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Ashesi University COURSE TITLE : MARKETING SEMESTER : FIRST, 2010/2011 MODULE 2: The Marketing Environment Lecturer: Ebow Spio Learning Objectives 1. Describe the environmental forces that affect the company’s ability to serve its customers 2. Explain how changes in the demographic and economic environments affect marketing decisions 3. Identify the major trends in the firm’s natural and technological environments 4. Explain the key changes in the political and cultural environments 5. Discuss how companies can react to the marketing environment 3-2 Learning Objectives 6. Discuss the need to understand competitors as well as customers through competitor analysis 7. Explain the fundamentals of competitive marketing strategies based on creating value for customers 8. Illustrate the need for balancing customer and competitor orientations in becoming a truly market-centered organization 18-2 The Marketing Environment The marketing environment includes the actors and forces outside marketing that affect marketing management’s ability to build and maintain successful relationships with customers Microenvironment consists of the actors close to the company that affect its ability to serve its customers, the company, suppliers, marketing intermediaries, customer markets, competitors, and publics 3-4 The Company’s Macroenvironment Marketing Environment Macroenvironment consists of the larger societal forces that affect the microenvironment • Demographic • Economic • Natural • Technological • Political • Cultural 3-6 The Company’s Microenvironment • • • • • • The Company Suppliers Marketing intermediaries Customers Competitors Publics 3-7 The Company’s Microenvironment The Company Internal environment includes: • Top management • Finance • R&D • Purchasing • Operations • Accounting 3-8 The Company’s Microenvironment Suppliers • Provide the resources to produce goods and services • Treated as partners to provide customer value Marketing Intermediaries • Help the company to promote, sell, and distribute its products to final buyers • Include: • • • • Resellers Physical distribution firms Marketing services agencies Financial intermediaries 3-9 The Company’s Microenvironment Marketing Intermediaries Resellers are the distribution channel firms that help the company find customers or make sales to them Include: • Wholesalers • Retailers Physical distribution firms are the distribution channel firms that help the company to stock and move goods from their points of origin to their final destination 3-11 The Company’s Microenvironment Marketing Intermediaries Marketing service agencies are the marketing research firms, advertising agencies, media firms, and marketing consulting firms that help the company target and promote its products to the right markets. Financial intermediaries include banks, credit companies, insurance companies, and other businesses that help finance transactions or insure against the risks associated with the buying and selling of goods 3-13 The Company’s Microenvironment Customers Customer markets consist of individuals and households that buy goods and services for personal Consumption Business markets buy goods and services for further processing or for use in their production process 3-15 The Company’s Microenvironment Customers Reseller markets buy goods and services to resell at a profit Government markets buy goods and services to produce public services or transfer goods and services to others who need them International markets consist of buyers in other countries including consumers, producers, resellers, and governments 3-16 The Company’s Microenvironment Competitors • Competition refer to firms that provide similar solutions to the same consumer problem or need • Firms must gain strategic advantage by positioning their offerings against competitors’ offerings 3-17 The Company’s Microenvironment Publics Any group that has an actual or potential interest in or impact on an organization’s ability to achieve its objectives • Financial publics • Media publics • Government publics • Citizen-action publics • Local publics • General public • Internal publics 3-18 The Company’s Microenvironment Publics Financial publics influence the company’s ability to obtain funds—banks, investment houses, and stockholders Media publics carry news, features, and editorial opinion—newspapers, magazines, and radio and television stations Government publics influence product safety and truth in advertising 3-19 The Company’s Microenvironment Publics Citizen-action publics include consumer organizations, environment groups, and minority groups Local publics include neighborhood residents and community organizations General publics influence the company’s public image Internal publics include workers, managers, volunteers, and directors 3-20 The Company’s Macroenvironment • • • • • • Demographic environment Economic environment Natural environment Technological environment Political environment Cultural environment 3-21 The Company’s Macroenvironment Demographic Environment Demography is the study of human populations in terms of size, density, location, age, gender, race, occupation, and other statistics Demographic environment is important because it involves people, and people make up markets Demographic trends include age, family structure, geographic population shifts, educational characteristics, and population diversity 3-22 The Company’s Macroenvironment Economic Environment Economic environment consists of factors that affect consumer purchasing power and spending patterns. It is basically about the level of demand in the economy. • • Recession Economic Boom 3-31 The Company’s Macroenvironment Natural Environment Natural environment involves the natural resources that are needed as inputs by marketers or that are affected by marketing activities • Trends • • • • Shortages of raw materials Increased pollution Increased government intervention Environmentally sustainable strategies • Green marketing 3-35 The Company’s Macroenvironment Technological Environment Most dramatic