Additional Theories
for
Marketing Analytics
The PESTEL Framework
- It allows us to scan, monitor, and evaluate changes and trends in the firm’s
macroenvironment.
- By analyzing the factors in the external environment, managers can mitigate
threats and leverage opportunities.
• The PESTEL model groups the factors in the firm’s general environment into six
segments:
■ Political
■ Economic
■ Sociocultural
■ Technological
■ Ecological
■ Legal
1. POLITICAL FACTORS
• Political factors result from the processes and actions of government
bodies that can influence the decisions and behavior of firms
• Companies apply nonmarket strategies— lobbying, public relations,
contributions, lawsuit etc. to influence political decisions
• Example: when Tesla sold their cars online cutting off the auto
dealers, the US auto dealer associations are lobbying to craft new
legislation to prevent Tesla from selling directly to consumers.
2. ECONOMIC FACTORS
The following five macroeconomic factors can affect firm strategy:
■ Growth rate
-Measure of the change in the amount of goods and services produced by a nation’s economythat is, whether business activity is expanding or contracting
-Economic boom vs recession
■ Levels of employment
-In boom times, unemployment tends to be low, and skilled human capital becomes a scarce
and more expensive resource.
-In economic downturns, unemployment rises. As more people search for employment, skilled
human capital is more abundant and wages usually fall.
■ Interest rate
-Cost of capital adjusted for inflation.
-Low interest rate boosts consumer demand-production-employment-overall economic growth
2. ECONOMIC FACTORS (contd.)
■ Price stability (inflation and deflation).
-When there is too much money in an economy, we tend to see rising prices—inflation.
Indeed, inflation is too much money chasing too few goods and services
-Deflation describes a decrease in the overall price level. Companies will not invest in new
production capacity or innovation
■ Currency exchange rate
-The amount of local currency to sacrificed in order to get one unit of any foreign currency
-when exchange rate goes up: importers are the losers
-when it goes down: exporters are the winners
3. SOCIOCULTURAL FACTORS
• Sociocultural factors capture
a society’s cultures, norms,
and values
• Demographic trends: age,
gender, family size, ethnicity,
sexual orientation, religion,
and socioeconomic class are
also needed to be
considered by managers
4. TECHNOLOGICAL FACTORS
• Technological factors capture the application of knowledge to create
new processes and products.
• Examples: Machine learning, AI, robotics, nanotechnology etc.
• Changes in the technological environment bring both opportunities
and threats for companies.
5. ECOLOGICAL FACTORS
• Ecological factors involve broad
environmental issues such as the natural
environment, global warming, and sustainable
environmental growth.
• BP’s infamous oil spill in the Gulf of Mexico
affected wildlife, fishery and tourism
industries and also cost BP some $50 billion
and one-half of its market value
• Tesla Motors is addressing environmental
concerns regarding the carbon emissions of
gasoline-powered cars by building zeroemission battery-powered vehicles
6. LEGAL FACTORS
• Legal factors include the state laws, mandates, regulations, and court
decisions
• European Union (EU) apply political and legal pressure on U.S. tech
companies including Apple, Amazon, Facebook, Google, and
Microsoft.
• Amazon drone delivery has been
postponed by US court.
The Porter’s Five Forces Model
• A framework developed by Michael
Porter that identifies five forces in
order to determine the profit
potential of an industry and shape a
firm’s competitive strategy.
1. Threat of entry.
2. Power of suppliers.
3. Power of buyers.
4. Threat of substitutes.
5. Rivalry among existing competitors.
1. THE THREAT OF ENTRY
• The risk that potential competitors will enter an industry. It reduces profit
potential in two major ways:
1.
2.
Additional capacity coming into the industry will lower the current price level
The threat of entry by additional competitors may force incumbent firms to spend more to satisfy
their existing customers
• Entry barriers, are obstacles that determine how easily a firm can enter an
industry.
■ Economies of scale.
■ Network effects.
■ Customer switching costs.
■ Capital requirements.
■ Advantages independent of size.
■ Government policy.
■ Credible threat of retaliation.
