amca lecture two environment and industry analysis

Lecture Two

Environment and Industry Analysis

MKTG 1265

Advanced Marketing Concepts and

Applications

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AgendaAgendaAgendaAgenda� Understanding macro-environmental

forces and its impact on marketing

� PEST and SWOT Analyses

� Industry Analysis

� Application of the Porter’s 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 Analysis Porter, M.E. (2008). The Five Competitive Forces that Shape Strategy, Harvard Business Review, January, 78-93.

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

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Areas of External Analysis:

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: covered in this module

STP: covered in your previous

marketing courses

Covered in your previous BB

course

Moving from macro to micro

aspects….

Market and Customer Analysis

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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 firm’s marketing operations and to some extent are controllable factors (notice that the first factor is “the company” (internal operations)

Macro Factors: Indirect influence and are mostly uncontrollable. These factors make 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 that you are studying and not stray into vague and irrelevant or very broad macro factors that are not related to your business operations. The PEST factors that you list in your marketing report should be closely correlated 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 governmentPolicies

Determines market attractiveness-should the form move into this country? (global marketing)

Legal Factors Impact on Marketing

Laws relating to conduct of business

Product standardsProduct labellingRegulations on advertising and promotionsPricingTypes of direct marketing allowed

© Strategy in Marketing (Pearson Asia 2009)

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PEST and Marketing (some examples)

Economic Factors Impact on Marketing

National Income/ GDP/Economic GrowthInterest ratesLevel of competition

Affordability levelsPurchasing power and outlook Price level

Social Factors Impact on Marketing

Changing demographicsLifestylesCulture and subcultures

Segmentation/Targeting Advertising and promotional appeals

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PEST and Marketing (some examples)

Technology Factors Impact on Marketing

New breakthroughs/ innovations New product development (NPD) strategiesIdentifying 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 product

you 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 only

information related to the business and the

product category

� Show trends and changes

� Identify which PEST factors will have significant significant significant significant

impact impact impact impact on your marketing strategies

� Think of how these PEST factors will have

linkages 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)

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 facing the company. These issues must be RELEVANT to the business and should avoid talking about generalities. A good SWOT analysis should throw 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 several There are several There are several There are several limitations:limitations:limitations:limitations:� SWOT is historical- what happened before

� SWOT may tell us what is already happening; nothing new that we don’t know

� SWOT is descriptive-does not help the planner to identify issues and implications

� SWOT may be too broad-brush (overall company 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 out Making SWOT more effective: 1. Find out Making SWOT more effective: 1. Find out Making SWOT more effective: 1. Find out whichwhichwhichwhich factorsfactorsfactorsfactors

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

judgment)judgment)judgment)judgment)

Strengths•..•..•..•..•..

Weaknesses:•..•..•..•..•..


Threats•..•..•..•..•..

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

best to best to best to best to match or link match or link match or link match or link the SWOT factors such that we are the SWOT factors such that we are the SWOT factors such that we are the 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:•..•..•..•..•..


Threats•..•..•..•..•..

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Strengths Weaknesses

Opportunities Threats

S1:Strong brand reputation

S2:Substantial financial backing

S3:Service management expertise in hospitality business

W1: Limited number of properties (locations)

O1: Growth in air travel due to emergence of budget airlines

O2: Emergence of the frequent/repeat leisure traveler on intra-Asian destinations

T1:Competitor hotels opening up in locations where we are absent

T2: Growth in no-frills hotels

Example of an

Asian

Hotel

© Strategy in Marketing (Pearson Asia 2009)2-24

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ApplyingApplyingApplyingApplying SWOT to Marketing Strategies…

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

How to analyze the key competitive forces 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 technological

forces can shift market conditions

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What factors determine an industry’s

attractiveness?

� The growth prospects in the industry- what environmental factors will be impacting the industry (favorable/ unfavorable?)

� The size of market demand/ purchasing power� Number and size of competitors� Intensity of rivalry- what kinds of strategies are

being 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 from all 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

Threat of New Entrants


Supplier Power


Buyer Power


Substitutes


Using the Porter Five Forces Model as a example:

Where are we

now?Where are we

going?

How do we get

there?

Situation Analysis

StrategyFormulation

Marketing MixStrategies


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Where are Where are Where are Where are we now we now we now we now ????� To assess what forces are impacting on

our industry?

� Note: it is important to use those factors it is important to use those factors it is important to use those factors it 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?

1

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Five Star versus Five Skull Industries

“ all the industry forces appear to be

attractive and support growth and

profit opportunities”

“ all the industry forces appear to be

unattractive and pose great threats to

the company in all aspects”4-392-39

How to apply the model to an industry:

Asian Airline Market

Source: Kotler and da Silva (2006) Pearson Asia4-40Learning point: use only those factors that are specific to the industry you are studying. 2-40

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Where are Where are Where are Where 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 industry forces shifting over time?

