Lesson 4
Aim
Understand the tools used to develop
a strategic marketing strategy

LO 2.1

assess the value of models used in strategic
marketing planning
General areas
Models: organisation, industry and market environment
situation analysis;
Porter’s Five Forces model;
structure, conduct and performance; SWOT (strengths,
weaknesses, opportunities, threats) analysis, STEEPLE
(social,
ethnological, economical, environmental,
political, legal, ethical) analysis, PEST (political,
economic, social, technological) analysis, marketing
audit; portfolio analysais techniques eg BCG matrix,
Product Life Cycle model, Ansoff matrix
Components of the General
Environment
Economic
Demographic
Sociocultural
Industry
Environment
Competitive
Environment
Political/L
egal
Global
Technological
SWOT Analysis
Strengths
 Weaknesses
 Opportunities
 Threats

The purpose of SWOT Analysis

It is an easy-to-use tool for developing an
overview of a company’s strategic
situation
 It forms a basis for matching your company’s
strategy to its situation
SWOT is the starting point
It provides an overview of the strategic
situation.
 It provides the “raw material” to do more
extensive internal and external analysis.

Opportunities
An OPPORTUNITY is a chance for firm
growth or progress due to a favorable
juncture of circumstances in the business
environment.
 Possible Opportunities:





Emerging customer needs
Quality Improvements
Expanding global markets
Vertical Integration
Threats
A THREAT is a factor in your company’s
external environment that poses a danger
to its well-being.
 Possible Threats:





New entry by competitors
Changing demographics/shifting demand
Emergence of cheaper technologies
Regulatory requirements
Opportunities and Threats form a
basis for EXTERNAL analysis
By examining opportunities, you can
discover untapped markets, and new
products or technologies, or identify
potential avenues for diversification.
 By examining threats, you can identify
unfavorable market shifts or changes in
technology, and create a defensive posture
aimed at preserving your competitive
position.

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.

Porter’s Five Forces
Model of Competition
Threat of
Threat
Newof New
Entrants
Entrants
Threat of New Entrants
Economies of Scale
Barriers to
Entry
Product Differentiation
Capital Requirements
Switching Costs
Access to Distribution Channels
Cost Disadvantages Independent of
Scale
Government Policy
Expected Retaliation
Porter’s Five Forces
Model of Competition
Threat of
Threat
Newof New
Entrants
Entrants
Bargaining
Power of
Suppliers
Bargaining Power of Suppliers
Suppliers are likely to be powerful if:
Supplier industry is dominated by a few firms
Suppliers exert
power in the
industry by:
* Threatening to raise
prices or to reduce
quality
Powerful suppliers
can squeeze
industry
profitability if firms
are unable to
recover cost
increases
Suppliers’ products have few substitutes
Buyer is not an important customer to supplier
Suppliers’ product is an important input to
buyers’ product
Suppliers’ products are differentiated
Suppliers’ products have high switching
costs
Supplier poses credible threat of forward
integration
Porter’s Five Forces
Model of Competition
Threat of
Threat
Newof New
Entrants
Entrants
Bargaining
Power of
Suppliers
Bargaining
Power of
Buyers
Bargaining Power of Buyers
Buyer groups are likely to be powerful if:
Buyers are concentrated or purchases are large
relative to seller’s sales
Purchase accounts for a significant fraction of
supplier’s sales
Products are undifferentiated
Buyers face few switching costs
Buyers’ industry earns low profits
Buyer presents a credible threat of backward
integration
Product unimportant to quality
Buyer has full information
Buyers compete with
the supplying industry
by:
* Bargaining down prices
* Forcing higher quality
* Playing firms off
each
of
other
Porter’s Five Forces
Model of Competition
Threat of
Threat
Newof New
Entrants
Entrants
Bargaining
Power of
Suppliers
Bargaining
Power of
Buyers
Threat of
Substitute
Products
Threat of Substitute Products
Keys to evaluate substitute products:
Products with
similar function
limit the prices
firms can
charge
Products with improving
price/performance tradeoffs relative
to present industry products
Example:
Electronic security systems in place o
security guards
Fax machines in place of overnight m
delivery
Porter’s Five Forces
Model of Competition
Threat of
Threat
Newof New
Entrants
Entrants
Bargaining
Power of
Suppliers
Rivalry Among
Competing Firms in
Industry
Threat of
Substitute
Products
Bargaining
Power of
Buyers
Rivalry Among Existing Competitors
Intense rivalry often plays out in the following
ways:
Jockeying for strategic position
Using price competition
Staging advertising battles
Increasing consumer warranties or service
Making new product introductions
Occurs when a firm is pressured or sees an
opportunity
Price competition often leaves the entire industry worse off
Advertising battles may increase total industry demand, but may be
costly to smaller competitors
Rivalry Among Existing Competitors
Cutthroat competition is more likely to occur
when:
Numerous or equally balanced competitors
Slow growth industry
High fixed costs
High storage costs
Lack of differentiation or switching costs
Capacity added in large increments
Diverse competitors
High strategic stakes
High exit barriers
The Five Forces are Unique to
Your Industry

