ABM102

INTRODUCTION TO
MARKETING MANAGEMENT
 Module 3
Analysing the Marketing Environment and Creating Competitive Advantage

Module Overview:

Welcome to Module 3! This module will give you an overview of Analysing the

Marketing Environment and Creating Competitive Advantage – what it is about and

its importance to business organizations.

There are 3 lessons that you will take up in this module: (1) The Microenvironment &

The Macro environment (2) Competitors Analysis and Creating Competitive

Advantage (3) Porter’s Five Forces Analysis

Module Outcome:

 Identify and understand the environmental forces that affect the company’s

ability to serve its customers.

 Understand and analyse marketing environment using the PESTEL Analysis

 Discuss the need to understand competitors as well as customers through

competitor analysis.

 Explained the fundamentals of competitive marketing strategies based on

creating value for customers.

 Understand and analyse marketing environment using the Porter’s Five

Forces Analysis

Time Frame: Four (4) weeks

A Guide through This Course
These are the standard icon that prompts you to some reminders or actions:

ACTIVITY

This includes a variety of activities that you need to work on to help build the
concepts of the topic being presented.

ANALYSIS

This gives a variety of analysis questions intended draw out your reactions or
responses.

ABSTRACTION

This is where you get the inputs and some discussions about the topic.

APPLICATION

You are expected to utilize knowledge gained from this lesson.

CLOSURE
Lesson 1
The Microenvironment & Macro environment
Learning Outcomes
 Identify and understand the Micro environmental & Macro environmental
forces that affect the company’s ability to serve its customers.

Activity
Kindly accomplish the following task:
 Discuss the difference between internal factors and external factors of a
business.

Analysis
Answer the following questions:
 What are your insights and realization in answering the activity?

Abstraction

Business Environment
 The environment of a firm may be defines as the sum of all the elements and
forces present in its immediate and remote surroundings, which have a
potential impact on its ability to achieve its objectives.
 A firm does not exist in isolation. It works within the overall environment and
must keep up with changes in the environment.

Elements of the Business Environment

The environment of the firm can be divided into two:
 Internal environment (micro environment)
 External environment (macro environment).
Internal Environment [Micro Environment]
 The internal environment of business refers to all the factors or forces that
have a more direct impact on the daily activities of the company.
 The main factors in the internal environment are: customers, suppliers,
competitors, shareholders, financial institutions, and employees.
Customers
 According to Peter Drucker, “the ultimate aim of all business organization is to
create a customer” (The Practice of Management, p. 37). Customers
exchange resources, usually in the form of money, for an organization’s
products and services.

Suppliers
 Suppliers refer to firms and individuals that provide the resources needed by
the company and its competitors to produce goods and services.

Competitors
 These are companies that offer similar or alternative products and services.
In pursuit of survival and growth, organizations must compete with one
another.

Shareholders
 These are the owners of the firm who can influence the policies and
procedures of the firm. They do this by exercising their voting rights.

Employees
 The organization’s labor force comprises of all the individuals who are
employed by the organization. Employees are responsible for work in an
organization. The firm must take care of the needs of its employees by
providing a work environment that is conducive for them.
External Environment [Macro Environment]
 The external environment of a business refers to the major forces outside the
organization that have the potential to significantly influence the success of
the firm.
 They consist of primary forces that shape opportunities and pose threats to
the company. These factors include: physical environment, political-legal,
economic, technological, socio-cultural and demographic factors.
Physical Environment
 This includes the supply and availability of resources and raw materials.
Availability of resources affects the location of the industries. Constraints in
the physical environment determine the type of business activities that are
carried out.
Political—Legal Environment
 This is the legal framework within which businesses operate. This comprises
the law and regulations that are passed by the government to control the
business activities. These laws act as guidelines within which the business
must operate.
Economic Environment
 This includes all aspects that affect the economic growth and business
activities within the country. Business enterprises, being economic
institutions, are directly influenced by many economic factors/forces such as
the level of unemployment, the rate of growth of the economy, the level of
investment, the level of government and consumer spending, the inflation
rate, etc. These economic factors can affect the operation of a firm both on
the revenue side and the cost side
Technological Environment
 This refers to forces that create new technologies, creating new products and
market opportunities. Examples include the Internet, biotechnology, cellular
and mobile services. Breakthrough in technology can affect a business
positively by allowing it to take advantage of new methods of production and
new materials for manufacturing goods
Socio-Cultural and Demographic Environment
 The social element of a county has an impact on the business of a firm. The
products and services that a firm provides depend very much on the
composition of the population and its demographics, values and attitudes that
people have and the culture of the society. Whether a product or service
succeeds or fails is dependent on the society’s customs and ways of life. The
attitudes of the society provide a framework within which an organization
operates.
 Application
Kindly accomplish the following:

 Based on what you have learned, discuss the importance of each factor of the
Microenvironment and Macro environment to a business enterprise.

