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Session Outline
Macro-Environment Industry situation SWOT analysis Total market Intermediaries Competition
This Session
Weekly Activity: Sample Marketing Plans There are a number of websites that offer sample
Marketing Plans: Go to: www.mplans.com/sample-marketing-
plans.php#.VZSPFk1-9fe and browse the range Consider the information provided in the plan Your own plan should be at least as
comprehensive
Note: Researching the additional information is part of the learning process in becoming intimately familiar with your business.
Environmental Scanning
Can be broken down into four significant areas:
General business (Strategic Analysis) (Mega-Environment) – eg. Country Scan
Industry business (Industry Analysis) (Macro-Environment) – eg. Industry Scan
Local business (Local Area Market Analysis) (Micro-Environment) – eg. Market/Competition Scan
Internal business (Operational Review) (if applicable) – eg. Organisational Analysis
THE FIRM
Operating Environment (Global and Domestic)•Competitors •Labor
•Suppliers•Customers
Industry Environment (Global and Domestic)•Entry barriers•Supplier power
•Buyer power•Substitute availability
•Competitiverivalry
•Creditors
Remote Environment (Global and Domestic)•Economic•Social•Political
•Technological•Ecological
Environmental Scanning
STEEP Analysis These are Trends, Patterns, Influences and
Events that shapes the environment which the industry that the organisation operates in, is a part of.
It is often referred to as a STEEP analysis. Socio-cultural Technological Economic Ecological (Climatic/Natural) Political/Legal.
Mega-Environment Conclusions
What conclusions and assumptions can be drawn from the Strategic Analysis?
How will these conclusions and assumptions impact on the general business environment that affects society and the nation as a whole?
Industry Business Scan
This phase assists in seeing the “big picture” of the industry
Analysis of the current industry situation where are we now and what are the likely developments in the
industry. Provides better understanding of
how the industry functions how the industry players interact and how the organisation fits into the picture.
Analysis Purpose
The purpose is to understand the industry in which the business operates in and needs to consider both supply and demand conditions.
Factors likely to affect supply conditions include: Nature and extent of competition Availability and terms of stock and raw materials Business resources required Barriers to enter industry
Factors that will affect demand conditions include: Level of economic activity Buyer characteristics and behaviour for industry Demand patterns in the industry
Topic Explanation Video
The following video explains industry analysis and how it also relates to market analysis.
Take note of the key points. http://www.youtube.com/watch?
v=ouh8ihu8tcE
Distribution, pricing, promotion, methods of selling, service/field support, R&D, legal tactics
FMCG - reliance on carrying & forwarding agent (C&A) - Industry practice
Textiles - Wholesalers - Semi wholesalers - retailers + retail showrooms (few players)
Industry Practices
Potential value of industry analysis seen by assessing the performance of different industries over time S&P’s monthly stock price index over a
long tome period shows industries perform differently over time
Stock performance affected by industry Industries in decline should be
avoided
Industry Performance Over Time
Consistency of industry performance Maintaining positions in growth industries
leads to better returns than otherwise Can industry performance be predicted
reliably on the basis past success? Rankings inconsistent over time Industries with recent poor performance
should not be ignored
Industry Performance Over Time
Historical Performance Historical record of sales and earnings
growth and price performance should be considered
Although past cannot be simply extrapolated into the future, does provide context
Competitive conditions in industry Competition determines an industry’s
ability to sustain above-average returns
Qualitative Aspects
Product life cycle, rate of growth, changes in buyer needs, innovations in products/ processes, entry & exit of firms, changes in regulatory environment governing the industry
Emerging Trends
Likely direction of interest rates and which industries most affected by a significant rate change should be considered
Industries most affected by possible political events, new technology, inflation should also be considered
Forecasting Industry Trends
Industry Trends
Marketing intelligence Monitor industry trends and, new
developments. Study population growth trends. Review of government publications,
industry periodicals, news releases. Attend exporting conferences and
exhibitions.
Industry Assumptions
What assumptions can be drawn from the Industry Analysis?
How will these assumptions affect the organisation and what opportunities does it offer the business?
Industry Situation
Size and Nature of the Industry Competitive Analysis Industry rivalry Entry Barriers Market Research (existing) Industry Assumptions and
Opportunities
Size and Nature of the Industry
Describe the industry as it is currently. Describe how it has developed and how it
is expected to develop over the life of the plan.
Describe how the industry is segmented and the rivalry between segments.
Provide information on the size of the industry, both in unit volume and dollar volume. Describe the main players in the industry - competitors and suppliers.
