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Go Global !Global Economic Environment :External Marketing Environment                             By                     ...
Agenda1.   Global Marketing     Mix2.   Segmentation,     Targeting &     Positioning3.   External     Environmental     A...
Learning Objectives To explain what marketing is. To explain the constituents of  the macro and micro  environment. To ...
Introduction Marketing principles (5P) in foreign  markets are similar to those in domestic  markets  1. Product  2. Pric...
IntroductionMarketing as a Means of Pursuing an International Strategy
Marketing Strategies Marketing strategy depends on  marketing orientation   Production   Sales   Customer   Strategic...
Marketing Strategies Firms can segment and target  markets  By country  By global segment  Using multiple criteria
Product Policies :Why Firms Alter Products Firms alter products for   Legal reasons   Cultural reasons   Economic reas...
The Product Line:  Extent and Mix Product line decisions depend on  Sales and cost   considerations  Product life cycle...
Pricing Strategies Potential obstacles in international  pricing   Government intervention     Set minimum or maximum p...
Pricing StrategiesPricing tactics  Skimming strategy  Penetration strategy  Cost-plus strategyExport price escalation...
Pricing Strategies     Why Cost-Plus Pricing Pushes Up Prices
Pricing StrategiesGray market or product diversion  the selling and handling   of goods through unofficial   distributors
Pricing Strategies        Negotiating Import-Export Prices
Promotion StrategiesPromotion  the presentation of messages intended   to help sell a product or servicePush-pull mix  ...
Promotion Strategies Advantages of standardized advertising   lower cost   better quality at local level   common glob...
Branding StrategiesBrand an identifying mark for a product or service
Branding Strategies Advantages of a worldwide  brand   global image   global player identification Problems with globa...
Distribution Strategies Distribution  the course – physical path   or legal title – that goods   take between production...
Distribution Strategies Deciding whether to standardize  Distribution can vary   substantially among   countries  Distr...
Distribution Strategies When choosing distributors and channels  firms must consider  whether internal handling   is fea...
Distribution Strategies Distributors choose which products  to handle To get a distributor to work for  them, companies ...
Distribution Strategies Factors that can contribute to  distribution cost differences among  countries include   Infrast...
Distribution Strategies E-commerce and the Internet   Opportunities    can replace traditional sales methods    faster...
Managing the Marketing MixGap analysis a method for estimating a company’s  potential sales by identifying prospective  ...
Managing the Marketing Mix            Gap Analysis
Evolving Challengesto Segment Markets Disparities between “haves” and “have-nots” will  increase Companies will have con...
Global Market Segmentation,Targeting & Positioning             •   How to identify like groups of                 potentia...
Market Segmentation Represents an effort to identify and categorize groups of customers and  countries according to commo...
Targeting• The process of evaluating segments and  focusing marketing efforts on a country,  region, or group of people th...
Positioning•   Positioning is required to differentiate the product or brand in the minds of    the target market.
Global Market Segmentation• Defined as the process of identifying  specific segments—whether they be  country groups or in...
Contrasting Views ofGlobal Segmentation   • Conventional                  Unconventional     Wisdom                      ...
Global Market Segmentation                 •   Demographics                 •   Psychographics                 •   Behavio...
Demographic Segmentation•   Income•   Population•   Age distribution•   Gender•   Education•   Occupation                 ...
Demographic Facts and Trends• In India the number of people under the age of 14 is  greater than the entire US population•...
Demographic Segmentation• A widening age gap exists between the older populations  in the West and the large working-age p...
Segmenting by Income      and Population•   Income is a valuable segmentation variable     – 2/3s of world’s GNP is genera...
Per Capita Income
10 Most Populous Countries
Age Segmentation•   Global Teens-between the ages of 12    and 19     – A group of teenagers randomly chosen       from di...
Gender Segmentation In focusing on the  needs and wants of  one gender, do not  miss opportunities to  serve the other C...
Psychographic Segmentation Grouping people according to attitudes, values,  and lifestyles   SRI International and VALS ...
Psychographic Segmentation The Euroconsumer:   Successful Idealist –Comprises from 5% to 20% of    the population; consi...
