External Environment

Presented by

Prof.B.Manchanda
 Outline
 Introduction
 The Company’s Microenvironment
 The Company’s Macroenvironment
 The Competitors
 Porter's Five Forces Model
 Introduction
Definition:
The Company’s environment consists of "the
actors and forces outside marketing that
affect marketing management's ability to
develop and maintain successful
transactions with its target customers"
… Philip Kotler
 Introduction (cont’d)
 Companies must evaluate both micro and macro-
environment to identify
 any trends that may affect their marketing strategies,
and
 opportunities that can be developed into competitive
advantages
 Porter's Five Forces model analyses market
structures to determine market attractiveness
taking into consideration the micro and macro
environments in its construction
Company’s Microenvironment
Relates to the internal forces or forces close to the
company over which some control is possible
 Top management
 Other functions e.g. finance and accounting, R& D,
manufacturing and purchasing
 Suppliers
 Marketing intermediaries (channel partners)
 Customers
 Competitors
 Public
 Company’s Macro-environment

 Relates to the larger forces having an

impact on society as a whole
 A company has little influence on these
forces and therefore can only adapt its
marketing mix to account for the resulting
opportunities and threats
Major forces of the Macro-
Environment
 Demographic
 Economic
 Natural
 Technological
 Cultural
 Political/legal
Demographic Environment
Demographic trends:
 Changing age structure
 Changing family structure
 Geographic shifts in population
 Higher education level & more white
collar job holders
 Increasing globalization of cities such as
Delhi,Gurgaon,Mumbai,Bangalore,etc.
 Economic Environment
Economic trends affecting consumers
buying power and spending pattern
 Change in per capital real income
 Disposable
 Discretionary
 Income distribution
 Savings & debt
 Consumer expenditures
 Change in interest rates and cost of living
 Natural Environment
Natural trends include those natural
resources used in production or those
affected by marketing activities
 Raw material shortages
 Increase in energy cost
 Increase pollution levels
 Increase in Governmental intervention in
natural resource management
Technological Environment
Consists of forces that affect new
technology, new product development
and market opportunities
 Faster pace of technological change
 Shorter PLC
 Higher R&D budgets
 Concentration on minor improvements
 Increased regulations
 Cultural Environment
Affect society's basic values, perceptions,
preferences and behaviors
 Core cultural values and beliefs
 Secondary cultural values
 Sub cultures
Legal and Political Environment
Trends in the legal and political environment
include
 Increased legislation regulating business
 Changing government agency enforcement
 Growth of public interest groups ie Anna
Hazare
 Regional groupings
 ASEAN
 Competitive Analysis
 Who are your competitors?
 Do you know about your close competitors’
strengths and weaknesses?
 How detail should we analyze the
competition?
 Use a systematic approach
 Analysis competition at various levels (next
slide)
Levels of Competition
Generic Competition

Form Competition

Industry Competition

Brand Competition
Levels of Competition (cont’d)
 Generic competition—e.g. Jet Airways against Indian
Railways for the same consumer.
 Form competition—e.g. Toyota against manufacturers
of other vehicles that provide the same service such
as Maruti (cars)
 Industry competition—e.g. BMW against Mercedes,
Audi etc who make the same products or class of
products (different prices)
 Brand competition—e.g. Honda against Toyota, Maruti
Suzuki etc. who offer similar products and service to
the same customers at similar prices
 Industry Competition
 Different industries can sustain different
levels of profitability; partly due to the
difference in industry structure
 Porter’s Model of Industry Competition,
commonly know as Porter’s Five Forces
provides a framework for analyzing the
influence of the forces on the industry to
determine the industry’s profitability and
competitiveness
Porter’s Model of Industry
Competition
Barriers to Entry

Industry degree
Suppliers Buyers
of rivalry

Substitutes

(Source: Aakers pp.8487)

 Porter’s 5 Forces—
Barriers to Entry
 Absolute cost  Capital requirements
advantages  Brand identity
 Proprietary learning  Switching costs
curve
 Access to distribution
 Access to inputs
 Government policy  Expected retaliation
 Economies of scale  Proprietary products
(Source: Michael Porter, “On Competition”)
Threats of Substitutes
 Switching costs
 Buyer propensity to substitute
 Relative price performance of
substitutes

(Source: Michael Porter, “On Competition”)

 Buyer Power
 Bargaining leverage  Threat of backward
 Buyer volume integration
 Buyer information  Product differentiation
 Brand identity  Buyer concentration vs.
industry
 Price sensitivity
 Substitutes available
 Buyers' incentives
(Source: Michael Porter, “On Competition”)
 Supplier Power
 Supplier concentration  Switching costs of
 Importance of volume firms in the industry
to supplier  Presence of
 Differentiation of substitute inputs
inputs
 Threat of forward
 Impact of inputs on integration
cost or differentiation
 Cost relative to total
purchases in industry

(Source: Michael Porter, “On Competition”)

 Degree of Rivalry
 Exit barriers
 Industry growth
 Industry concentration ratio

 Fixed costs/Value added

 Product differentiation
(Source:
Buyers' incentives
Michael Porter, “On Competition”)