learning unit 3
DESCRIPTION
The Market Environment. Learning Unit 3. Outcomes. Why must managers understand the market environment? Discuss Porter’s 5 forces model Different structures in industry. AKA Task Environment. Uncontrollable. Change constantly. Substitutes pose a threat to existing products. - PowerPoint PPT PresentationTRANSCRIPT
Learning Unit 3
The Market Environment
Outcomes
Why must managers understand the market environment?
Discuss Porter’s 5 forces model Different structures in industry
External Environme
nt
Market Environme
nt
Macro Environme
nt
Environment businesses in same industry operate in
Market Environment
Uncontrollable Change
constantly
AKA Task Environment
New competitors
enter
Substitutes pose a threat to existing products
Change = Threat or Opportunity
Market Environme
nt
Competitors
Customers
SuppliersSubstitute Products
New entrants to the
industry
Why must managers understand the market environment?
Helps to define the competing arena.
Focus attention on competitors. Help determine key factors for
success. Helps to be pro-active when
changes occur. Helps to identify opportunities and
threats.
Characteristics of market environment Within immediate business
environment. Uncontrollable. Can be influenced.
Porter’s 5-Force Model
Forces impact market environment. Explains structures of industry. Different profit potential. 5 Forces that determine industry
structure:1. Competitors2. Customers3. Suppliers4. Substitute products5. Possible new entrants
Industry competitors
Porter's Five Forces Model
Source: Michael E. Porter Competitive Strategy: Techniques for Analyzing Industries and Competitors, (The Free Press, 1980)
Potentialentrants
Industry competitors
Rivalry amongexisting firms
Threat ofnew entrants
Porter's Five Forces Model
Source: Michael E. Porter Competitive Strategy: Techniques for Analyzing Industries and Competitors, (The Free Press, 1980)
Substituteproducts
Potentialentrants
Industry competitors
Rivalry amongexisting firms
Threat ofnew entrants
Threat ofsubstitutes
Porter's Five Forces Model
Source: Michael E. Porter Competitive Strategy: Techniques for Analyzing Industries and Competitors, (The Free Press, 1980)
Suppliers
Substituteproducts
Potentialentrants
Industry competitors
Rivalry amongexisting firms
Threat ofnew entrants
Bargaining powerof suppliers
Threat ofsubstitutes
Porter's Five Forces Model
Source: Michael E. Porter Competitive Strategy: Techniques for Analyzing Industries and Competitors, (The Free Press, 1980)
BuyersSuppliers
Substituteproducts
Potentialentrants
Industry competitors
Rivalry amongexisting firms
Threat ofnew entrants
Bargaining powerof suppliers
Bargaining powerof buyers
Threat ofsubstitutes
Porter's Five Forces Model
Source: Michael E. Porter Competitive Strategy: Techniques for Analyzing Industries and Competitors, (The Free Press, 1980)
Competitors
SA free market economy Competitive market environment
Comply to legal requirements = Compete in specific industry Experience fierce competition in SA
Highest market share Compete to acquire scarce resources Competition for skilled labour – Very
fierce! Extreme Salaries!
Advantage of healthy competitionLower prices Better quality products Organisation more productive Motivate to continuously improve Encourage regular introduction of
new products
Competition
Action Reaction
Come HungryCome Thirsty
Competition
Government role: Fair competition No monopoly
Competition commission Don’t abuse dominant positions
Competition Commission Press Release 11 May 2010
Computicket to face exclusionary conduct charges in Tribunal The Competition Commission has referred a case of exclusionary conduct against Computicket to the Competition Tribunal for adjudication. This case relates to the provision of outsourced ticket distribution services for entertainment events.
This referral follows five complaints that were lodged by Strictly Tickets CC, Soundalite CC (trading as Artslink), KZN Entertainment News and Reviews CC (trading as Going Places), L Square Technologies CC (trading as TicketSpace), and Ezimidlalo Technologies CC. These complaints were lodged during the period 2008/2009, and for purposes of investigation the Commission combined them, as they raised overlapping issues.