Psychographic SegmentationThe Euroconsumer:                                  Disaffected Survivors   Comfortable Belong...
Psychographic Segmentation:Sony’s U.S. Consumer Segments
Behaviour Segmentation•Focus on whether people purchase a productor not, how much, and how often they use it•User status•L...
Benefit SegmentationBenefit segmentation focuses on the value equation  Value=Benefits/PriceBased on understanding the ...
Ethnic Segmentation                           Hispanic Americans• The population of  many countries             50 milli...
Assessing Market PotentialBe mindful of the pitfalls  Tendency to overstate the size and short-term   attractiveness of ...
Assessing Market Potential• Three basic criteria:  – Current size of the segment and anticipated    growth potential  – Po...
Current Segment Size and Growth• Is the market segment currently large enough  to present a company with the opportunity t...
Potential Competition• Is there currently strong competition in the market  segment?• Is the competition vulnerable in ter...
Feasibility and Compatibility• Will adaptation be required? If so, is this  economically justifiable in terms of expected ...
Feasibility and Compatibility• Is it advisable to source locally? Would it  make sense to source products in the country  ...
Framework for Selecting Target Markets • Demographic information is a starting point but   not the decision factor • Produ...
9 Questions for Creating a Product-MarketProfile1.   Who buys our product?2.   Who does not buy it?3.   What need or funct...
Target MarketStrategy Options Standardized global marketing    Mass marketing on a global scale    Undifferentiated tar...
Target Market Strategy Options• Concentrated global  marketing                 Differentiated  – Niche marketing         ...
Positioning• Locating a brand in  consumers’ minds over and  against competitors in terms  of attributes and benefits  tha...
Positioning Strategies                          • Global consumer culture                            positioning          ...
Positioning Strategies• Local consumer culture  positioning   – Identifies with local cultural     meanings   – Consumed b...
External Environmental Analysis (1)• Analyse the broad macro-environment of  organisations in terms of political, economic...
External Environmental Analysis(2)• Use Porter’s five forces analysis in order to  define the attractiveness of industries...
Slide 2.65             Layers of the business environment    Figure 2.1   Layers of the business environment
The PESTEL framework (1)The PESTEL framework categorisesenvironmental influences into six main types:   political,        ...
The PESTEL framework (2)• Political Factors: For example, Government  policies, taxation changes, foreign trade  regulatio...
The PESTEL framework (3)•   Technological Factors: For example, new discoveries and technology    developments, ICT innova...
Key drivers of changeKey drivers for change:• The environmental factors likely to have a high  impact on the success or fa...
Using the PESTEL framework• Apply selectively –identify specific factors which  impact on the industry, market and organis...
ScenariosScenarios are detailed and plausible views of howthe environment of an organisation might develop inthe future ba...
Carrying out scenario analysis (1)• Identify the most relevant scope of the study – the  relevant product/market and time ...
Carrying out scenario analysis (2)• Develop scenario ‘stories’ - That is, coherent  and plausible descriptions of the envi...
Scenarios for the global financial system,  2020Illustration 2.2
Industries, markets and sectors An industry is a group of firms producing products and services that are essentially the s...
Porter’s five forces frameworkPorter’s five forces framework helps identify theattractiveness of an industry in terms of f...
Slide 2.77                         The five forces framework (1)    Figure 2.2       The five forces framework    Source: ...
The five forces framework (2)                The Threat of Entry & Barriers to Entry   • The threat of entry is low when t...
The five forces framework (3)                           Threat of Substitutes   Substitutes are products or services that ...
The five forces framework (4)                    The bargaining power of buyers    Buyers are the organisation’s immediate...
The five forces framework (5)                   The bargaining power of suppliers    Suppliers are those who supply what o...
The five forces framework (6)                            Rivalry between competitorsCompetitive rivals are organisations w...
Implications of five forces analysis• Identifies the attractiveness of industries –  which industries/markets to enter or ...
Issues in five forces analysis• Apply at the most appropriate level – not  necessarily the whole industry. E.g. the Europe...
The value netFigure 2.3   The value netReprinted by permission of Harvard Business Review. From ‘The Right Game’ by A. Bra...