Size and Nature of the Industry
Describe what the outlook for the industry is, both short term and long term. Describe the market growth potential.
Describe any technological advances in the industry that are likely to occur.
Explain what "the barriers to entry" are for new players entering the industry.
Industry Boundaries Helps executives determine arena
in which their firm competes Focuses attention on firm’s
competitors Helps executives determine key
factors for success Gives executives another basis on
which to evaluate their firm’s goals
Evolution of industries over time creates new
opportunities and threats
Industry evolution creates industries within
industries
Industries are becoming global in scope
Industry Boundaries
Industry Issues
What part of the industry corresponds to our firm’s goals?
What are the key ingredients of success in that part of the industry?
Does our firm have the skills needed to compete in that part of the industry?
Will the skills enable us to seize emerging opportunities and deal with future threats?
Is our definition of the industry flexible enough to allow necessary adjustments to our business concept as the industry grows?
By stage in their life cycle Helps determine the health and
future prospects of the industry Pioneering stage
Rapid growth in demand Opportunities may attract other firms
and venture capitalists Difficult identify likely survivors
Analyzing Industries
Industry Life Cycles
Stage 1 Stage 2 Stage 3 Stage 4
Start-up Consolidation Maturity Decline
Beginning Rapid Stabilization and Deceleration
Development Growth Market Maturity of Growth
Expansion stage Survivors from the pioneering stage are
identifiable Firm operations more stable, dependable Considerable investment funds attracted Financial policies firmly established Dividends often become payable
Attractive to a wide group of investors
Analyzing Industries
Stabilization or maturity stage Growth begins to moderate Marketplace is full of competitors Costs are stable rather than decreasing
Limitations of life cycle approach A generalization that may not always
apply Tends to focus on sales, market share,
and investment in the industry
Analyzing Industries
Governmental effects Regulations and policies have significant
effects on industries Structural changes in how economy
creates wealth Western economies continue to move
from an industrial to an information/communication society
Structural shifts can occur even within relatively new industries
Analyzing Industries
To forecast long-term industry performance you should ask: Which industries are obvious
candidates for growth and prosperity?
Which industries appear likely to have difficulties as the country’s economy changes, ie from industrial to an information-based economy?
Future Industry Prospects
Analysis of industries by their operating ability in relation to the economy as a whole Some industries move closely with the
business cycle, others not Growth industries
Earnings expected to be significantly above the average of all industries
Growth stocks suffer less during a recession
Business Cycle Analysis
Defensive industries Least affected by recessions and
economic adversity Cyclical industries
Most affected by recessions and economic adversity
“Bought to be sold” Counter-cyclical industries exist as well
Business Cycle Analysis
Interest-sensitive industries Particularly sensitive to expectations
about changes in interest rates Carefully analysis of business cycle
and likely movements in interest rates help make better buy/sell decisions
Industry knowledge is valuable in selecting or avoiding industries
Business Cycle Analysis
Are industry classifications clear-cut?
Industries cannot be casually identified and classified Diversified lines of business cause
classification problems Industries continue to become more
mixed in their activities and less identifiable with on product or service
What is an Industry?
Competing in the Global Market
Global competition impacts: industry structure degree of competition firm’s national origin and the competitive
advantage of nations Competitive position
costs, market share, price quality, accumulated experience
Competitive forces - Five Forces Analysis
Fragmented Industries
‘Populated by a large number of Small Medium Enterprises’ Porter
‘Absence of market leaders with the power to influence events.’
Where: low barriers to entry transport costs are high local image important etc.
A fragmented industry may become consolidated with:
technological change standard product preferred over customised one large publishing companies with small ‘imprints’ Consolidate naturally with age
Without consolidation a firm can specialise and grow by:
offering a standard product or service dealing with particular customers Concentrating on a particular area
Fragmented Industries
Concentrated Industries
Dominated by a small number of large firms, exercising significant influence over the market
How does this happen? Cheap to produce in bulk Significant resources to stay in business High barriers to entry etc.
Always a main market leader influences the way business is done strong relationship with sources of supply control over distribution networks
Concentrated Industries
Emerging Industries
New or reformed industry e.g electronic publishing and interactive
TV - FT, New York times, Digital TV. e.g Waste recycling - BMW, Winchester
City Council e.g Internet browsers - Netscape
Navigator e.g Road pricing systems - Toll systems
for bridges and motorway
lack of faith in technology innovative product where customer needs are as yet
unknown high initial start up costs potential customers need to be kept informed of
developments early barriers to entry e.g raw materials competition for components customer confusion Obsolescence Erratic quality Scepticism from bankers and investors
Emerging Industries Problems
Topic Explanation Video
The following video discusses the different competitive structures or as they are sometimes called market structures.