With a market share exceeding 95%, the Commission identified that Computicket is dominant in the market for outsourced ticketing services for entertainment events including theatres, festivals and live events. In its investigation the Commission found that Computicket entered into long term exclusive contracts with theatre owners, theatre producers, promoters’ and festival event organizers in the entertainment industry, preventing them from using any other ticketing provider. These contracts are predominantly for a period of three years, and have the effect of excluding Computicket’s rivals, with a harmful effect on consumers. This is alleged to have taken place from around 1999 to date.
“Computicket’s exclusive contracts prevent rivals from entering the market thereby reducing choice and convenience for consumers. As a result the commission and fees that it charges for its services are higher than they would have been in a competitive market,” said Commissioner Shan Ramburuth. The Commission has asked the tribunal to levy an administrative penalty of 10 percent on Computicket’s 2009 turnover and to declare the exclusivity clauses in its contracts with inventory providers as void and of no force or effect.
Customer
AKA market & buyers All individuals with the need for an
organisations G&S Ability to pay for the G&S
CONFLICT! Organisation = Maximum profit Customer = Highest quality lowest price
Customer
Know who your customer is! Age Gender Marital Status Size of their families Literate or not
Purchasing power and buyer behaviour.
Customer
Design G&S to satisfy unique needs. Market research!
Customer
Large bargaining power Force prices down Bargain for higher quality Play suppliers against each other
Do no mislead! False or misleading
advertising
03 Aug 2010Mr Read lodged a consumer complaint against a Vodacom print advertisement appearing in the Sunday Times during May 2010.
The advertisement promotes the respondent’s broadband offerings and contains, inter alia, the wording “GET UP TO 60% MORE INTERNET, NEWS, EMAIL, MUSIC AND SPORT. NOW AT THE FASTEST BROADBAND SPEED AVAILABLE. Vodacom introduces up to 60% extra data at the fastest available broadband speed … what’s more, our network is now 14.4 HSDPA enabled. That’s more Internet for the entire family … Go to www.vodacom.co.za to view Broadband data offers not included above … More exiting Vodacom Broadband offers coming soon!”
COMPLAINT
In essence, the complainant submitted that the advertisement is misleading as broadband is “generally taken to mean over 32KBps”, whereas Vodacom “consistently deliver less than 20KBps”.
Given the above:The general reference to broadband must be withdrawn;
The process to withdraw such general reference to broadband must be auctioned with immediate effect on receipt of this ruling;
The withdrawal of such general reference to broadband must be completed within the deadlines stipulated by Clause 15.3 of the Procedural Guide;
The general reference to broadband may not be used again until new substantiation has been submitted, evaluated, and a new ruling is made.
Competitive in the Market
Suppliers
Limited resources Produce G&S Organisation Resources Suppliers
RIGHT QUANTITY RIGHT PRICES
Organisation dependent on
suppliers!
Supplier: Examples
Bank Supplier of capital
Capital needed
to expand
Trade Union
Supplier of
labourThreat: Strikes
Suppliers
Negative impact on organisation profitability
Price or Quality
Influence organisation
Substitute products Product from different industry Satisfies same need As same product in industry
Substitute products
Advantage for consumers: Limit on prices charged
Change to substitute: Cost Quality Time
Minimise threat of substitute products: Differentiate through quality, service,
brand, etc.
Possible new entrants
Influence on market: Market share Loss in revenue ROI
SameIndustry
Different
Industry
New Entrants
Barriers to entry = Seriousness of threat!
How difficult to enter an industry
And be competitive
Barriers to entry
Capital Requiremen
t
Concentration
Government Regulations
Economies of Scale
Loyalty of customers to existing
brands
High
Low
Produce large
volumes @ low cost
Industry Structures
Industry: Group of Organisations Offer goods and services Similar/close substitutes
Different industry Different structure Different customer, supplier, profit potential
To outwit = Understand industry structure + Unique characteristics
Uniqueness of
industry
Product Differentiati
on
Concentration
Economies of Scale
Government Intervention
Barriers to Entry
Dominated by
few organisations