Five-Forces Analysis is a framework for
analyzing a particular industry.
 Yet, the five forces affect all the other
businesses in that industry.
Competitor Analysis
The follow-up to Industry Analysis is
effective analysis of a firm’s
Competitors
Industry
Environment
Competitive
Environment
Competitor Analysis
Assumptions
What assumptions do our competitors
hold about the future of industry and
themselves?
Current Strategy
Does our current strategy support
changes in the competitive environment?
Response
What will our competitors do
in the future?
Where do we have a
competitive advantage?
Future Objectives
How do our goals compare to our
competitors’ goals?
Capabilities
How do our capabilities compare to our
competitors?
How will this change our
relationship with our
competition?
Competitor Analysis
Future
How
do our goals
Objectives
compare to our
competitors’
Where
will emphasis
goals? be
placed in the future?
What is the attitude
toward risk?
What Drives the competitor?
Competitor Analysis
Future
How
do our goals
Objectives
compare to our
competitors’
Where
will emphasis
goals? be
Current
placed in
the
future?
How
are
we currently
Strategy
What is competing?
the attitude
toward risk?
Does this strategy
support changes in
the competitive
structure?
What is the competitor doing?
What can the competitor do?
Competitor Analysis
Future
How
do our goals
Objectives
What does the competitor believe about
itself and the industry?
compare to our
competitors’
Where
will emphasis
goals? be
Current
placed in the future?
HowStrategy
are we currently
What is competing?
the attitude
toward risk? Assumptions
Does this
Dostrategy
we assume the
supportfuture
changes
willin
be volatile?
the competition
What assumptions do
structure?
our competitors hold
about the industry and
themselves?
Are
we assuming
stable competitive
conditions?
Competitor Analysis
Future
How
do our goals
Objectives
What are the competitor’s
capabilities?
compare to our
competitors’
Where
will emphasis
goals? be
Current
placed in the future?
HowStrategy
are we currently
What is competing?
the attitude
toward risk? Assumptions
Does this
Do strategy
we assume the
supportfuture
changes
in volatile?
will be
the competition
What assumptions do
structure?
our competitors
hold
Capabilitie
about the industry and
smy
What are
themselves?
Are we operating
competitors’ strengths
under a status quo?
and weaknesses?
How do our capabilities
compare to our
competitors?
Competitor Analysis
Response
Future
How
do our goals
Objectives
compare to our
competitors’
Where
will emphasis
goals? be
Current
placed in the future?
HowStrategy
are we currently
What is competing?
the attitude
toward risk? Assumptions
Does this
Do strategy
we assume the
supportfuture
changes
in volatile?
will be
the competition
What assumptions do
structure?
Capabilitie
our competitors
hold
about the industry
and
s
What are my
themselves?
Are we competitors’
operating
strengths
under aand
status
quo?
weaknesses?
How do our capabilities
compare to our
competitors?
What will our
competitors do in the
future?
Where do we have a
competitive
advantage?
How will this change
our relationship with
our competition?

The Structure – conduct- performance
Paradigm
Basic Conditions: factors which shape the market of the industry, e.g.
demand, supply, political factors
Structure: attributes which give definition to the supply-side of the market, e.g.
economies of scale, barriers to entry, industry concentration, product
differentiation, vertical integration.
Conduct: the behavior of firms in the market, e.g. pricing behavior advertising,
innovation.
Performance: a judgment about the results of market behaviour, e.g. efficiency,
profitability, fairness/income distribution, economic growth.
How can the government improve the performance in an industry?
32
Learning Goals
1.
2.
Know the stages of the product life
cycle
Realize how marketing strategies
change during the product’s life cycle
Product Life-Cycle Strategies

