CHAPTER 4. Analysing the Market Environment

Transcription

1 CHAPTER 4 Analysing the Market Environment

2 The starting point in this process is the general audit of environmental influences. The purpose of this is to identify the types of environmental factors that have influenced the organisation s development and previous performance and to arrive at an initial conclusion of the likely important influences in the future.

3 This is followed by an assessment of the nature of the environment and the degree of uncertainty and change that is likely to exist. If, from this, the strategist concludes that the environment is relatively static, then historical analysis is likely to prove useful. If, by contrast, the environment shows signs of instability then a stronger emphasis upon the future is needed.

4 The third phase then involves focusing upon specific environmental factors such as the nature and structure of the market. This in turn leads to an analysis of the firm s competitive position.

5 In essence, however, this involves a combination of strategic group analysis in which competitors are mapped in terms of their similarities, dissimilarities, their capabilities and the strategies they follow and market share analysis to highlight their relative degrees of market power.

6 This information is then used as the basis for identifying in detail how environmental forces are likely to affect the organisation and in particular, the opportunities and threats that are likely to exist.

7 This in turn provides the basis for a detailed understanding of the organisation s strategic position and the degree to which there is match/fit between strategy, structure and environment.

8 Conducting an Environmental Analysis Audit of environmental influences Assessment of the nature of the environment Source: Adapted from Johnson and Scholes Identification of the key environmental forces Identification of the competitive position Identification of the principal opportunities and threats Strategic position

9 The Strategic Window Concept in Environmental Analysis This concept can be useful to incumbent competitors as well as to would-be entrants into a market. For the former, it provides a way of relating future strategic moves to market evolution and of assessing how resources should be allocated to existing activities. For the latter, it provides a framework for diversification and new entry.

10 Failing to identify strategic windows can, of course, be significant and are typically manifested in terms of a loss of opportunity, market share or competitive advantage.

11 How complex is the environment? (Complexity is a measurement of the number of different environmental forces which have an impact or potential impact, upon the organisation.)

12 How routine and standardized are organisational interactions with elements of the environment? How interconnected and how remote, initially, are the significant environmental variables?

13 How dynamic and how unpredictable are the changes taking place around the organisation? How receptive is management to the ways in which environmental pressures adversely affect the input and output processes of the organisation?

14 How high is flexibility of choice and to what extent is the organisation constrained from moving into new areas?

15 The degree of environmental change Low/Stable High/Unstable Low (Simple) Simple + stable =low uncertainty A small number of external elements, with these elements being similar Elements remain the same or change only slowly Simple + unstable=highmoderate uncertainty A small number of external elements, and elements are similar Elements change frequently and unpredictably High (Complex) Complex + stable =moderate uncertainty A large number of external elements are dissimilar Elements remain the same or change slowly Complex + unstable= high uncertainty Large numbers of external elements, and elements are dissimilar Elements change frequently and unpredictably

16 Industry Breakpoints These are major structural changes in the environment which often necessitate the need to break free from existing patterns of behaviour, for example; Technological breakthroughs The economic cycle A new source of supply Changes in government policy.

17 Shifts in customer values and/or expectations. The identification by one company of new business opportunities Shifts within the distribution network New entrants to the market Declining returns

18 Options to Changing Market Environment Faced with changing marketing environment, we can take one of three approaches: To ignore what is happening and accept the consequences of the strategic drift and hope it wears-out without affecting us much

19 To respond quickly or slowly, but largely reactively To try to predict the nature of the changes and then manage them proactively-most Difficult to do!

20 Customer/Market Analysis It has long been recognized that marketing planning is ultimately driven by one s perception of how and why customers behave as they do and how they are likely to respond to various elements of the marketing mix. The last decade has seen the emergence of a new type of consumer who is characterized by a very different type of value system and far higher expectations

21 Identifying Markets to Serve Customer Need-The Ultimate test of a business unit s success-it gives rise to a market opportunity and a market emerges- Maslow s hierarchy of needs Market Emergence: Market Potential-Estimate-Total demand /forecast for a product in a given environment-2 dynamic concepts Established markets-build-up or break-down methods of measuring market potentials New market-test marketing(more subjective)

22 Identifying Markets to Serve Market Boundary Definition: Defining a market is difficult-cooking appliances business-basic function is cooking Differ in powering energy-fuel Cooking methods-heating or radiation Type of cooking function-baking, roasting, oven, etc Design-stand alone, built in, combo etc. Product feature and pricing

23 Market Boundary Rider: Should they be grouped as single or several distinct markets-market Boundaries Contd.. We can define it as several distinct markets as: Product characteristics, private brand sales vs. manufacturers brand sales, sales in specific regions or sales in terms of target-new installation or replacement. Dimension of Market Boundary-Definitions Market-identified with a generic class of products-beer, cell-phone markets etc. Product-a group of firms producing identical or closely related products-what the product is meant to do-regards as substitutes or the closeness/similarity in terms of the factors of production used for producing them-close relationship between goods/services

24 Market Boundary New Dimension to Market Boundary-Definition Contd.. Technology used- e.g. metal, glass, bamboo stain-less steel, or plastics containers/cups, gas, solar, electric, kerosene-powered cookers. Customer function/benefits/uses-function they serve or the way they are used-cooking-bake, roast, fry or boil leads to different customers benefits. Customer segment/groups-homogeneous set of customers with similar needs & features-cooking appliances-industrial users/building contractors and/or individual household user/segment. Level of production/distribution process-vertical integration strategy-limit of business operation.