2

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Bargaining Power of Suppliers:

•………….

•………….

•………….

Bargaining Power of Buyers:

•………….

•………….

•………….

Threat of New Entrants:

•………….

•………….

•………….

Threat of Substitutes:

•………….

•………….

•………….

Rivalry in the Industry:

•………….

•………….

•………….


•………….

•………….

•………….


•………….

•………….

•………….


•………….

•………….

•………….


•………….

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•………….


•………….

•………….

•………….


•………….

•………….

•………….


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•………….

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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 in forces over time (where is our industry heading?)

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•………….

•………….

•………….


•………….

•………….

•………….


•………….

•………….

•………….


•………….

•………….

•………….


•………….

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•………….

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•………….

The industry analysis model can be used to estimate which set of forces will become greater or lesser threats…

Note: The size of the boxes and arrows indicate which forces become bigger or lesser threats

Less threat

Greater threat


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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 Strategy Marketing Strategy Marketing Strategy Marketing 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

forces

1.1.1.1. Product differentiation is one of the key Product differentiation is one of the key Product differentiation is one of the key Product 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 behavior

3.3.3.3. 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 to block 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 information through 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 forces

Industry 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 threatsIn most cases, substitution is inevitable due to the product life cycle/ technological improvements.


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Threat of New

Entrants

Bargaining Power of Suppliers

Bargaining Power of Buyers

Rivalry in the Industry

(existing

players)

1

2

3

4

5

Threat of Substitutes

To reduce the threats of new entrants we will ensure scale economies and build strong brands as barriers to entry

To reduce the threat of supplier power we will integrate

downstream and source for more qualified suppliers

To reduce the threats of buyers (trade) we will develop alternative channels of distribution including e-

commerce channels

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

(See later lecture on generic strategies)2-47


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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 a What is a What is a What 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”)

2-52© Strategy in Marketing (Pearson Asia 2009)

Delineating Markets

Geographically defined

Product-based

Industry category

Tec

hnol

ogy-

spec

ific

Traditional view: markets are clearly “bounded”

New view: Markets are becoming “amorphous”

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The problem with defining industries and The problem with defining industries and The problem with defining industries and The problem with defining industries and marketsmarketsmarketsmarkets…………

� Many markets are in

a dynamic state

� They are constantly

evolving as

technology and

customer needs

change

� Market boundaries

are becoming

blurred

Just what is your phone today?Music?Computing?GPS?

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

MP3

Mobile Phone

Notebook

Digital Camera

GPS Sat Nav2-55


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Brands that show crossover effect

Porsche Cayenne Sony PS3

Chopard Ladies Watch

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Market Segmentation:

Breaking down the total market into segments…

… and then deciding which one /s you want to target at

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Importance of Market Segmentation

Marketsegmentation

More precise definition of customers needs and wants

More accurate marketing objectives

Improved resource allocation

Better marketing results


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Important issue Important issue Important issue Important issue in Segmentation:You must be able to pick the right set of segmentation variables that best describes the way in which the market for that product should be segmented. Otherwise your segmentation is invalid.

Demographic

Psychographic

Geographic

Benefit

Usage

Occasion

????

????

?? ??

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Do you think INCOMEINCOMEINCOMEINCOME is the best

way to segment the market for

these two brands?

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Figure 6.2

How to choose the “right bases” for

segmentation

Source: Kotler and da Silva (2006) Pearson Asia2-63

Application of Multi-Stage Segmentation

(Banyan Tree Example)

Source: Kotler and da Silva (2006) Pearson Asia2-64

Starbucks Bangkok

Starbucks KL

Starbucks Singapore

Coffee drinkers across Asian cities share common needs and gravitate towards a

global brand- StarbucksS

TR

AT

EG

ICA

LL

Y E

QU

IVA

LE

NT

SE

GM

EN

TS

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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…………


Segmentation in airline industry- B2B marketing:

The Airbus range of aircraft

Seats

Range2-68

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Therefore different aircraft models will suit different airlines…

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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)

Environment and Industry Analysis

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 exam

question will of course be linked to the case study assigned.

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Specimen Question # 1:Specimen Question # 1:Specimen Question # 1:Specimen Question # 1:� What is the purpose of a Porter's Five Forces

analysis? Using the factors outlined by Porter,

evaluate the strength of the threat of

potential entrants in a given industry, clearly

stating any assumptions you may need to

make. Briefly state what action(s) a manger

might 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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Specimen Question # 2:Specimen Question # 2:Specimen Question # 2:Specimen Question # 2:

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� In undertaking a Porter’s Five Forces

analysis for a given industryindustryindustryindustry, what are five

factors that you would evaluate to assess

the strength of the rivalry of existing rivalry of existing rivalry of existing rivalry 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 Porter’s 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 on

the likelihood that a potential entrant will

enter that industry. (state any assumptions

you make)

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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 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 the

future, to attempt to reduce the strength of

that force.
