms already in the industry to compete with each

other? How intense is the rivalry? Gentlemen or cut-

throat?

Buyer Power What factors are changing customer preferences? Do

consumers have more options or better informationthrough the Web? (more power). Do consumers buy

directly from the supplier? (Amazon.com/ Dell)

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Examples of marketing strategies linked to the

five forcesIndustry Force Marketing Strategies Impacting

Supplier Power Depends on the costs of the product/components

supplied- significant (fuel) or insignificant (basic

commodities)?

Substitutes Watch for indirect competition- the future threats

In most cases, substitution is inevitable due to theproduct life cycle/ technological improvements.

MKTG 1265 (AMCA)

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U i h d l d i i i Strategy in Marketing (Pearson Asia 2009)


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Threat ofNew

Entrants

BargainingPower ofSuppliers

BargainingPower ofBuyers

Rivalry in theIndustry

(existing

players)

1

2

3

4

5

Threat ofSubstitutes

To reduce the threats of newentrants we will ensure scaleeconomies and build strongbrands as barriers to entry

To reduce the threat of supplier

power we will integratedownstream and source for

more qualified suppliers

To reduce the threats of buyers(trade) we will developalternative channels ofdistribution including e-

commerce channels

Using the model to determine interveningstrategies (what must be done?)

(See later lecture on generic strategies)

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Customer and Market AnalysisCustomer and Market AnalysisCustomer and Market AnalysisCustomer and Market Analysis

After completing the Industry Analysis

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Customer AnalysisCustomer AnalysisCustomer AnalysisCustomer Analysis Who are main customer segments?

What are the changes in consumer trends in

terms of communication, transacting and

interacting with the marketing firm?

How do we use Consumer Behavior information

and trend tracking to guide marketing strategies?

Can consumer behavior be influenced or

changed by the marketing strategies of the firm?

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What is aWhat is aWhat is aWhat is a

market?market?market?market? Consumers with NEEDS + Purchasing Power

Markets need not be physically constrained

Think of the

Markets are often artificially bounded but in real

life they are constantly shifting boundaries

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Understanding markets always starts with the question:what needs are we trying to meet/satisfy?

Source: Kotler and da Silva (2006) Pearson Asia 2-51


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StudyingStudyingStudyingStudying marketsmarketsmarketsmarkets Secondary data: demographics

Primary data: psychographics (life-styles)

Need to track changes

New emerging trends

Forecasts and trending (time series)

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Delineating Markets

Geographically defined

Product-based

Industry category

Technology-

specific

Traditional view: marketsare clearly bounded

New view: Markets arebecoming amorphous

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The problem with defining industries andThe problem with defining industries andThe problem with defining industries andThe problem with defining industries and


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The problem with defining industries andThe problem with defining industries andThe problem with defining industries andThe problem with defining industries and

marketsmarketsmarketsmarkets Many markets are in

a dynamic state

They are constantly

evolvingas

technology andcustomer needs

change

Market boundariesare becoming

blurred

Just what is your

phone today?Music?Computing?GPS?

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M k t hiM k t hiM k t hiM k t hi ( )( )( )( )



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Markets are morphingMarkets are morphingMarkets are morphingMarkets are morphing(convergence)(convergence)(convergence)(convergence)

MP3

MobilePhone

Notebook

Digital

Camera

GPS Sat Nav2-55


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Brands that show crossover effect

Porsche Cayenne Sony PS3

Chopard LadiesWatch




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Market Segmentation:Breaking downthe totalmarket intosegments

and then decidingwhich one /s youwant to target at

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Importance of Market Segmentation

Marketsegmentation

More precise

definition ofcustomers needsand wants

More accurate

marketingobjectives

Improved

resourceallocation

Better marketing

results



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Important issueImportant issueImportant issueImportant issue in Segmentation:You must be able to pick the right set ofsegmentation variables that best describes the way

in which the market for that product should besegmented. Otherwise your segmentation is invalid.

Demographic

Psychographic

Geographic

Benefit

Usage

Occasion

????

????

?? ??

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Do you think INCOMEINCOMEINCOMEINCOME is the best


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y

way to segment the market forthese two brands?

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How to choose the right bases for

t ti


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Figure 6.2

segmentation


Application of Multi-Stage Segmentation


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(Banyan Tree Example)


Coffee drinkers across Asian cities sharecommon needs and gravitate towards a


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StarbucksBangkok

StarbucksKL

StarbucksSingapore

common needs and gravitate towards a

global brand- Starbucks

STRATEGICALLYEQUIVALENTSEGMENTS

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Business markets can be segmented as wellBusiness markets can be segmented as wellBusiness markets can be segmented as wellBusiness markets can be segmented as well


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Business markets can be segmented as wellBusiness markets can be segmented as wellBusiness markets can be segmented as wellBusiness markets can be segmented as well



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Segmentation in airline industry- B2B marketing:


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The Airbus range of aircraft

Seats

Range2-68

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Therefore different aircraft models will suitdifferent airlines


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d e e t a es

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The kind of aircraft bought by different

airlines will depend on the routes they fly(place strategy) and how the airline is

positioned (full service or budget airline) Strategy in Marketing (Pearson Asia 2009)


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Environment and IndustryAnalysis

Past Year Exam Questions

70MKTG 1265 (AMCA)

These are samples of questions that test different aspects

of the topics covered in this lecture. The actual examquestion will of course be linked to the case study

assigned.

Specimen Question # 1:Specimen Question # 1:Specimen Question # 1:Specimen Question # 1:


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What is the purpose of a Porter's Five Forces

analysis? Using the factors outlined by Porter,

evaluate the strength of the threat ofpotential entrants in a given industry, clearly

stating any assumptions you may need to

make. Briefly state what action(s) a mangermight take to attempt to reduce the strength

of that force.

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What is the purpose of the Porter's Five

Forces Model? Briefly describe the Five

Forces that should be analysed.

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In undertaking a Porters Five Forces

analysis for a given industryindustryindustryindustry, what are five

factors that you would evaluate to assess

the strength of the rivalry of existingrivalry of existingrivalry of existingrivalry of existing

competitorscompetitorscompetitorscompetitors for the industry? Explain how

each factor impacts on the intensity of

rivalry for that industry. Clearly state any

assumptions you may need to make.

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In undertaking a Porters Five Forces analysis

for a given industry, what are five factors that

you would evaluate to assess the strength of

the threat of potential entrantsthreat of potential entrantsthreat of potential entrantsthreat of potential entrants for the

industry? Explain how each factor impacts onthe likelihood that a potential entrant will

enter that industry. (state any assumptions

you make)

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What is the purpose of a Porters Five

Forces analysis? Using the factors outlined

by Porter, evaluate the strength of the rivalry

amongst existing competitors in the (case

study) industry, stating any assumptions you

may need to make. Briefly state what

action(s) the (case study) company has

taken in the past, or could undertake in thefuture, to attempt to reduce the strength of

that force.


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