Take note of the key points. http://www.youtube.com/watch?
v=6yl9Ath6xrE
To understand how industry structure drives competition, which determines the level of industry profitability.
To assess industry attractiveness
To use evidence on changes in industry structure to forecast future profitability
To formulate strategies to change industry structure to improve industry profitability
To identify Key Success Factors
Competition Structure Objectives
Competition Structures
How an organisation markets themselves is influenced by four types of competitive structures. Pure competition. Monopolistic Competition. Oligopoly. Monopoly.
Pure competition
A market structure where a large number of sellers sell an undifferentiated product.
Pure competition is rarely, if ever, attained in the real world. It is a theoretical concept. An ideal.
eg: some agricultural products(fruits, etc)
Monopolistic Competition
Marketers attempt to gain differential advantage over its competitors.
Marketer aims to get the buyer to perceive an attractive difference in their offerings.
Marketers have more control over products and price due to perceived differences.
Oligopoly
A market structure in which only a few large sellers, marketing essentially similar products, account for almost all of an industry’s sales.
eg air travel, beer,cigarettes.
Monopoly
A market structure where there is only one supplier of a product, for which there no close substitutes.
eg: CSR (sugar refining), electricity and gas suppliers (usually government owned).
monopolies are becoming rare in Australia (eg: even Telstra now has competition).
sometimes patent protection can provide firms with something close to a monopoly.
Concentration
Entry and ExitBarriers
ProductDifferentiation
Information
Perfect Competition
Oligopoly Duopoly Monopoly
Many firms A few firms Two firms One firm
No barriers Significant barriers High barriers
HomogeneousProduct
Potential for product differentiation
PerfectInformation flow
Imperfect availability of information
Industry Structure Spectrum
Industry Analysis Questions
1. What are the industry dominant economic traits?2. What competitive forces are at work in the industry
and how strong are they?3. What are the forces of change in the industry and
what impact will they have?4. Which companies are in the strongest/weakest
competitive position?5. Who’s likely to make what competitive moves next?6. What key factors will determine success or failure?7. How attractive is the industry in terms of its
prospects for above average profitability?
Q1. Dominant Economic Traits?
Market size (Small markets don’t attract big fish) Scope of competitive rivalry Market/industry growth rate (life cycle)
Fast growth breeds new entry; slowdowns lead to increased competition.
Number of rivals and their size Number of buyers and their size Level of backward and forward integration Technological change (rate and scope) Level of differentiation between firms’ products Opportunities for economies of scale Ease of entry and exit Capital requirements
Market Size Scope Growth rate Growth cycle # & size of
competitors Distribution channels Structure
Forward Integration Backward Integration
Product Differentiation Potential for
economies of scale
Learning effects Entry / exit costs Technological
change
Q1. Dominant Economic Traits?
Q2. Competitive Forces
Porter’s Five Forces. Forces influencing industry and competitive advantage: Competitive Intensity (Rivalry Among Sellers) Barriers to Entry (Potential for New Entrants) Bargaining Power of Suppliers Bargaining Power of Customers Threat of Substitute Products
Q3. Forces of Change?
The most dominant forces the cause the industry to change are called driving forces
Task 1 - identify the driving forces
Task 2 - assessing their impact on the industry (few are important, generally)
Common Driving Forces
Changes in long term industry growth rate
Changes in who buy the products and for what reason
Product innovation Technological change Marketing innovation Increasing globalization Regulatory changes Changing societal concerns,
attitudes and lifestyles
Environmental scanning
Q4. Competitive Positions? Using the strategic group mapping: two dimensional
representation according to the competitive characteristics of the competitors in the industry:
Axes should not be correlated Size of circles proportional to combined sales The closer the circles, the stronger the rivalry See http://i.i.com.com/cnwk.1d/html/b/305,1,Competitive and
http://www.quickmba.com/strategy/pest/ for more information.
Com
peti
tive
ch
arac
teri
stic
s
Product line/merchandise mix
Q5. Likely Competitive Moves?
In order to outmaneuver your competition you have to evaluate the competitors’ future moves.
Identify competitors strategies
Evaluate who are the major players-- now
Who will be the major players
Evaluate what the major players are going to do
Q6. Key Success Factors?
Key success factors (KSF) are crucial elements that lead to success.
What are they now? What will they be? In beer production KSF can be brewing
skills In retail apparel KSF can be low cost,
superior service, superior design In your industry, KSF=????
Q7. Profitability Attractiveness?
