West, Ford, & Ibrahim Strategic Marketing, 3rd edition

West, Ford, & Ibrahim Strategic Marketing, 3rd edition

West, Ford, & Ibrahim Strategic Marketing, 3rd edition Chapter 3: Environmental and internal analysis: market information and intelligence Douglas West, John Ford, and Essam Ibrahim, 2015. All rights reserved. Structure A. INTRODUCTION 1. Overview and Strategy Blueprint 2. Marketing Strategy: Analysis & Perspectives C. WHERE DO WE WANT TO BE?

B. WHERE ARE WE NOW? 3. Environmental & Internal Analysis: Market Information & Intelligence 4. Strategic Marketing Decisions, Choices & Mistakes 5. Segmentation, Targeting & Positioning Strategies 6. Branding Strategies 7. Relational & Sustainability Strategies D. HOW WILL WE GET THERE? E. DID WE GET THERE?

14. Strategy Implementation, Control & Metrics West, Ford, & Ibrahim: Strategic Marketing, 3rd edition 8. Product Innovation & Development Strategies 9. Service Marketing Strategies 10. Pricing & Distribution Strategies 11. Marketing Communications Strategies 12. International Marketing Strategies 13. Social and Ethical Strategies Strategic analysis is concerned with understanding

the strategic position of the organisation in terms of its external environment, internal resources and competencies, and the expectations and influence of stakeholders West, Ford, & Ibrahim: Strategic Marketing, 3rd edition Where are we now? Environmental and Internal Analysis What are the major trends and probable changes in the marketing environment?

Who are the main competitors, and how we can differentiate our offerings from competition? Who are the target customers, and what are their needs? What competitive advantages and core competences do the organisation have? Can we sustain it?

West, Ford, & Ibrahim: Strategic Marketing, 3rd edition The Marketing Environment Macroenvironment Economic Political/Legal Microenvironment Suppliers Customers

Company Distributors Competitors Social Environment Technological West, Ford, & Ibrahim: Strategic Marketing, 3rd edition Macro (remote) environment: PESTLE model

PESTLE: Political Factors Economic Factors Socio-cultural Factors Technological Factors Legal Factors Environment Factors A framework that assists in analyzing the external (remote) environment and identifying the existing opportunities & threats West, Ford, & Ibrahim: Strategic Marketing, 3rd edition Political-Legal Environment The political and legal environment consists of laws,

government agencies, and pressure groups that influence various organizations and individuals. Increase in business legislation to protect : Companies from unfair competition : example if company wants to do business in china, they have to have some sort of joint initiative with a local company. Consumers from unfair business practices by incorporating product quality measures. The environment from industrial practices. Growth of special interest groups such as NGOs, organized citizens, and political action committees (PACs) lobby government officials and pressure businesses to respect the rights of consumers.

West, Ford, & Ibrahim: Strategic Marketing, 3rd edition Consumers from unfair business practices West, Ford, & Ibrahim: Strategic Marketing, 3rd edition The environment from industrial practices West, Ford, & Ibrahim: Strategic Marketing, 3rd edition Political-Legal Environment Political factors

Political stability Regime orientations Government stability Pressure groups Trade unioin power Legal factors

Legislative structures Anti-trust laws Trade policies Employment legislation Foreign trade regulation West, Ford, & Ibrahim: Strategic Marketing, 3rd edition Economic Environment The economic environment consists of factors that affect consumer purchasing power and spending patterns.

Income distribution patterns: i) very low incomes ii) mostly low incomes iii) very low very high incomes iv) low, medium, high incomes v) mostly medium incomes. For a brand like Lamborghini which costs more than $150,000, markets where the income distribution is type i and ii is not feasible. One of the largest markets for the brand is Portugal (type iii) which has got enough wealthy families to afford the car even though they have a lot of poor families. On the contrary, brands like Meril and Magic can be exported to countries like India and Nepal because they fall under type iv and ii. West, Ford, & Ibrahim: Strategic Marketing, 3rd edition Economic Environment

Types of industrial structures: Subsistence economies: non-monetary economy which relies on natural resources to provide for basic needs, through hunting, gathering, and agriculture. In such countries, there exists very little opportunity for marketers. Example: Papua New Guinea. Raw material exporting economies: like Saudi Arabia where there exists a good market for luxury goods. Industrializing economies: like India, Egypt, and the Philippines, where there is a growing middle class and a new rich class who demand quality goods sold just like in the industrial economies. Industrial economies: like countries in the western Europe, with medium and rich markets demanding for all sorts of quality goods and services to address their needs. West, Ford, & Ibrahim: Strategic Marketing, 3rd edition

12 Socio-Cultural Environment Cultural factors strongly affect how people think and how they consume. Culture is a collection of shared values and beliefs that are reflected as acceptable behaviour by a specific group of people. Culture comprises of: core beliefs and values which are passed on from parents to children and are reinforced by schools, religious institutions, and governments. For example: believing in marriage and religion is a core belief. secondary beliefs and values are more open to change. For example: believing that ones dress should reflect ones religiosity.