Closure
Congratulations! You just have finished the Lesson 1. Now continue your
learning experience by proceeding to Lesson 2!
Lesson 2
Competitors Analysis and Creating Competitive Advantage
Learning Outcomes
 Discuss and identify the need to understand competitors as well as customers
through competitor analysis.

Activity
Kindly accomplish the following task:
 Discuss the importance of gaining a competitive advantage in an organization.

Analysis
Answer the following questions:
 What are your insights and realization in answering the activity?

Abstraction

Competitive Advantage
An advantage over competitors gained by offering consumers greater value it
also can be a condition or circumstances that puts a company in a favorable or
superior business position

Competitive Marketing Strategies

Strategies that would strongly position the company against its competitors
and provide the greatest possible competitive advantage

Competitor Analysis
Is the process identifying key competitors; assessing their objectives,
strategies, strengths and weaknesses and reactions patterns and selecting which
competitors to attack or avoid.
Steps in analyzing Competitors

Step 1: Identifying Competitors - Companies actually face a wider range of

competitors.
 The company might define its competitors as all firms with the same product
or class of products.
 Even more broadly, competitors might include all companies making products
that supply the same service.
 Finally and still more broadly, competitors might include all companies that
compete for the same consumer dollars.

Step 2: Assessing Competitors - Having identified the main competitors, marketing

management now ask the following;
 What are the competitor’s objectives?
 What does each seek in the marketplace?
 What is each competitor’s strategy?
 What are various competitor’s Strength and Weaknesses and how will each
react to actions the company might take?

Step 3: Determining Competitor’s Objectives - The company wants to know the

relative importance that a competitor place on
 Current Profitability
 Market Share Growth
 Cash Flow
 Technologic Leadership
 Service Leadership
Step 4: Identifying Competitor’s Strategies - A strategic group is a group of rims in an
industry following the same strategy in a given target market.
Although competition is most intense within a strategic group, there is also
rivalry among groups.
 First, some strategic groups may appeal to overlapping customer segments
 Second, customers may not see much difference in the offers of different
groups
 Finally, members of one strategic group might expand into new strategy
segments.
Step 5: Assessing Competitor’s Strength and Weaknesses
Marketers need to carefully assess each competitor’s strength and
weaknesses to identify what can their competitors do. Companies normally learn
about their competitor’s strength and weaknesses through secondary data, personal
experience and word of mouth. They can also conduct primary marketing research
with customers, suppliers and dealers.
Through the process company can also Benchmark themselves against
other firms. Benchmark refers to the comparing the company’s products and
processes to those of competitors or leading firms in other industries to identify best
practices and find ways to improve quality and performance.
Step 6: Estimating Competitors Reactions
Next, the company wants to know: what will our competitors do? A
competitor’s objectives,, strategies and strength and weaknesses go a long way
toward explaining its likely actions.
Knowing how major competitors react gives the company clues on how best
to attack competitors or how best to defend its current positions.
Step 7: Selecting Competitors to Attack
A company has already largely selected its major competitors through prior
decisions on customer targets, positioning and its marketing mix strategy.
Management now must decide which competitors to compete against most
vigorously.
Step 8: Strong or Weak Competitors
Most companies prefer to compete against weak competitors. This requires
fewer resources and less time compare to competing to strong competitors, but in
the process the firm may gain little. A firm should also compete with strong
competitors to sharpen its abilities. But even strong competitors have some
weaknesses and succeeding against them often provides greater returns.
A useful tool for assessing competitor strengths and weakness is Customer
value analysis, an analysis conducted to determine what benefits target customers
value and how they rate the relative value and how they rate the relative values of
various competitors offers.
Step 9: Close or Distant Competitors
Most companies will compete with close competitors those that resembles
them most rather than distant competitors. Thus, Nike competes more against
Adidas than against adidas than against Timberland and keen.
Step 9: Finding Uncontested Market Spaces
Rather than competing head to head with established competitors, many
companies seek out unoccupied positions in uncontested market spaces. They try to
create products and services for which there are no direct competitors

Application
Kindly accomplish the following:

 Discuss the importance of competitor analysis for newly start-up businesses

and to the established business.