Growth potential Driving forces Entry/exit Stability of demand Competitive forces Risk and uncertainty Competition and its
impact on the industry’s future
Topic Explanation Video
The following video is an interview with Dr Michael Porter about his 5 Forces Model.
Take note of the key points. http://www.youtube.com/watch?
v=mYF2_FBCvXw
Source: Adapted from M. E. Porter, Competitive Strategy, Free Press, 1980, p. 4. Copyright by TheFree Press, a division of Macmillan Publishing Co., Inc. Reproduced with permission.
Threat ofThreat ofsubstitutessubstitutes
Potentialentrants
Threat ofThreat ofentrantsentrants
Suppliers
BargainingBargaining powerpower
Substitutes
Buyers
BargainingBargaining powerpower
COMPETITIVE RIVALRY
Porter’s 5 Forces Model
Newentrants
Buyers
Suppliers Substitutes
Industrycompetitors
Intensity of rivalry
Intensity of rivalry
Barriers toentry
Barriers toentry
Bargainingpower
Bargainingpower
Bargainingpower
Bargainingpower
Threat ofsubstitutes
Threat ofsubstitutes
Porter’s Five Forces Model
Extent of competitive pressure from producers of
substitutes depends upon:
Buyers’ propensity to substitute
The price-performance characteristics of substitutes.
Threat of Substitutes
Entrants’ threat to industry profitability depends upon the height of barriers to entry. The principal sources of barriers to entry are:
Capital requirements Economies of scale Absolute cost advantage Product differentiation Access to channels of distribution Legal and regulatory barriers Retaliation
The Threat to Entry
Buyer’s price sensitivity Relative bargaining power
• Cost of purchases as % of buyer’s total costs. • How differentiated is the purchased item? • How intense is competition between buyers? • How important is the item to quality of the buyers’ own output?
• Size and concentration of buyers relative to sellers. • Buyer’s information . • Ability to backward integrate.
Note: analysis of supplierpower is symmetric
Buyer’s Bargaining Power
The extent to which industry profitability is depressed by aggressive price competition depends upon:
Concentration (number and size distribution of firms)
Diversity of competitors (differences in goals, cost structure, etc.)
Product differentiation Excess capacity and exit barriers Cost conditions
Extent of scale economies Ratio of fixed to variable costs
Competitive Rivalry
Competitive Rivalry
Entry is likely Substitutes threaten Buyers or suppliers exercise control Competitors are in balance There is slow market growth Global customers increase competition There are high fixed costs in an industry Markets are undifferentiated There are high exit barriers
What is a SWOT Analysis?
A scan of the internal and external environment is an important part of the strategic planning process.
Environmental factors internal to the firm usually can be classified as strengths (S) or weaknesses (W), and those external to the firm can be classified as opportunities (O) or threats (T).
Such an analysis of the strategic environment is referred to as a SWOT analysis.
The SWOT Framework
SWOT Analysis Framework Environmental Scan / \
Internal Analysis External Analysis / \ / \
Strengths Weaknesses Opportunities Threats
SWOT Matrix
Competitive AnalysisWho are my competitors?
How do I analyze them?
SWOT Porter’s Five Forces Strategic Group Maps PEST analysis
SWOT analysis and SWOT matrix
Strengths Weaknesses
Opportunities Strength-Opportunity strategies
Weakness-Opportunity strategies
Threats Strength-Threat strategies
Weakness-Threat strategies
A SWOT analysis helps you match your company’s resources and capabilities to threats and opportunities in the competitive environment.
SWOT analysis can be very subjective, but adding weighting and criteria to each factor increases the validity of the analysis. Also completing the SWOT matrix can help you pick the best strategy to implement.
Topic Example Video
The following video explains the SWOT – TOWS matrix and the differences between the two concepts.
Take note of the key points. http://www.youtube.com/watch?v=H8FANR-
2u2Q
Definition
Definition of strength: Capability, ability or activity that the
organisation does well which could be used to improve its competitive position as well as performance or a resource it controls.
Definition of weakness: Exists in any capacity as well as activities
that the organisation does not do well that may cause it to have a weaker competitive position or poorer financial performance or resources it needs but does not possess.
Definition
Definition of opportunity: Opportunities are positive external
environmental factors that an organisation can exploit.
Definition of threat: Threats are negative external environmental
factors to be faced by the organisation.
SWOT: external factors
Opportunities External attractive factors that represent the
reason for an organization to exist and develop. What opportunities exist in the environment which will propel the organization?