Marketers can utilize the core and secondary beliefs in finding opportunities to do business: 100% halal soap Aromatic. Islamic banking. Ethnic Pakistani dresses - Churidar Kameez. Ethnic music Sufi rock and Punjabi Bhanga.

West, Ford, & Ibrahim: Strategic Marketing, 3rd edition Socio-Cultural Environment Demographics Lifestyles Social mobility Education levels Attitudes

Consumerism West, Ford, & Ibrahim: Strategic Marketing, 3rd edition Technological Environment Forecasting technological changes is a pre-requisite to success in doing business. Companies should continuously pursue product development strategy innovate new products that address the same need. Also, technological advancement eases the process of doing business as easier coordination can be done through virtual team meetings.

West, Ford, & Ibrahim: Strategic Marketing, 3rd edition Demographic Environment Demography is the study of human population. Understanding the demographic environment is significant because it involves statistics related to humans and humans make up consumer markets.

World wide population growth: Earths population totaled 7.4 billion as of August 2016 and will increase to 11.2 billion in the year 2100 according to United Nations. Population growth is highest in developing countries compared to developed countries. However, growing population does not mean growing markets unless there is sufficient purchasing power hence companies operating in developing countries need to develop a careful strategy to address the needs of the consumers belonging to the bottom of the pyramid. 16 Demographic Environment

Population Age Mix: National populations varies in their age mix. A population can be subdivided into six age groups (cohorts) preschool, school-gae children, teens, young adults age 25-40, middle-aged adults age 40-65 and older adults age 65 and up. For marketers, the most populous groups shape the market environment. Ethnic markets: Ethnic and racial diversity varies across countries. At one extreme you have Japan, where almost everyone is Japanese; at the other end you have USA, where nearly 25 million people more than 9% of the population were born in another country. Example1: Telecommunication services are tailored for different ethnic groups; Example2: grocery shops

stock merchandise based on the needs of ethnic groups. Religion Markets: India has a diverse population in terms of religion 80% of Indians are Hindus, 13.4% are Muslims, 2.3% are Christians, 1.9 percent are Sikhs. The population is estimated at 169 million (2015). About 87% of Bangladeshis are Muslims, followed by Hindus (12%), Buddhists (1%) and Christians (0.5%). Example1: In Malaysia, Pakistan and Bangladesh all food products are Halal because companies have taken into consideration the religious sentiments. Example2: In India, there are hardly any restaurants that sell beef items. Example3: In Bangladesh Square launched Madia Attar for the Muslim market. 17 Demographic Environment

Educational groups: the population in any society falls into five educational groups: illiterates, high school dropouts, high school certificates, university degrees. Over two third of the worlds 785 million illiterate adults are found in only 8 countries India, China, Bangladesh, Pakistan, Nigeria, Ethiopia, Indonesia, and Egypt. Of all the illiterate adults in the world, two-thirds are women.

The trend of women getting white collar jobs is increasing but at a low rate in Bangladesh. The education level of the society has implications for marketers. Example1: high tech brands target consumers who are more educated. 18 Demographic Environment

Household patterns comprise of Single person households, nuclear households, joint family households. The decline in joint family households and the corresponding increase in nuclear families has serious implications for marketers with the decision making roles now shifted to the younger family heads. The rise of nuclear families has also resulted in an increase in demand for child care services which were previously provided by the elderly and the adult members of the joint family. This has also adversely impacted the transfer of values to children from grandparents. 19

A presentation by Varqa Shamsi West, Ford, & Ibrahim: Strategic Marketing, 3rd edition Bahar 20 Strategic Analysis of the Micro Environment Rivalry among existing companies

The rivalry between companies in the market increases when: The competitors in the market are evenly balanced in terms of market share. For example, in the UK chocolate market, Cadbury, Nestle, and Mars, all command roughly equal market shares and resource strengths. Competition between them for extra market share is intense, leading to high levels of advertising spend, strong price competition and continuous launch of new products. During periods of low market growth rate: this happens when market is reaching saturation. As a result, market is not growing (mature and decline stages of PLC). Hence, competitors will try to grab market share from the competitors. Example of Parachute.

