Analyzing Marketing Environment ENVIRONMENT Macro Environment Micro Environment

Analyzing Marketing Environment

ENVIRONMENT Macro Environment Micro Environment Internal Environment Financiers Suppliers Customers Competitors Public Mktg Intermediaries Mission / Objectives Management Structure Internal Power Relationship Physical Assets & facilities Business Decision Company image Human resources Financial Capabilities Technological Capabilities Marketing Capabilities Economic Technological Global Demographic Socio-Cultural Political

Importance of Marketing Environment �Identification of Opportunities �Identification of Threats �Deal with the Internal Environment � Better Understanding of the Market � Image Building �Better Performance

Process of Environmental Analysis: The analysis consists of four steps: Ø Scanning : Detect early signals of possible environmental change and detect environmental change already underway. Ø Monitoring : Purpose of monitoring is to assemble sufficient data to discern whether certain trends are emerging, identification of the trends and identification of areas for further scanning. Ø Forecasting : It is concerned with developing projections of the direction, scope and intensity of environmental change. Ø Assessment : To determine implications for the organisation’s current and potential strategy.

Analysis of Environment �SWOT analysis �PEST analysis �Five forces analysis etc.

SWOT ANALYSIS �Strengths: unit’s resources and capabilities that can be used as a basis for developing a competitive advantage Examples: good reputation among customers, resources, assets, people, : experience, knowledge, data, capabilities �Weaknesses: internal force that could serve as a barrier to maintain or achieve a competitive advantage; a limitation, fault or defect of the unit. Example: gaps in capabilities, financial, deadlines, morale, lack of competitive

Cont. . • Opportunities: any favorable situation present now or in the future in the external environment. Examples: unfulfilled customer need, arrival of new technologies, loosening of regulations, global influences, economic boom, demographic shift • Threats: External force that could inhibit the maintenance or attainment of a advantage; any unfavorable situation in the external environment that is potentially damaging now or in the future. Examples: shifts in consumer tastes, new regulations, political or legislative effects, environmental effects, new technology, loss of key staff, economic downturn, demographic shifts, competitor intent; market demands; sustaining internal capability; insurmountable weaknesses; financial backing

SWOT Analysis of Indian Economy Weaknesses • Strengths • • Huge pool of labor force High percentage of cultivable land Diversified nature of the economy Availability of skilled manpower Extensive higher education system High growth rate of economy Rapid growth of IT / ITes Sector Abundance of natural resources • • Opportunities • • Scope for entry of private firms in various sectors of business Inflow of FDI Huge foreign exchange prospects in IT / ITe. S Investment in R & D Area of infrastructure Huge domestic market : Opportunity for MNCs Huge agricultural resources High percentage of workforce involved in agriculture Approx a quarter of population below the poverty line High unemployment rate Inequality in prevailing socio economic conditions, rural – urban divide Low productivity Huge population leading to scarcity of resources Low level of mechanization Red tapism, Bureaucracy Low literacy rates Threats • • • High fiscal deficit Threat of government intervention in some states Growing import bill Population explosion, rate of growth of population Agriculture excessively dependent on monsoon

PEST analysis �Political factors �Economic factors �Socio-cultural factors �Technological factors

Cont. . �Political/legal: Ø Ø Ø Ø Monopolies legislation Environmental protection laws Taxation policy Employment laws Government policy Legislation Others? �Economic Factors: Ø Ø Ø Inflation Employment Disposable income Business cycles Energy availability and cost Others?

Cont. . �Socio-cultural factors: � � � � Demographics Distribution of income Social mobility Lifestyle changes Consumerism Levels of education Others? �Technological: � New discoveries and innovations � Speed of technology transfer � Rates of obsolescence � Internet � Information technology � Others?

Porter five forces analysis �It is a framework for industry analysis and business strategy development �formed by Michael E. Porter of Harvard Business in 1979. �Three of Porter's five forces refer to competition from external sources. The remainder are internal threats

Cont. . �Threat of new entrants: Profitable markets that yield high returns will attract new firms. Factors are: Ø Government policy Ø Capital requirements Ø Absolute cost Ø Cost disadvantages independent of size Ø Economies of scale Ø Economies of product differences Ø Product differentiation Ø Brand equity Ø Switching costs or sunk costs Ø Expected retaliation Ø Access to distribution Ø Customer loyalty to established brands Ø Industry profitability (the more profitable the industry the more attractive it will be to new competitors)

Cont. . �Threat of substitute products or services: The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives. Potential factors: �Buyer propensity to substitute �Relative price performance of substitute �Buyer switching costs �Perceived level of product differentiation �Number of substitute products available in the market �Ease of substitution. Information-based products are more prone to substitution, as online product can easily replace material product. �Substandard product �Quality depreciation

Cont. . �Bargaining power of customers (buyers); the ability of customers to put the firm under pressure, which also affects the customer's sensitivity to price changes. Potential factors: Ø Buyer concentration to firm concentration ratio Ø Degree of dependency upon existing channels of distribution Ø Bargaining leverage, particularly in industries with high fixed costs Ø Buyer switching costs relative to firm switching costs Ø Buyer information availability Ø Force down prices Ø Availability of existing substitute products Ø Buyer price sensitivity Ø Differential advantage (uniqueness) of industry products Ø RFM (customer value) Analysis

Cont. . �Bargaining power of suppliers: Suppliers of raw materials, components, labor, and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes. Potential factors: Ø Supplier switching costs relative to firm switching costs Ø Degree of differentiation of inputs Ø Impact of inputs on cost or differentiation Ø Presence of substitute inputs Ø Strength of distribution channel Ø Supplier concentration to firm concentration ratio Ø Employee solidarity (e. g. labor unions) Ø Supplier competition: the ability to forward vertically integrate and cut out the buyer.

�Intensity of competitive rivalry: the intensity of competitive rivalry is the major determinant of the competitiveness of the industry. Potential factors: �Sustainable competitive advantage through innovation �Competition between online and offline companies �Level of advertising expense �Powerful competitive strategy �Firm concentration ratio �Degree of transparency