2. THE POWER OF SUPPLIERS
• Increasing bargaining power of suppliers reduces industry profitability
in two ways:
1. raise the cost of production by demanding higher prices
2. reducing the quality of the input in order to keep the price stable
(Example: Panasonic for lithium-ion)
• The relative bargaining power of suppliers is high when:
■ The suppliers’ industry is more concentrated than the industry it sells to.
■ Suppliers do not depend heavily on the industry for a large portion of their revenues.
■ Firms face significant switching costs when changing suppliers.
■ Suppliers offer products that are differentiated.
■ There are no readily available substitutes.
3. THE POWER OF BUYERS
• Buyers bargaining power can be applied either by demanding a lower
price or higher product quality
Example: Unilever for Kuala Lumpur Kepong
Grameen Phone for Siemens
• The bargaining power of buyers is high when:
■ There are a few buyers and each buyer purchases large quantities
■ The industry’s products are standardized or undifferentiated
■ Buyers face low or no switching costs
4. THE THREAT OF SUBSTITUTES
• Substitutes meet the same basic customer needs
Example: LibreOffice for MS Office, PSPP for SPSS, Email for EMS, Netflix for video rental
• The threat of substitutes is high when:
■ The substitute offers an attractive price-performance trade-off.
■ The buyer’s cost of switching to the substitute is low.
5. RIVALRY AMONG EXISTING COMPETITORS
• The intensity with which companies within the same industry compete
with each-other
• The other four forces exert pressure upon this rivalry
• Price-war: competitors can lower prices to attract customers from rivals
• Non-price competition such as creating more value in terms of product features and
design, quality, promotional spending, and after-sales service increase cost of
production & thus reduce profitability
• The intensity of competition depends on the following four factors
1.
2.
3.
4.
Competitive industry structure.
Industry growth.
Strategic commitments.
Exit barriers.
5.1. Competitive Industry Structure
• Here profitability
depends on:
1. The number and size
of its competitors
2. The firms’ degree of
pricing power
3. The type of product or
service
4. The height of entry
barriers
5.2 Industry growth directly affects the intensity of rivalry
- Knee replacements in US medical industry
- Cosmetic surgery in South Korea
- Wedding photography in BD
5.3 Strategic commitments reduce the intensity of competition
- Cooperatives / alliances
- Setting a floor price
5.4 Exit barrier
High exit barrier --> Higher competition --> Low profitability
Low exit barrier --> Lower competition --> High profitability
The VRIO Framework
A theoretical framework that explains and predicts firm-level
competitive advantage. It is used to assess the competitive implications
of a firm’s resources.
• Valuable
• Rare
• Costly to Imitate.
• Organized
The VRIO Framework
• VALUABLE: A resource is valuable if it helps a firm exploit an external
opportunity or offset an external threat.
• RARE: A resource is rare if only one or a few firms possess it.
• COSTLY TO IMITATE: A resource is costly to imitate if firms that do not
possess the resource are unable to develop or buy the resource at a
reasonable price.
• ORGANIZED TO CAPTURE VALUE: A firm should have an effective
organizational structure and coordinating systems to fully exploit the
competitive potential of its resources, capabilities, and competencies.
Strategic Planning Gap & Growth
Opportunities
• If there is a gap between future desired sales and
projected sales?
• The lowest curve describes the expected sales over
the next five years from the current business
portfolio. The highest describes desired sales over
the same period.
• How the company will fill this gap?
• 1st option is to identify opportunities for growth
within current businesses (intensive growth).
• 2nd is to identify opportunities to build or acquire
businesses related to current businesses
(integrative growth).
• 3rd is to identify opportunities to add attractive
unrelated businesses (diversification growth).
INTENSIVE GROWTH
“Product-Market Expansion
Grid” which considers the
strategic growth
opportunities for a firm in
terms of current and new
products and markets.
INTEGRATIVE GROWTH
A business can
increase sales and
profits through
horizontal (backward,
forward) or vertical
integration within
its industry.
DIVERSIFICATION GROWTH
Diversification growth
makes sense when good
opportunities exist outside
the present businesses—
the industry is highly
attractive and the
company has the right mix
of business strengths to
succeed.
Thank You
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