Identify them by their “time frames” Threats
External factors, beyond an organization’s control, which could place the organization’s mission or operation at risk. The organization may benefit by having contingency plans to address them should they occur
Classify them by their “seriousness” and “probability of occurrence”
Analysis Overview
Opportunities: Where organisation stands to gain market
share Where to reconsider organisational
priorities Threats: Where to refocus organisational efforts
defensively Where to defend from loss of market share
Definition
Definition of problems: Problems are those minor weaknesses that
the organisation can address in the short-term, such as obtaining needed resources.
Definition of vulnerabilities: Vulnerabilities are those minor threats that
the organisation has the resources and capability to control or minimise the impact of in the short-term, such as stockpiling of scarce resources.
Industry Analysis Opportunities, Vulnerabilities and Threats
that relate to the industry that the organization operates in:
Industry situation Industry composition Industry intermediaries (suppliers/agents) Substitute products Competition Type analysis (Industry
players) Industry Assumptions & Opportunities
SWOT / TOWS Matrix S-O strategies pursue opportunities that
fit well the company's strengths. W-O strategies overcome weaknesses
to pursue opportunities. S-T strategies identify ways that the
firm can use its strengths to reduce its vulnerability to external threats.
W-T strategies make a defensive plan to prevent the firm's weaknesses from making it susceptible to external threats.
STRENGTHS STRENGTHS
1.1.2.2.3.3.
WEAKNESSES WEAKNESSES
1.1.2.2.3.3.
OPPORTUNITIES OPPORTUNITIES
1.1.2.2.3.3.4.4.
(SO) Strategies Use (SO) Strategies Use strengths to take strengths to take advantage of advantage of opportunities opportunities
1.1.
2.2.
(WO) Strategies (WO) Strategies overcome overcome weaknesses by taking weaknesses by taking advantage of advantage of opportunities opportunities
1.1.
2.2.
THREATS THREATS
1.1.2.2.3.3.4. 4.
(ST) Strategies Use (ST) Strategies Use strengths to avoid strengths to avoid threats threats
1.1.
2.2.
(WT) Strategies (WT) Strategies Minimize weaknesses Minimize weaknesses and avoid threats and avoid threats
1.1.
2.2.
The SWOT matrix
Organisation’sResources/Abilities
Organisation’sOpportunities
Opportunities inthe Environment
Opportunity Gaps
SWOT Diagnosis
Conducting a SWOT diagnosis means to assess the significance of the identified opportunity, influence or threat factors as to it’s level of impact on the organisation
Each factor is rated on a) its degree of significance and b) its probability of occurrence.
PursuePursue ReviewReview
IgnoreIgnoreMonitorMonitor
HighHigh LowLowOpportunity SignificanceOpportunity Significance
HighHigh
LowLow
Oc
cu
rre
nc
e P
rob
ab
ility
Oc
cu
rre
nc
e P
rob
ab
ility
Opportunity Matrix
Market Research – T.O.C.
2. Market Research & Analysis 2.1 Market Research 2.2 Current State of Industry 2.3 Market Size and Trends 2.4 Competitor SWOT Analysis 2.5 Customers 2.6 Competition & Competitive
Advantage 2.7 Marketing Intelligence
Industry Analysis
Industry Analysis This looks at how the industry operates, current
state and future forecasts. Such knowledge is important to identify future potential opportunities and threats
Description This is an explanation of the industry group your
proposed business would be a part of. For industry groups, consider ABS ANZSIC classifications
Conditions (current state) This focuses on the current state of health of the
identified industry group comparing where it is now in relation to past performance.
Industry Analysis
Trends (growth areas) This section highlights the future prospects for
the industry group as a whole. In other words, forecasting where the industry improvements will be given the extent and impact of change onto the industry
Size This should include information on
revenue/profits, number of operators, people employed, etc for the industry group. Specific ABS reports can provide this information,
eg. ABS - Mining Industry - 8414.0 - 1994/1995.
Industry Analysis
Dominant Operators This section states the significant or major
players in the industry and is often determined through a combination of industry experience, knowledge (industry association resources) and directory information (Yellow Pages listings)
Future (opportunities/threats) This section considers the trend information in
terms of growth potential and future viability of the industry. Specific innovations, improvements or changes may create the catalyst for potential opportunities or risk threats to your business.
Next Session Weekly Activity: ANZSIC Codes Visit the Australian Bureau of Statistics website
(www.abs.gov.au) and find out what are the 2 digit codes for each of the industry group categories
Also determine what are the additional digit codes for the particular industry
Using your business idea, match this with an industry code
Locate an ABS publication that lists these codes for you
If you have problems try searching under Catalogue number 1292.0
Report on your research (Word Count: 200 – 300).