The Marketing Environment

The actors and forces outside marketing

that affect organization’s ability to build and
maintain successful relationships with target
customers.
Business operates within a fast changing and unpredictable
environment
t M acro
nm e n ment
nvi ro e nv i ron
ro E
Mic Social
Economic

Public

Sup. Com Interm. Cus.

Legal
Competitors
Demographic
Political
Natural

2
 Marketing Environment

Micro Macro
Environment Environment

Internal
Stakeholders External
Resurces Stakeholders
Customers,
Competitors
Suppliers
Forces
Intermediaries
Publics
 Micro Environment
The actors close to the company that affect its ability to serve its customers – the
company, suppliers, marketing intermediaries, customer markets, competitors and
publics.
 Internal Environment
(Organizational Domain)
“The domain of an organization is the claim
it stakes out for itself with respect to:
(1) Vision and Mission
(2) Corporate/Business Strategies
(3) Core competencies
(4) strengths and weaknesses (Marketing, Finance,
Manufacturing, Organization)

Internal Records of MIS

Internal Environment
 Internal Environment
Porter’s Value Chain Analyses:
• Having analyzed the strengths and
resources of the organization, the marketing
planner then needs to think about the ways
in which these resources can best be used to
contribute to the organization’s
performance. In other words, how might
these resources best be used as a means of
gaining and maintaining a competitive
advantage?
 Value Chain Analysis (cont’d)

• Value chain
– Shows how a product moves from raw-material stage to
the final customer
• To be a source of competitive advantage, a resource or
capability must allow the firm:
– To perform an activity in a manner that is superior to
the way competitors perform it, or
– To perform a value-creating activity that competitors
cannot complete
 Value Chain Analysis (cont’d)

• Primary activities (directly involved in value creation)

involved with:
– A product’s physical creation
– A product’s sale and distribution to buyers
– The product’s service after the sale
• Support activities (Indirectly support)
– Provide the support necessary for the primary activities
to take place
 Primary Activities

• Inbound logistics
– Activities used to receive, store, and disseminate inputs to a
product (materials handling, warehousing, inventory control, etc.)
• Operations
– Activities necessary to convert the inputs provided by inbound
logistics into final product form (machining, packaging, assembly,
etc.)
• Outbound logistics
– Activities involved with collecting, storing, and physically
distributing the product to customers (finished goods warehousing,
order processing, etc.)
 Primary Activities (cont’d)

• Marketing and sales

– Activities completed to provide means through which customers can
purchase products and to induce them to do so (advertising, promotion,
distribution channels, etc.)
• Service
– Activities designed to enhance or maintain a product’s value (repair,
training, adjustment, etc.)

Each activity should be examined relative to competitors’

abilities and rated as superior, equivalent, or inferior.
 Support Activities

• Firm infrastructure
– Firm infrastructure refers to an organization's structure as well
as its management, planning, accounting, finance, and quality-
control mechanisms.
• Human resource management
– Activities involved with recruiting, hiring, training,
developing, and compensating all personnel
• Technological development
– Activities completed to improve a firm’s product and the
processes used to manufacture it (process equipment, basic
research, product design, etc)
 Support Activities
• Procurement
– Activities completed to purchase the inputs needed to
produce a firm’s products (raw materials and supplies,
machines, laboratory equipment, etc.)

Each activity should be examined relative to competitors’ abilities

and rated as superior, equivalent, or inferior
 McKinsey 7 S framework
The McKinsey 7S Model refers to a tool that analyzes
a company’s “organizational design.” The goal of the
model is to depict how effectiveness can be achieved
in an organization through the interactions of seven
key elements – Structure, Strategy, Skill, System,
Shared Values, Style, and Staff.
McKinsey 7 S framework
• Strategy: the direction and scope of the
company over the long term.
• Structure: the basic organization of the
company, its departments, reporting lines,
areas of expertise and responsibility (and how
they inter-relate).
• Systems: formal and informal procedures that
govern everyday activity, covering everything
from management information systems,
through to the systems at the point of contact
with the customer (retail systems, call center
systems, online systems, etc).
• Skills: the capabilities and competencies that
exist within the company. What it does best.
• Shared values: the values and beliefs of the
company. Ultimately they guide employees
towards 'valued' behavior.
• Staff: the company's people resources and how
the are developed, trained and motivated.
• Style: the leadership approach of top
management and the company's overall
operating approach.
 Competitor Environment

Competitor Analysis
The process of identifying key competitors; assessing their
objectives, strategies, strengths, and weaknesses, and
reaction patterns; and selecting which competitors to attack
or avoid.
 Competitor Environment
To plan effective marketing strategies the company
needs to find out all it can about its competitors. It
must constantly compare its marketing strategies,
products, prices, channels, and promotions with those
of close competitors.

Steps in Analyzing Competitors

Assessing competitors’
Identifying the objectives, strategies, Selecting which
company’s strengths and competitors to
competitors weaknesses and attack or avoid.
reaction patterns
 Identifying the company’s
competitors
A group of firms producing products that are
close substitutes
• Firms that influence one another
• Includes a rich mix of competitive strategies that
companies use in pursuing strategic competitiveness
and above-average returns
From market perspective : companies that satisfy the
same customer group.
 Identifying the company’s
competitors
Identifying Strategic Group:
A group of firms following the same strategy in a
given target market is a strategic group
(Strategic Group Mapping)
 Identifying the company’s
competitors
Different Forms of Competition:
Brand Competition
Industry Competition
Form Competition
Generic Competition
 Assessing Competitors

Determining Competitors’ Objectives

Assessing Competitors’ Strengths and

Weaknesses

Identifying Competitors’ Strategies

(Leader, Changer, Follower)