Closure
Congratulations! You just have finished the Lesson 2. Now continue your
learning experience by proceeding to Lesson 3!
Lesson 3
Porter’s Five Forces Analysis
Learning Outcomes
 Identify and analyse marketing environment using the Porter’s Five Forces
Analysis

Activity
Kindly accomplish the following task:
 In general, what can Porter’s Five Forces analysis offer to an organization?

Analysis
Answer the following questions:
 What are your insights and realization in answering the activity?

Abstraction

Porter's Five Forces Analysis

is a model that identifies and analyzes five competitive forces that shape
every industry and helps determine an industry's weaknesses and strengths
 Porter's model can be applied to any segment of the economy to understand
the level of competition within the industry and enhance a company's long-
term profitability.
 The Five Forces model is named after Harvard Business School professor,
Michael E. Porter.
 The five forces are frequently used to measure competition intensity,
attractiveness, and profitability of an industry or market.

Five Competitive Forces

 Threat of New Entrants
 Bargaining Power of Suppliers
 Threat of Substitutes
 Bargaining Power of Buyers
 Extent of Rivalry in the industry
Components of Porter's Five Forces
 Threat of New Entrants - Refers to the threat new competitors pose to
existing competitors in an industry. When new competitors enter into an
industry offering the same products or services, a company's competitive
position will be at risk. Therefore, the threat of new entrants refers to the
ability of new companies to enter into an industry. A high threat of new entrant
will likely to decrease profitability of the existing business in the industry, while
a low threat to entry will likely have less impact or no impact at all in the
existing businesses in the industry. New entrants are usually discourage by
the following Barriers to Entry;
 Proprietary Product Differences
 Brand Identity
 Capital Requirements
 Access to Distribution Channel
 Economies of Scale
Bargaining Power of Suppliers
An analysis of the bargaining power of suppliers will identify the extent to
which your suppliers can choose to raise prices, reduce quality or reduce service
without consequence. You will find that as the bargaining power of
suppliers increases the industry profitability tends to decrease. However supplier
power can vary, so watch for changes in power due to seasonal or economic cycles.
Bargaining power of the suppliers can be determine by the following Determinants
of Supplier Power;
 Differentiation of inputs
 Switching costs of suppliers and firms in the industry
 Threat of forward integration relative to threat of backward integration by firms
in the industry
Threat of Substitutes
Threat of substitutes definition is the availability of a product that the
consumer can purchase instead of the industry’s product. A substitute product is a
product from another industry that offers similar benefits to the consumer as the
product produced by the firms within the industry. According to Porter’s 5 forces,
threat of substitutes shapes the competitive structure of an industry. Level of threat
of substitute can be determine by the following Determinants of Substitution
Threat;
 Relative Price performance of substitutes
 Consumer’s Switching costs
 Buyer propensity to substitute
Bargaining Power of Buyers
Refers to the pressure that customers/consumers can put on businesses to
get them to provide higher quality products, better customer service, and/or lower
prices. The idea is that the bargaining power of buyers in an industry affects the
competitive environment for the seller and influences the seller’s ability to
achieve profitability. Strong buyers can pressure sellers to lower prices, improve
product quality, and offer more and better services. Bargaining power of the buyers
can be determine by the following Determinants of Buyer power;
 Buyer Concentration
 Consumer is Price sensitive
 Buyer volume
Extent of Rivalry in the industry
The intensity of rivalry among competitors in an industry refers to the extent
to which firms within an industry put pressure on one another and limit each other's
profit potential. If rivalry is fierce, then competitors are trying to steal profit and
market share from one another. Competitive rivalry is a measure of the extent
of competition among existing firms. Intense rivalry can limit profits and lead
to competitive moves, including price cutting, increased advertising expenditures, or
spending on service/product improvements and innovation. Extent of rivalry in the
industry can be determined by the following Rivalry Determinants;
 Competitors
 Brand Loyalty
 Market share and size

Application
Kindly accomplish the following:

 Discuss the importance of each of the Five Competitive Forces in an

organization.

Closure
Congratulations! You just have finished the Lesson 3. Now continue your
learning experience by proceeding to Lesson Module Assessment!
Module Summary

In Module 3, you were introduced to the Analysing the Marketing Environment

and Creating Competitive Advantage – what it is about and its importance to

business organizations.

Before you proceed to Module 4 Consumer Markets and Consumer Buyer

Behaviour, you need to take the Module 3 Assessment.

Module Assessment
ESSAY/DISCUSSION: Answer the following Questions.
(Minimum of (8) Eight Sentences)
1. Discuss the need to understand competitors as well as customers through
competitor analysis.
2. Are Porter’s Five Forces still appropriate for managing today’s business
environment?
3. What is the most important force in the Porter’s Five Forces? Discuss your answer
briefly.