Hooley4e_ch03.ppt

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