Comparative industry structure analysisFigure 2.5   Comparative industry structure analysis
Types of industry (1)   • Monopolistic industries - an industry with one firm and     therefore no competitive rivalry. A ...
Types of industry (2)• Hypercompetitive industries - where the  frequency, boldness and aggression of competitor  interact...
Cycles of competitionFigure 2.6       Cycles of competitionSource: Adapted with the permission of The Free Press, a Divisi...
The industry life cycleFigure 2.4   The industry life cycle
Strategic GroupsStrategic groups are organisations within an industry or sector with similarstrategic characteristics, fol...
Characteristics for identifying strategic             groupsFigure 2.7   Some characteristics for identifying strategic gr...
Strategic groups in the Indian pharmaceutical             industryFigure 2.8       Strategic groups in the Indian pharmace...
Uses of strategic group analysis•   Understanding competition - enables focus on direct    competitors within a strategic ...
Market segments  A market segment is a group of customers who have similar  needs that are different from customer needs i...
Bases of market segmentation (1)Table 2.1   Some bases of market segmentation
Who are the strategic customers?A strategic customer is the person(s) at whom the strategy is primarilyaddressed because t...
Critical success factors (CSFs)   • Critical success factors are those factors that are either     particularly valued by ...
Blue ocean thinking  • ‘Blue oceans’ are new market spaces where    competition is minimised.  • ‘Red Oceans’ are where in...
Strategy canvasFigure 2.9      Strategy canvas for electrical components companiesSource: Developed from W.C. Kim and R. M...
Summary (1)  • Environmental influences can be thought of as layers    around an organisation, with the outer layer making...
Summary (2)• Industries and sectors are dynamic, and their  changes can be analysed in terms of the industry life  cycle, ...
Strategic Competitive AdvantageFactors that shape competitionCompetitive advantage at the industry and national levelsH...
Industry Analysis:Forces Influencing Competition Industry – group of firms that produce products that are close  substitu...
Porter’s Force 1:   Threat of New Entrants New entrants mean downward pressure on prices and reduced  profitability Barr...
Threat of New Entrants: Barriers to Entry Economies of Scale   Refers to the decline in per-unit product costs    as the...
Threat of New Entrants:Barriers to Entry          Distribution channels            Are there current distribution       ...
Porter’s Force 2:Threat of Substitute Products  Availability of substitute products places limits on the   prices market ...
Porter’s Force 3:Bargaining Power of Buyers Buyers=manufacturers and retailers, not  consumers Buyers seek to pay the lo...
Bargaining Power of Buyers“We do not quibble or argue with anyone’s right to  sing what they want, to print what they want...
Porter’s Force 4:Bargaining Power of Suppliers When suppliers have leverage, they  can raise prices high enough to affect...
Porter’s Force 5:     Rivalry Among Competitors Refers to all actions taken by firms in the industry to improve  their po...
Competitive Advantage Achieved when there is a match between a firm’s  distinctive competencies and the factors critical ...
Competitive Advantage“The only way to gain lasting  competitive advantage is to  leverage your capabilities around  the wo...
Generic Strategies for Creating Competitive Advantage Broad market strategies  Cost Leadership—low price  Product Diffe...
Cost Leadership Based on a firm’s position as the  industry’s low-cost producer Must construct the most efficient  facil...
Product Differentiation Product that has an actual or  perceived uniqueness in a broad  market has a differentiation  adv...
Cost Focus Firm’s lower cost position enables it  to offer a narrow target market and  lower prices than the competition...
Focused DifferentiationThe product not only has actual uniqueness but it also has a very narrow target marketResults fro...
The Flagship Firm: TheBusiness Network with FivePartners Network Relationship   Commercial Relationship
Creating Competitive Advantagevia Strategic Intent “Few competitive advantages are long   lasting. Keeping score of existi...
The Flagship Firm• A collection of 5 partners   – Key suppliers do some tasks better than the     flagship (ex.: manufactu...
Creating CompetitiveAdvantage via StrategicIntent Building layers of advantage Searching for loose bricks Changing the ...
