Chapter 6

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GRAHAM HOOLEY • NIGEL F. PIERCY • BRIGETTE
NICOULAUD
3
The changing market
environment
Introduction
• How environment in which marketing takes
place is changing
• Marketing environment can be divided into;
– Competitive environment (including company, its
immediate competitors and customers)
– Macro-environment (the wider social, political and
economic setting in which organizations operates
6-2
Industry vs. markets
• Industries are collection of organizations with
technology and products in common
– White good firm comprise and industry – that
make refrigerators, washing machines and so on
• Markets are customer linked by their similar
needs
– Laundry products comprise a market – products
and services customer use to clean their clothes
6-3
A framework for macroenvironmental analysis
• Nature of change in macro-environment
• Importance of understanding macroenvironment is tow fold
– Market impact of change
– Nature of change facing organizations is itself
changing
• PEST analysis (political, economic, social,
cultural and technological)
6-4
Figure 3.1
PEST analysis of the macroenvironment
Economic
Political
Technological
Social
Legal
6-5
The economic and political
environment
• The European single market and its
enlargement
– Single market of over 320 million consumers was
created to allow free flow of products and services
• Internationalization and globalization
– Foundation of OPEC, valuable raw materials
– Changes in east/west relationship
• Dismantling of berlin wall, liberalization of economies,
break-up of soviet union, regional trading blocks
6-6
Figure 3.2
The economic and political environment
Economic
growth rates
and the
business cycle
Interest rates,
consumer and
business
confidence
Employment
and
unemployment
National and
supranational
governments
Taxation and
fiscal policy
Regional trade
and trading
areas
Internationaliz
ation and
globalization
6-7
Social and cultural environment
• Demographic change
– ‘Demographic time bomb’
• The grey market
– Over-60s age group make up 20% of population
• The youth market
• Multi-ethnic market – western societies
• Changing living patterns and lifestyles
– Single person households, women employment
6-8
Figure 3.3
The social and cultural environmental
Demographic
change
The grey
market
Multi-ethnic
societies
The youth
market
Changing
lifestyles and
living pattern
6-9
Social and cultural pressures
• Customers are becoming increasingly
demanding
• They demand and expect reliable, and durable
products with quick, efficient service
• Customers are less prepared to pay substantial
premium
• Change in attitude to, concern for, the physical
environment
6-10
The technological environment
• A shortening of commercialization times of
new inventions:
– Photography (took over 100 years)
– Telephone (56), Radio(35), TV (12)
– Transistor (only 3 years)
• Innovative marketing research companies
• The internet – the global electronic
communications network
6-11
Globalization of markets
• Increasingly becoming global market
• Impact of technology
– Gigantic, world-scale markets with economies of
scale
• Problems for competitors that do not operate
on a global scale
6-12
New strategies for changing macroenvironments
• Learn fast and adapt quickly (Dickson, 1992)
• Combination of culture and climate to
maximize learning (Slater and Narver, 1995)
• Being market oriented
• Multi mode marketing
– Pursuing intense relationship-building, less
intense and arm’s length strategies
6-13
Marketing strategies
• Global positioning
– Think globalization and focus core competencies
• The master brand
– Brand identity that links all parts of the business
e.g. Toyota, Honda
• The integrated enterprise and end-user focus
– Challenge of managing people, processes and
infrastructure to deliver value to end user
6-14
Figure 3.4
The shift in strategy for delivering
shareholder value
Focus on core
competencies
Domestic
focus
The new strategic
imperative
Global
focus
Portfolio
approaches
6-15
Marketing strategies (Cont’d)
• Built-in-class processes
– Challenge to meet world-class standards from
wherever they come
• Mass customization
– Product or service tailored to the individual
customer requirements
• Breakthrough technology
– New technology e.g. ‘smart toilet’ in Japan
6-16
Cravens predicted following forms
• Markets shape business strategies
• Networks of interlinked product markets
• The move from functions to processes
– Increasingly focus on process of going to market
• Strategic alliances
– Collaboration and partnership
• The balanced scorecard
– Keeping scores involved
6-17
FIVE FORCES MODEL OF THE
INDUSTRY COMPETITION
6-18
Figure 3.5
Five forces driving cmpetition
Threat of new
entrants
Bargaining
power of
suppliers
Rivalry among existing
firms in the industry
Bargaining
power of
buyers
Threat of
substitutes
6-19
Rivalry among existing companies
• The rivalry is likely to be most intense where;
– Competition in the industry are roughly evenly
balanced in terms of size and share
– During periods of low market growth
– Where exit barriers are high
– Where product differentiation is low
– Where fixed costs are relatively high
6-20
The threat of market entry
• Potential for new entrants to emerge
• Conditions make market entry more likely
• Entry barriers can be low where;
– Costs of entry are low
– Existing/new distribution channels are open to use
– Little competitive retaliation is anticipated
– Differentiation is low
– There are gaps in the market
6-21
The threat of substitutes
• Substitution can increase competitiveness of
an industry for no of reasons
– By making existing technologies redundant
– By incremental product improvement
6-22
Bargaining power of suppliers
• Suppliers tend to have more bargaining power
where holds;
– Suppliers are more concentrated than buyers
– Costs of switching suppliers are higher