Predicting Competitors’ Reactions

Selecting Competitors to Attack and
Avoid

Strong or weak competitors

Close or distant competitors

Good or bad competitors

 Strategic Sweet Spot versus Competitors

When selecting
competitors, the Customers’
Competitors’
company wants to needs
offerings
find the “sweet spot”
where it meets
customers’ needs in a Sweet
way that rivals can’t. spot

Company’s
capabilities
 Finding Uncontested Market Spaces
Rather than competing head to head with established
competitors, many companies seek out unoccupied
positions in uncontested market spaces (No direct
competitors) – Blue Ocean Strategy.
 Five Forces Model-

• Opportunities and threats are competitive

challenges arising for changes in industry
conditions.
• Five Forces Model- Five-Forces Analysis is
a framework for analyzing a particular
industry (Michael Porter)

Michael E. Porter, “How Competittive Forces Shape Startegy”, Harvard Business

Review, May 1979 (Vol. 57, No. 2), pp. 137–145

2–29
Analyzing Industry Structural
Attractiveness

2–30
 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/industry.
• 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 (long-term
profitability)
 Interpreting Industry Analyses
Low entry barriers

Suppliers and buyers

have strong positions
Unattractive
Strong threats from Industry
substitute products

Intense rivalry
Low profit potential
among competitors
 Interpreting Industry Analyses
High entry barriers

Suppliers and buyers

have weak positions
Attractive
Few or no threats Industry
from substitute
products
Moderate rivalry
High profit potential
among competitors
 Barriers to Entry
• Economies of Scale
– Marginal improvements in efficiency that a
firm experiences as it incrementally increases
its size
• Advantages and disadvantages of large-
scale and small-scale entry
 Barriers to Entry (cont’d)
• Product
• Capital Requirements
differentiation
– Physical facilities
– Unique products
– Inventories
– Customer loyalty
– Marketing activities
– Products at
competitive prices – Availability of capital
 Barriers to Entry (cont’d)
• Switching Costs
– One-time costs customers incur when they buy
from a different supplier
– New equipment
– Retraining employees
– Psychic costs of ending a relationship
 Barriers to Entry (cont’d)
• Access to Distribution Channels
– Stocking or shelf space
– Price breaks
– Cooperative advertising allowances
• Cost Disadvantages Independent of Scale
– Proprietary product technology
– Favorable access to raw materials
– Desirable locations
 Barriers to Entry (cont’d)
• Government policy
– Licensing and permit requirements
– Deregulation of industries
 Bargaining Power of Suppliers
• Supplier power increases when:
– Suppliers are large and few in number
– Suitable substitute products are not available
– Individual buyers are not large customers of
suppliers and there are many of them
– Suppliers’ goods are critical to buyers’
marketplace success
– Suppliers’ products create high switching costs.
– Suppliers pose a threat to integrate forward into
buyers’ industry
 Bargaining Power of Buyers
• Buyer power increase when:
– Buyers are large and few in
number
– Buyers purchase a large portion of an
industry’s total output
– Buyers’ purchases are a significant portion
of a supplier’s annual revenues
– Buyers can switch to another product without
incurring high switching costs
– Buyers pose threat to integrate backward into the
sellers’ industry
 Threat of Substitute Products
• The threat of substitute products increases when:
– Buyers face few switching costs
– The substitute product’s price is lower
– Substitute product’s quality and performance are
equal to or greater than the existing product

• Differentiated industry products that are valued by

customers reduce this threat
 Intensity of Rivalry Among Competitors
• Industry rivalry increases when:
– There are numerous or equally balanced
competitors
– Industry growth slows or declines
– There are high fixed costs or high storage costs
– There is a lack of differentiation opportunities or
low switching costs
– When the strategic stakes are high
– When high exit barriers prevent competitors from
leaving the industry
The Company’s Macroenvironment

The larger societal forces that affect the

microenvironment - demographic, economic,
natural, technological, political and cultural
forces.
Macro Marketing Environment
• Forces in the MME that influence industry and the
firms within it.
– Economic
– Socio-cultural
– Global
– Technological
– Political/legal
– Demographic
External Environmental Analysis
• A continuous process which includes
– Scanning for early signals of potential
changes and trends in the markeitng environment
– Monitoring changes to see if a trend emerges from
among those spotted by scanning
– Forecasting projections of outcomes based on
monitored changes and trends
– Assessing the timing and significance of changes
and trends on the strategic marketing management
of the firm
 The Demographic Environment

• The Demographic Environment : Demography is the

study of human populations in terms of size, density,
location, age, gender, race, occupation, and other
statistics.

– Population size
– Age and gender structure
– Geographic distribution
– Ethnic mix
– Income distribution
2–46
 The Economic environment
• The Economic environment consists of factors that
affect consumer purchasing power and spending
patterns.
– Business Cycles
– Inflation rates
– Interest rates and availability of loans
– Trade deficits or surpluses
– Budget deficits or surpluses
– Personal savings rate

2–47
 The Socio-Cultural Environment
• Institutions and other forces that affect society’s
basic values, perceptions, preferences and
behaviours.
– Core value system
– Secondary values and cultural shits
– Generational diffrences
– Attitudes about quality of work life
– Concerns about the environment, Health
 Technological Environment
• Rapidly changing
• Increasing R&D
• Affected both businesses and customers

Read: New Consumer Capabilities and Business

Capabilities
 The Political/Legal Environment

• The Political/Legal environment: Laws, government

agencies and pressure groups that influence and limit
various organizations and individuals in a given
society.
• To protect consumers, organizations, and society
– Consumer protection laws
– Taxation laws
– Privatization and Deregulations
– Labor laws
 How to Analyze the Macro Environment

Environment Trend and the Explanation Opportunity/ Strategic

nature of the of how the Threat implications
trend trend makes
an impact on
the
industry/firm/
product