Building Layers of Advantage A company faces less risk if it has a wide portfolio of  advantages Successful companies bu...
Searching for Loose Bricks                Search for opportunities in the                 defensive walls of competitors ...
Changing the Rules of Engagement• Refuse to play by the rules set by  industry leaders Example Xerox and Canon   Xerox e...
Collaborating Use the know-how  developed by other  companies Licensing  agreements, joint  ventures, or  partnerships
Global Competition and NationalCompetitive Advantage Global competition occurs when a firm  takes a global view of compet...
Global Competition and NationalCompetitive Advantage(Porter’s Diamond)
Factor Conditions Human Resources – the quantity of  workers available, skills possessed by  those workers, wage levels, ...
Factor Conditions             Capital Resources – the              availability, amount, cost,              and types of ...
Demand Conditions Composition of Home Demand – determines how firms  perceive, interpret, and respond to buyer needs Siz...
Demand Conditions Rapid Home Market Growth –  another incentive to invest in and  adopt new technologies faster and  buil...
Related and SupportingIndustries            The advantage that a nation gains by             being home to internationall...
Firm Strategy, Structure, and Rivalry Domestic rivalry in a single national  market is a powerful influence on  competiti...
Firm Strategy, Structure,and Rivalry Capital markets and attitudes  toward investments are important  components of the n...
Current Issues inCompetitive Advantage Today’s business environment, market stability is  undermined by:    Short produc...
Current Issues in Competitive Advantage Hypercompetition is a term used to describe a dynamic  competitive world in which...
Current Issues in   Competitive Advantage In today’s world, in order  to achieve a sustainable  advantage, companies  mus...
Current Issues inCompetitive Advantage “I don’t think we’re moving towards ahypercompetitive world in which there areno tr...
Location of Companies withCompetitive Advantage
Conclusion“Our innovation strategy is to innovate for every one of those consumers on that economic curve, and if you don’...
Casestudy : SAB-MILLER1. Read    and   prepare   the   Casestudy on SAB MILLER   (Johnson, Whittington &   Scholes     (20...
Core Reading Juleff, L, Chalmers, A.. and Harte, P. (2008)  Business Economics in a Global Environment,  Napier Universit...
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Enu marketing 250812

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Enu marketing 250812

  1. 1. Go Global !Global Economic Environment :External Marketing Environment By Stephen Ong Edinburgh Napier University Business School chong@mail.tarc.edu.my Visiting Professor, College of Management, Shenzhen University 25 August 2012
  2. 2. Agenda1. Global Marketing Mix2. Segmentation, Targeting & Positioning3. External Environmental Analysis4. Strategic Competitive Advantage
  3. 3. Learning Objectives To explain what marketing is. To explain the constituents of the macro and micro environment. To assess the external marketing environment for an organisation through PEST analysis. To critically appraise processes and techniques used for auditing the marketing environment. To understand how external environment impacts on strategy development.
  4. 4. Introduction Marketing principles (5P) in foreign markets are similar to those in domestic markets 1. Product 2. Price 3. Promotion 4. Place 5. People However, some or all elements may need to be adapted to better fit local markets
  5. 5. IntroductionMarketing as a Means of Pursuing an International Strategy
  6. 6. Marketing Strategies Marketing strategy depends on marketing orientation  Production  Sales  Customer  Strategic marketing  Social marketing
  7. 7. Marketing Strategies Firms can segment and target markets By country By global segment Using multiple criteria
  8. 8. Product Policies :Why Firms Alter Products Firms alter products for Legal reasons Cultural reasons Economic reasons
  9. 9. The Product Line: Extent and Mix Product line decisions depend on Sales and cost considerations Product life cycle considerations
  10. 10. Pricing Strategies Potential obstacles in international pricing  Government intervention Set minimum or maximum pricing Prohibit certain pricing practices  Market diversity Consumers may be willing to pay higher prices
  11. 11. Pricing StrategiesPricing tactics Skimming strategy Penetration strategy Cost-plus strategyExport price escalationFluctuations in currency value
  12. 12. Pricing Strategies Why Cost-Plus Pricing Pushes Up Prices
  13. 13. Pricing StrategiesGray market or product diversion the selling and handling of goods through unofficial distributors
  14. 14. Pricing Strategies Negotiating Import-Export Prices