force in changing the marketplace with many positive and negative effects • Rapid change • Provides new markets and new opportunities • • • • • • Internet Medicine Miniaturization Weapons Credit cards Communication 3-37 The Company’s Macroenvironment Political Environment Political environment consists of laws, government agencies, and pressure groups that influence or limit various organizations and individuals in a given society Legislation regulating business • Public policy to guide commerce—sets of laws and regulations that limit business for the good of society at large • Increasing legislation • Protect companies • Protect consumers • Protect the interests of society Increased Emphasis on Ethics and Socially Responsible Actions 3-38 The Company’s Macroenvironment Cultural Environment Cultural environment consists of institutions and other forces that affect a society’s basic values, perceptions, and behaviors Core beliefs and values have a high degree of persistence, are passed on from parents to children, and are reinforced by schools, churches, businesses, and government 3-42 Responding to the Marketing Environment Views on Responding • Uncontrollable • • Proactive • • Reacting and adapting to forces in the environment Taking aggressive actions to affect forces in the environment Reactive • Watching and reacting to forces in the environment 3-48 Creating Competitive Advantage 1. Competitor Analysis 2. Competitive Strategies 3. Balancing Customer and Competitor orientations 18-3 Competitor Analysis Identifying Competitors Competitors can include: • All firms making the same product or class of products • All firms making products that supply the same service • All firms competing for the same consumer dollars 18-4 Competitor Analysis Identifying Competitors Industry point of view refers to competitors within the same industry Market point of view refers to competitors trying to satisfy the same customer need or build relationships with the same customer group 18-6 Competitor Analysis Identifying Competitors Market point of view is considered to provide a broader set of actual and potential competitors, and a competitor map illustrates the steps buyers take in obtaining the product. Competitor map highlights both competitive opportunities and challenges facing the firm • Center is the list of consumer activities • First outer ring lists main competitors • Second outer ring lists indirect competitors 18-7 Competitor Analysis Assessing Competitors • Competitor’s objectives • Competitor’s strategies • Competitor’s strengths and weaknesses • Competitor’s actions and reactions 18-9 Competitor Analysis Determining Competitor’s Objectives Competitor’s objectives include: • Profitability • Market share growth • Cash flow • Technological leadership • Service leadership 18-10 Competitor Analysis Identifying Competitor’s Strategies A strategic group is a group of firms in an industry following the same or similar strategy in a given target market • Competition is most intense within a strategic group • Competition among strategic groups is due to overlapping customers and lack of perceived differentiation and expansion of one strategic group into new segments 18-11 Competitor Analysis Identifying Competitor’s Strategies Companies need to understand the competitor’s ability to deliver value to its customers • • • • • • • • • Product quality Product features Customer service Pricing policy Distribution coverage Sales force strategy Promotion programs Financial strategies R&D 18-12 Competitor Analysis Assessing Competitor’s Strengths and Weaknesses • • • • • Primary data Secondary data Personal experience Word of mouth Benchmarking is the comparison of the company’s products or services to competitors or leaders in other industries to find ways to improve quality and performance 18-13 Competitor Analysis Estimating Competitor’s Reactions Marketing managers need to develop an understanding of a given competitor’s mentality, culture, values, and way of doing business to anticipate how the competitor will react to the company’s marketing strategies 18-14 Competitor Analysis Selecting Competitors to Attack and Avoid Customer value analysis determines the benefits that target customers value and how customers rate the relative value of various competitor’s offers. • Identification of major attributes that customers value and the importance of these values • Assessment of the company’s and competitors’ performance on the valued attributes 18-15 Competitor Analysis Close or Distant Competitors Close competitors resemble the company the most Good or Bad Competitors Good competitors: • • • • • • • Increase total demand Share costs of market and product development Legitimize new technologies Serve less attractive market segments Provide more product differentiation Lower the anti-trust risk Improve bargaining power versus legislators and regulators Bad competitors: • • • Try to share rather than earn in the market Take large risks Create disruption 18-16 Competitor Analysis Designing a Competitive Intelligence System • • • • • • • Identifies competitive information and the best sources of this information Continually collects information Checks information for validity and reliability Interprets information Organizes information Sends key information to relevant decision makers Responds to inquiries about competitors 18-19 Competitive Strategies Basic Competitive Strategies Michael Porter’s four basic competitive positioning strategies • Overall cost leadership • Differentiation • Focus • Middle-of-the-roaders 18-22 Competitive Strategies Basic Competitive Strategies Overall cost leadership strategy is when a company achieves the lowest production and distribution costs and allow it to lower its prices and gain market share 18-23 Competitive Strategies Basic Competitive Strategies Differentiation strategy is when a company concentrates on creating a highly differentiated product line and marketing program so it comes across as an industry class leader 18-24 Competitive Strategies Basic Competitive Strategies Focus strategy is when a company focuses