Where exit barriers are high: this happens when the companies have invested heavily. Hence, they are more likely to compete hard for success. For example mobile operators in Bangladesh like Robi and Banglalink. 22 Practical Example: Pure coconut oil Market in Bangladesh Pure Coconut Oil market share 20.00% Parachute Swan Tibet Jui

Other local 11.70% 2.20% 65.60% 0.50% 23 Rivalry among existing companies

Where product/service differentiation is low: In markets for instance banking services and telecommunication services, consumers see little variation. As a result there exists more rivalry amongst competitors. This is because, customer switching cost (financial, inconvenience etc) is low. Where fixed costs are relatively high: high fixed costs relative to variable costs require greater sales volume to cover them. Until that volume is achieved, rivalry can be intense. For example power supply industries in the UK. 24

Threat of New Entrants Entry barrier can be low when: Cost of new entry are low: The internet for example has meant that many industries which once required substantial capital and investment for market entry are now more vulnerable to entry by lower resourced competitors. For example clothing companies / make up companies open their businesses on Facebook. Existing distribution are open to use: There exists third party marketing

intermediaries through which a new company can sell their products. For example: FMCG companies. Little competitive retaliation is anticipated: when existing companies are weak or lack the ability to defend their markets. For example, in the 1990s, the business model of large airline carriers could not counter low cost entrants. 25 Facebook pages 26 Low cost airlines (Ryan air)

In 2016, Ryanair was both the largest European airline by scheduled passengers carried, and the busiest international airline by passenger numbers 28 Threat of New Entrants Entry barrier can be low when: Differentiation is low: When differentiation between the offerings of existing companies is low there is likely to be more

scope for new entrants to offer something unique and value in the market. Example: Apple There are gaps in the market: In markets where the existing companies are not adequately serving the needs of customers there is opportunity for new entrants to establish themselves in these segments. For example: the success of Mediplus, shampoo market. 29 30 The threat of Substitutes

Existing or new companies can launch new innovative products /services which can satisfy the same needs of the consumers. This can sometimes result in the existing products becoming redundant. Example 1: storage needs of consumers. Example 2: Greyhound buses and Amtrack trains have seen profitability threatened by the rise of air travel

31 33 The threat of Substitutes Bargaining Power of Suppliers

Suppliers tend to have more bargaining power when: Cost of switching the supplier is high: if the supplier provides a key ingredient for the purchaser that is difficult or costly to source elsewhere, their bargaining power will increase. For example: the cost of switching suppliers from China was high for Spring Air Freshener cans. Suppliers offerings are highly differentiated: when suppliers products are different, either through tangible differences in standards, features, or design, or through less tangible differences such as branding and reputation, they are likely to hold more power. Example 1: Intel inside. Example 2: Oil Producers. 35

Bargaining Power of Suppliers Intel is the supplier of computer chips has a strong brand image and value. 36 Bargaining Power of Buyers Buyers tend to be more powerful where the following is true:

There are readily available alternative sources of products from other companies: In other words, there are many other companies selling the same type of product. Buyer switching cost is low: where the inconvenience or cost of switching is low, greater power resides with the buyer who can shop around more to get better deals. Example: internet service providers giving free installations. 37 Analysis of internal environment The Purpose:

Appraise/audit the organisation resources and capabilities, Assess the organisation competitive advantages Identify the organisation major strengths and weakness Analysis of internal environment The principal idea of a value chain is examining all activities a firm performs and how they interact to differentiate a firms value chain from a competitors value chain

RBV approach The Resource Based view (RBV): concentrates upon the available tangible and intangible resources of the organization and how best to use them in achieve a sustainable competitive advantage (SCA). According to RBV, firms have two types of resources: tangible and intangible: Tangible resources refer to physical assets owned by firm: such as land, manufacturing plants, warehouses, human resources, research labs, distributors, machineries. Intangible resources lacks a physical form such as brand image and organizational culture which take a long time to build.

40 Resource Based Approach to Internal Analysis 41 SWOT Analysis The SWOT analysis is an extremely useful tool for understanding and decision-making for all sorts of situations in business

SWOT is an acronym for: Strengths, Weaknesses, Opportunities, Threats. Strengths and weaknesses are internal factors. Opportunities and threats are external environmental factors affecting the business. 42

What is SWOT? A presentation by Varqa Shamsi Bahar 43 Criticism of SWOT Matrix The SWOT matrix is sometimes generated without a proper analysis of the external and internal environment. Hence, the SWOT parameters may not be the right reflection of reality. The SWOT matrix is not strategic in

nature. It does give a set of strategic choices and recommendations to improve a companys market position. 44 Heinz Weihrich (1982) TOWS matrix 45

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