The Marketing Environment and Competitor Analysis

•SWOT analysis•PEST analysis•Five forces analysis

SWOT analysis

• Strengths (internal)• Weaknesses (internal)• Opportunities (external)• Threats (external)

SWOT ANALYSIS

• A SWOT analysis is an excellent tool to use if the organization wants to take a step back and assess the situation they are in. Issues raised from the analysis are then used to assist the organization in developing their marketing mix strategy. A SWOT analysis must form the part of any prudent marketing strategy.

SWOT AnalysisBased on assumption an effective strategy derives from a sound “fit” between a firm’s internal resources and its external situation

OpportunitiesA major favorable situation in a firm’s environment

ThreatsA major unfavorable situation in a firm’s environment

StrengthsA resource advantage relative to competitors and the needs of markets firm serves

WeaknessesA limitation or deficiency in one or more resources or competencies relative to competitors

• Strength examples could include:• A strong brand name. • Market share. • Good reputation. • Expertise and skill. • Weaknesses could include:• Low or no market share. • No brand loyalty. • Lack of experience.

• Opportunities could include:• A growing market. • Increased consumer spending. • Selling internationally. • Changes in society beneficial to your company. • Threats could include:• Competitors • Government policy eg taxation, laws. • Changes in society not beneficial to your company.

PEST analysis

• Political factors• Economic factors• Socio-cultural factors• Technological factors

Political/legal

• Monopolies legislation• Environmental protection laws• Taxation policy• Employment laws• Government policy• Legislation• Others?

Economic Factors

• Inflation• Employment• Disposable income• Business cycles• Energy availability and cost• Others?

Socio-cultural factors

• Demographics• Distribution of income• Social mobility• Lifestyle changes• Consumerism• Levels of education• Others?

Technological

• New discoveries and innovations• Speed of technology transfer• Rates of obsolescence• Internet• Information technology• Others?

13

Porter’s Five Forces Model

IndustryCompetitors

Rivalry AmongExisting Firms

Suppliers

BargainingPower

of Suppliers

Potential Entrants

Threat of New Entrants

Buyers

BargainingPower

of Buyers

Substitutes

Threat of Substitute Products or Services

These five forces determine the profit potential of a particular industry

Five forces analysis

• One assumption of Porter’s five forces model is that some industries are inherently more attractive than others; that is, the profit potential for companies in that industry is higher. As this figure indicates, the interaction and strength of five forces influences profit potential.

The purpose of Five-Forces Analysis

• The five forces are environmental forces that impact on a company’s ability to compete in a given market.

• The purpose of five-forces analysis is to diagnose the principal competitive pressures in a market and assess how strong and important each one is.

Threat of New Entrants

Barriers to Entry

Government PolicyGovernment Policy

Economies of ScaleEconomies of Scale

Product DifferentiationProduct Differentiation

Capital RequirementsCapital Requirements

Switching CostsSwitching Costs

Access to Distribution ChannelsAccess to Distribution Channels

Cost Disadvantages Independent Cost Disadvantages Independent of Scaleof Scale

Bargaining Power of Suppliers

Suppliers exert power in the industry by:

* Threatening to raiseprices or to reduce quality

Powerful suppliers can squeeze industry profitability if firms are unable to recover cost increases

Suppliers are likely to be powerful if:Suppliers are likely to be powerful if:

Supplier industry is dominated by a Supplier industry is dominated by a few firmsfew firmsSuppliers’ products have few substitutesSuppliers’ products have few substitutes

Buyer is not an important customer to Buyer is not an important customer to suppliersupplierSuppliers’ product is an important Suppliers’ product is an important input to buyers’ productinput to buyers’ product

Suppliers’ products are differentiatedSuppliers’ products are differentiated

Suppliers’ products have high Suppliers’ products have high switching costsswitching costs

Supplier poses credible threat of Supplier poses credible threat of forward integrationforward integration

Bargaining Power of Buyers

Buyers compete with the supplying

industry by:

* Bargaining down prices

* Forcing higher quality

Buyer groups are likely to be powerful if:Buyer groups are likely to be powerful if:

Buyers are concentrated or purchases Buyers are concentrated or purchases are large relative to seller’s salesare large relative to seller’s sales

Purchase accounts for a significant Purchase accounts for a significant fraction of supplier’s salesfraction of supplier’s sales

Products are undifferentiatedProducts are undifferentiated

Buyers face few switching costsBuyers face few switching costs

Buyers’ industry earns low profitsBuyers’ industry earns low profits

Buyer presents a credible threat of Buyer presents a credible threat of backward integrationbackward integration

Product unimportant to qualityProduct unimportant to quality

Buyer has full informationBuyer has full information

Threat of Substitute Products

Products with similar function limit the prices firms can charge

Keys to evaluate substitute products:Keys to evaluate substitute products:

Products with improving Products with improving price/performance tradeoffs price/performance tradeoffs relative to present industry relative to present industry productsproducts

Example:Example:

Electronic security systems in Electronic security systems in place of security guardsplace of security guards

Fax machines in place of Fax machines in place of overnight mail deliveryovernight mail delivery

Rivalry Among Existing Competitors

Intense rivalry often plays out in the following ways:Intense rivalry often plays out in the following ways:

Jockeying for strategic positionJockeying for strategic positionUsing price competitionUsing price competitionStaging advertising battlesStaging advertising battles

Making new product introductionsMaking new product introductionsIncreasing consumer warranties or serviceIncreasing consumer warranties or service

Occurs when a firm is pressured or sees an opportunityOccurs when a firm is pressured or sees an opportunityPrice competition often leaves the entire industry worse offPrice competition often leaves the entire industry worse off

Advertising battles may increase total industry demand, but Advertising battles may increase total industry demand, but may be costly to smaller competitorsmay be costly to smaller competitors

Cut-throatCut-throat competitioncompetition is more likely to occur when: is more likely to occur when:

Rivalry Among Existing Competitors

Numerous or equally balanced competitorsNumerous or equally balanced competitorsSlow growth industrySlow growth industryHigh fixed costsHigh fixed costs

Lack of differentiation or switching costsLack of differentiation or switching costs

High storage costsHigh storage costs

Capacity added in large incrementsCapacity added in large increments

High strategic stakesHigh strategic stakesHigh exit barriersHigh exit barriers

Diverse competitorsDiverse competitors

Strategic Management in Action AnalyzingCurrent

Situation

Decidingon

Strategies

PuttingStrategiesin Action

Evaluating andChanging Strategies

SituationAnalysis

StrategyFormulation

StrategyImplementation

StrategyEvaluation

ExternalAnalysis

InternalAnalysis

Organizational Context

Functional Competitive

Corporate

The directional policy matrix (GE matrix)

Investmentand Growth

SelectiveGrowth Selectivity

SelectiveGrowth

Selectivity

Selectivity

HarvestOr Divest

HarvestOr Divest

HarvestOr Divest

High Medium Low

High

Medium

Low

INDUSTRY ATTRACTIVENESS

BUSINESS STRENGTH

Porter - the value chain

PRIMARY ACTIVITIES

SUPPORTACTIVITIES

FIRM INFRASTRUCTURE

HUMAN RESOURCE MANAGEMENT

TECHNOLOGY DEVELOPMENT

PROCUREMENT

INBOUND OPERATIONS OUTBOUND MARKETING SERVICELOGISTICS LOGISTICS & SALES

M A R G I N

M A R G I N

(Source: M Porter)

Gap analysis - and what to do about it …

Sale

s/Pr

ofits

(Rs.

)

Time

Objective

Forecast

The strategic

‘gap’

Strategic Alternatives1. Improve productivity

Reduce costs Improve the sales mix Increase prices Reduce discounts Increase productivity

2. Market penetration Increase market share Increase usage frequency Increase purchase values

3. Market development Geographical expansion Find new customer segments

4. Product development Develop new products Reconfigure existing products

5. Diversification New products to new markets