25 Market Boundary Redefined Environmental influences of Market Boundary Technology Changes- Displacement by a new technology Market-oriented product development-cell-phone that can do almost everything-combined features of several products into one multipurpose offerings Price changes & supply constraint-affecting set of perceived substitutes Government trends-telecom vs. MTC/Leo case International trade competition-which changes the geographic boundaries

26 Identifying Markets to Serve Contd..3 Served Markets= Total market minus the whole un-served markets, due to: Which market can one dominate Internal resources limitations Cumulative trial and error experience Unusual competencies stemming from access to scarce resources or protected markets Circumstances and perception surrounding the business units Customers Segmentation: Is aimed at increasing the scope of business by closely aligning a product or brand with an identifiable customer group.

27 Customer/Market Analysis-Contd.. In consumer markets, for example not only do buyers typically differ in terms of their age, income, educational levels and geographical location, but more fundamentally in terms of their personality, their styles and their expectations. In the case of organisational and industrial markets differences are often exhibited in the goals being pursued, the criteria employed by those involved in the buying process, the formality of purchasing policies and the constraints that exist in the form of delivery dates and expected performance levels. Despite these complexities, it is essential that we understand in detail the dynamics of the buying process, since the cost and competitive implications of failing to do so are likely to be significant.

28 The Eight Questions Which Underpin Any Understanding of Buyer Behaviour: Who are in the market and what is the extent of their power with regard to the organisation? What do they buy? Why do they buy? Who s involved in the buying How do they buy? When do they buy? Where do they buy? What are our customers hot and cold spots? Extra-Go & read more on CBB-Please

29 Definitions/meanings of Competition Typically, competition is narrowly/tactically emphasized to be price, quality of product, delivery time, and other marketing variables. For the purposes of strategy development, one needs to go beyond these tactics employed by competitors-thus the need for various sources of competitive intelligence. All true sources of competition need to be identified, while not underestimating the capabilities and reactions of competitors Natural Competition-Darwinian natural selection or biological/evolutionary adaptation-survival of the fittest. Trial & error, opportunistic and conservative Strategic Competition- leaves nothing to chance-studied deployment of resources based on a high degree of insight into the systematic cause & effect in the business ecological system

30 Theories of Competition Economic Theory: perfect competition Industrial Organization Perspective: focuses on 3 variables- Market structure-(concentration of industry, barriers to entry, & product differentiation) Market conduct strategy or behaviors to issues Market performance-innovation, technical efficiency- cost minimization, allocative efficiency etc. Business Viewpoint: Rivalry among firms operating in a market to fill the same customer s needs/wants/desires. A firm need to identify all current & potential sources of competition. It evolves when different industries try to serve d customer s needs & demands-entertainment needs-sport, travel, TV, books etc.

31 Definition of customer s demand in lieu of competitions Existing Competitors Existing dd: Occurs when a New entrants product is bought to satisfy a recognized need! Latent dd: refers to a situation Acquisition-??? where a particular need has Product Lines been recognized, but no Me-too products product s have yet been offered to satisfy the need Incipient dd: Occurs when certain trends project the emergence of a need that the customer is not yet aware of. R&D-product development- Texas Instruments-Edu-Toys An improved product, or A breakthrough product Scope of Competitor s activities-pepsico Pizza Hut Limited- Debonair Extensive-P&G Geographic-regional, national, multinational

32 Competitor Analysis-The new market environment Just as we have the emergence of new types of consumers, we are also experiencing a new type of competitor that appears to have emerged along with a different type of competitive environment. This new environment is characterised by: Generally higher levels and an increasing intensity of competition New and more aggressive competitors who are emerging with ever greater frequency Changing bases of competition as organisations search ever harder for a competitive edge The wider geographic sources of competition More frequent niche attacks

33 More frequent and more strategic alliances are necessary A quickening of the pace of innovation The need for stronger relationships and alliances with customers and distributors An emphasis upon value-added strategies Ever more aggressive price competition The difficulties of achieving long term differentiation, with the result that a greater number of enterprises are finding themselves stuck in the marketing wilderness with no obvious competitive advantage The emergence of a greater number of 'bad' competitors (i.e. those not adhering to the traditional and unspoken rules of competitive behaviour within their industries)