– Supplier's offerings are highly differentiated
6-23
Bargaining power of buyers
• Buyers tend to be more powerful in the supply
chain where the following is true
– They are more concentrated than sellers
– They are readily available alternative sources of
supply
– Buyer switching costs are low
6-24
Competitiveness drivers
• Where following industry characteristics are
present, expect greater level of competition:
– There is little differentiation between market offers
– Industry growth rates are low
– High fixed costs need to be recovered
– High supplier switching costs
– Low buyer switching costs
– Low entry barriers
– High exit barriers
6-25
THE PRODUCT LIFE CYCLE
6-26
The product life cycle
Figure 3.6
Sales
Sales &
profit
Time
Profit
Loss
Pre-launch
Introduction
Growth
Maturity
Decline
Launch
6-27
Introduction stage
• Product is launched into the market and sales
are slow to pick up
• Customer and distribution have to be found
– The first HD DVD player
– Motorola razr in the fashion phone market
6-28
Growth stage
• Rapid increase in sales
• Product starts to attract different types of
customers
• Repeat purchases may start
– Microsoft Zunes as the ‘IPod killer’
6-29
Maturity stage
• Growth slows down significantly
• Lasts longer than the previous one, the most
challenging one
• Severe competition, market fragmentation
and declining profits
• Weaker competitors will exit
6-30
Decline stage
• Rapid decline of the sales of the product
• Better solutions
– New technology such as the flash pen replacing
flopping and zip-disk
• A change in consumer taste or an increase in
competition, domestic or international
6-31
Strategic groups
• Firms within industry following similar
strategies for similar customer groups
– Coca Cola and Pepsi
• Barriers to mobility within industry
– Vertical integration of companies
– Geographical boundaries
– Differences in technology
– Threat of substitute or new entrants
6-32
Figure 3.7
Map of strategic groups in the US
automobile market
Broad line
The Big Three
GM, Ford, Chrysler
Degree of
specialization
The Faded
Champions
VW Audi, Rover Group
The Samurai
Toyota, Nissan,
Honda, Mazda
Specialists
Rolls-Royce, Ferrari,
Aston Martin
Lamborghini, Lotus,
Morgan, McLaren
Narrow line
High
Luxury Cars
Mercedes, BMW,
Volvo, Saab,
Jaguar
Local content
Low
6-33
Industry evolution and forecasting
• Porter (1980) discussed evolution of industry
through three main stages; emergence,
transformation to maturity and decline
Industry Evolution
Product
Product Lifecycle
Brand
6-34
Figure 3.8
Industry evolution
Stages
Issues
Strategies
Emergence
Technological uncertainty
Commercial uncertainty
Customer uncertainty
Channel uncertainty
Locate innovators, and early adopters
Establish standard
Reduce switching cost risk
Encourage trial
Transition to
maturity
Slow growth, failing products
Excess capacity, intense competition
Increased customer power
Extended product line
Marketing mix marketing
Customer retention and segmentation
Efficiency focus
Coordination
Decline
Substitution by newer technologies
Demographic change
Focus or divest
6-35
Emerging stage
• Uncertainty
• Big losses can be associated
• Out of three competing video disks and video
cassette recording technology in mid-1980s
only one, VHS, has survived
• Philip with laser disk and V2000 VCRs and
Sony with Betamax were two of losers
6-36
Transition to maturity
• Uncertainty declines
• Competition intensifies
• Rapid growth, high margins, little competition
and apparent size of industry within late stage
of emergence attract many competition
6-37
Decline
• Emergence of substitute or demographic shift
• Two main strategies are usually appropriate;
• Divest or focus on the efficient supply of a
robust segment
6-38
Environmental stability
• Limitation of porter’s industry model
• Technological and marketing uncertainty to
emerging stage of the industry
• Environmental turbulence is fundamental to
understanding industries (Ansoff – 1984)
• Marketing and innovation turbulence
• Try to match its capability to appropriate
environmental turbulence
6-39
Figure 3.9
Environmental turbulance
Grocers
(Tesco, Sainsbury etc.
Convenience stores
(7/11, SPAR etc.)
Environmental
Turbulence
Strategic Thrust
Capability
Repetitive
Devaloping
Changing
Discontinous
Surpriseful
Stable
Reactive
Anticipatory
Exploring
Creative
Custodial
Adaptive
Synergistic
Global
Creative
6-40
Space analysis
• SPACE (strategic position & action evaluation)
• Relates industry strength to the competitive
advantage and financial strength of company
• Financial strength, high liquidity or access to
resources; withstand environmental volatility
• Industry strength, attractiveness in terms of
growth potential, profitability and ability to
use its resources efficiently
6-41
Space analysis (Cont’d)
• Competitive posture; competitive advantage
in an attractive industry
• Aggressive quadrant; significant advantages,
likely to face threats of new competition
• Conservative posture; mature markets, lack of
needs for investment, financial surplus
• Defensive posture; vulnerable, little residual
strength to combat competition
6-42
Figure 3.10
Space analysis map
Financial
Strength
Conservative
Aggressive
Competitive
advantage
Strategic
postures
Defensive
Industry
strength
Competitive
Environmental
stability
6-43
The advantage matrix
• Boston consulting group (1979) developed it
• Classify competitive environment within
industry
• Framework identifies two dimensions;
– Approaches for achieving advantage in market
– Potential size of advantage
• Quadrants of advantage matrix show how
relationship between relative size and return
on asset can differ
6-44
Figure 3.11
The Advantage Matrix
Fragmented
Few
ROA
ROA
Number of ways to achieve
advantage
Many
Specialized
RS
RS
Stalemate
Volume
ROA
ROA
RS
ROA – Return on asset
RS – Relative size
Small
RS
Potential size advantage
Large
6-45
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