its effort on serving few market segments well rather than going after the whole market 18-25 Competitive Strategies Basic Competitive Strategies Porter believed that companies that pursued a clear strategy would achieve superior performance and that companies without a clear strategy would not succeed Porter considered them to be “middle-of-the-roaders” 18-26 Competitive Strategies Basic Competitive Strategies Michael Treacy and Fred Wiersema suggest companies can gain leadership positions by delivering superior value to their customers in three strategies or “value disciplines” • Operational excellence • Customer intimacy • Product leadership 18-27 Competitive Strategies Basic Competitive Strategies Operational excellence refers to a company providing value by leading its industry in price and convenience by reducing costs and creating a lean and efficient value delivery system 18-28 Competitive Strategies Basic Competitive Strategies Customer intimacy refers to a company providing superior value by segmenting markets and tailoring products or services to match the needs of the targeted customers 18-29 Competitive Strategies Basic Competitive Strategies Product leadership refers to a company providing superior value by offering a continuous stream of leading edge products or services. Product leaders are open to new ideas and solutions and bring them quickly to the market. 18-31 Competitive Strategies : Blue Ocean Strategy by W Chan Kim & Renee Mauborgne Blue Ocean Thinking is designing creative business ventures to positively affect both a company’s cost structure and its value proposition to consumers. Cost savings result from eliminating and reducing the factors affecting traditional industry Competition; value to consumers comes from introducing factors the industry has never before offered E.g. Southwest Airlines Red Ocean Strategy Blue Ocean Strategy Compete in existing market space Create uncontested market space Beat the competition Make the competition irrelevant Exploit existing Create and capture new demand Make the value/cost trade-off Break the value/cost trade-off Align the whole system of company’s activities with its strategic choice differentiation or low cost Align the whole system of a company’s activities in pursuit of differentiation and low cost Competitive Strategies : Blue Ocean Strategy by W Chan Kim & Renee Mauborgne 4 Key questions for marketers to ask in guiding blue ocean thinking and creating value innovation: 1. Which of the factors that our industry takes for granted should we eliminate? 2. Which factors should we reduce well below the industry’s standard? 3. Which factors should we raise well above the industry’s standard? 4. Which factors should we create that the industry has never offered? Competitive Strategies Competitive Positions • • • • Market leader strategy Market challenger strategy Market follower strategy Market nicher strategy 18-32 Competitive Strategies Competitive Positions 1. Market leader is the firm with the largest market share and leads the market price changes, product innovations, distribution coverage, and promotion spending 2. Market challengers are firms fighting to increase market share 3. Market followers are firms that want to hold onto their market share 4. Market nichers are firms that serve small market segments not being pursued by other firms 18-33 Competitive Strategies Market Leader Strategies • • • Expand total demand Protect their current market Expand market share 18-34 Competitive Strategies Market Leader Strategies Expanding Total Demand Expand total demand by developing: • New users • New uses • More usage of its products 18-35 Competitive Strategies Market Leader Strategies Protecting Market Share Protect current market by: • Fixing or preventing weaknesses that provide opportunities to competitors • Maintaining consistent prices that provide value • Keeping strong customer relationships • Continuous innovation 18-36 Competitive Strategies Market Leader Strategies Expanding Market Share Expand market share by: • Increasing market share in served markets, thus increasing profitability • Producing high-quality products • Creating good service experiences • Building close customer relationships 18-37 Competitive Strategies Market Challenger Strategies 1. Define the strategic objective and opponents Challenge the leader with an aggressive bid for more market share 2. Choose a general attack strategy • Frontal attack • Flank attack • Encirclement attack • Bypass attack • Guerilla warfare 18-38 Competitive Strategies Market Challenger Strategies 3. Choose a specific attack strategy • Price discounts • • • • • • • • • Lower-priced goods Value-priced goods Prestige goods Product proliferation Product innovation Improved services Distribution innovation Manufacturing-cost reduction Intensive advertising promotion 18-38 Guerrilla Marketing : Virgin Atlantic Competitive Strategies Market Nicher Strategies Ideal market niche is big enough to be profitable with high growth potential and has little interest from competitors Key to market niching is specialization • Market • Customer • Product • Marketing mix 18-40 Balancing Customer and Competitor Orientations Companies need to continuously adapt strategies to changes in the competitive environment • Competitor-centered company • Customer-centered company • Market-centered company 18-41 Balancing Customer and Competitor Orientations Competitor-centered company spends most of its time tracking competitor’s moves and market shares and trying to find ways to counter them • Advantage is that the company is a fighter • Disadvantage is that the company is reactive 18-42 Balancing Customer and Competitor Orientations Customer-centered company spends most of its time focusing on customer developments in designing strategies Provides a better position than competitor-centered company to identify opportunities and build customer relationships 18-43 Balancing Customer and Competitor Orientations Market-centered company spends most of its time focusing on both competitor and customer developments in designing strategies 18-44