The Product Life Cycle (PLC) has Five
Stages
 Product Development, Introduction, Growth,
Maturity, Decline
 Not all products follow this cycle:
○ Fads
○ Styles
○ Fashions
Goal 1: Know the stages of the product life cycle process
Product Life-Cycle Strategies

The product life cycle concept can be
applied to a:
 Product class (soft drinks)
 Product form (diet colas)
 Brand (Diet Dr. Pepper)
○ Using the PLC to forecast brand performance
or to develop marketing strategies is
problematic
Goal 1: Know the stages of the product life cycle process
Product Life-Cycle Strategies
PLC Stages
Product development
 Introduction
 Growth
 Maturity
 Decline





Begins when the
company develops a
new-product idea
Sales are zero
Investment costs are
high
Profits are negative
Goal 2: Realize how marketing strategies change during the product life cycle
Product Life-Cycle Strategies
PLC Stages
Product development
 Introduction
 Growth
 Maturity
 Decline

Low sales
 High cost per customer
acquired
 Negative profits
 Innovators are targeted
 Little competition

Goal 2: Realize how marketing strategies change during the product life cycle
Marketing Strategies:
Introduction Stage





Product – Offer a basic product
Price – Use cost-plus basis to set
Distribution – Build selective distribution
Advertising – Build awareness among early
adopters and dealers/resellers
Sales Promotion – Heavy expenditures to
create trial
Goal 2: Realize how marketing strategies change during the product life cycle
Product Life-Cycle Strategies
PLC Stages
Product development
 Introduction
 Growth
 Maturity
 Decline

Rapidly rising sales
 Average cost per
customer
 Rising profits
 Early adopters are
targeted
 Growing competition

Goal 2: Realize how marketing strategies change during the product life cycle
Marketing Strategies:
Growth Stage





Product – Offer product extensions,
service, warranty
Price – Penetration pricing
Distribution – Build intensive distribution
Advertising – Build awareness and interest
in the mass market
Sales Promotion – Reduce expenditures to
take advantage of consumer demand
Goal 2: Realize how marketing strategies change during the product life cycle
Product Life-Cycle Strategies
PLC Stages
Product development
 Introduction
 Growth
 Maturity
 Decline

Sales peak
 Low cost per customer
 High profits
 Middle majority are
targeted
 Competition begins to
decline

Goal 2: Realize how marketing strategies change during the product life cycle
Marketing Strategies:
Maturity Stage
Product – Diversify brand and models
Price – Set to match or beat competition
Distribution – Build more intensive
distribution
 Advertising – Stress brand differences and
benefits
 Sales Promotion – Increase to encourage
brand switching



Goal 2: Realize how marketing strategies change during the product life cycle
Product Life-Cycle Strategies
PLC Stages
Product development
 Introduction
 Growth
 Maturity
 Decline

Declining sales
 Low cost per customer
 Declining profits
 Laggards are targeted
 Declining competition

Goal 2: Realize how marketing strategies change during the product life cycle
Marketing Strategies: Decline
Stage
Product – Phase out weak items
Price – Cut price
Distribution – Use selective distribution:
phase out unprofitable outlets
 Advertising – Reduce to level needed to
retain hard-core loyalists
 Sales Promotion – Reduce to minimal level



Goal 2: Realize how marketing strategies change during the product life cycle
Ansoff-Matrix or
Product-Market Expansion Grid
Dimensions
Existing
Markets
New
Markets
Existing Products
New Products
1.1.
Do nothing
2. Withdraw
3. Consolidate
4. Penetrate
Product
Development
(risky + expensive)
Market
Development
(when product is
very competitive)
Diversification
(assuming new
activities)
Ansoff-Matrix
Improving the performance of existing businesses
 “Do Nothing” if the environment is static (short-run only)
 “Withdraw” when there is an irreversible decline in demand
or opportunity costs of staying in a market are too high
 “Consolidation” means concentration of resources and
focusing on existing competitive advantages
 “Penetration” means gaining market share
SWOT Analysis
SWOT is a universal analytical tool developed by the
military:
Matching corporate skills and resources with
forecasted market opportunities
1.
Strengths: Internal Positives (available skills &
competencies)
2.
Weaknesses: Internal Negatives (poor use or lack
of skills)
3.
Opportunities: External Positives (evaluating areas
where advantages may be gained, ex: add a new
product, target new segments)
4.
Threats: External Negatives (evaluating forces that
may prevent the company from accomplishing its
objectives, ex: competition, regulation, customer
preferences)