  15. 15. Promotion StrategiesPromotion the presentation of messages intended to help sell a product or servicePush-pull mix Push uses direct selling techniques Pull relies on mass media
  16. 16. Promotion Strategies Advantages of standardized advertising  lower cost  better quality at local level  common global image  rapid entry into multiple countries However, firms could have problems with  translation  legalities  market needs
  17. 17. Branding StrategiesBrand an identifying mark for a product or service
  18. 18. Branding Strategies Advantages of a worldwide brand global image global player identification Problems with global brands language brand acquisition country-of-origin generic and near-generic names
  19. 19. Distribution Strategies Distribution the course – physical path or legal title – that goods take between production and consumption
  20. 20. Distribution Strategies Deciding whether to standardize Distribution can vary substantially among countries Distribution can be difficult to change
  21. 21. Distribution Strategies When choosing distributors and channels firms must consider whether internal handling is feasible which distributors are qualified the reliability of after- sales service
  22. 22. Distribution Strategies Distributors choose which products to handle To get a distributor to work for them, companies may have to  give incentives  use successful products as bait for new ones  convince distributors that their product and company are viable
  23. 23. Distribution Strategies Factors that can contribute to distribution cost differences among countries include  Infrastructure conditions  The number of levels in the distribution system  Retail inefficiencies  Size and operating hour restrictions  Inventory stock-outs
  24. 24. Distribution Strategies E-commerce and the Internet  Opportunities can replace traditional sales methods faster customer service  Problems cannot differentiate sales programs between countries still must comply with local laws
  25. 25. Managing the Marketing MixGap analysis a method for estimating a company’s potential sales by identifying prospective customers it is not serving adequately Usage Product line Distribution Competitive
  26. 26. Managing the Marketing Mix Gap Analysis
  27. 27. Evolving Challengesto Segment Markets Disparities between “haves” and “have-nots” will increase Companies will have conflicting opportunities to serve both “haves” and “have-nots” Attitudinal differences will continue to affect demand Materialism, cosmopolitanism, and consumer ethnocentrism
  28. 28. Global Market Segmentation,Targeting & Positioning • How to identify like groups of potential customers? • How to chose the groups to target? • How to segment those groups? • How to position the brand in the mind of the customer?
  29. 29. Market Segmentation Represents an effort to identify and categorize groups of customers and countries according to common characteristics 77.5 million dogs are owned in the U.S. Who owns whom?
  30. 30. Targeting• The process of evaluating segments and focusing marketing efforts on a country, region, or group of people that has significant potential to respond• Focus on the segments that can be reached most effectively, efficiently, and profitably
  31. 31. Positioning• Positioning is required to differentiate the product or brand in the minds of the target market.
  32. 32. Global Market Segmentation• Defined as the process of identifying specific segments—whether they be country groups or individual consumer groups—of potential customers with homogeneous attributes who are likely to exhibit similar responses to a company’s marketing mix.
  33. 33. Contrasting Views ofGlobal Segmentation • Conventional  Unconventional Wisdom Wisdom – Assumes heterogeneity  Assumes emergence of between countries segments that – Assumes homogeneity transcend national within a country boundaries – Focuses on macro  Recognizes existence level of cultural of within-country differences differences – Relies on clustering of national markets  Emphasizes micro- – Less emphasis on level differences within-country  Segments micro segments markets within and between countries
  34. 34. Global Market Segmentation • Demographics • Psychographics • Behavioral characteristics • Benefits sought Skiing became a sport in Norway where it was invented 4,000 years ago.
  35. 35. Demographic Segmentation• Income• Population• Age distribution• Gender• Education• Occupation What are the trends?
  36. 36. Demographic Facts and Trends• In India the number of people under the age of 14 is greater than the entire US population• In the EU, the number of consumers aged 16 and under is rapidly approaching the number of consumers aged 60-plus• Asia is home to 500 million consumers aged 16 and under• Half of Japan’s population will be age 50 or older by 2025
  37. 37. Demographic Segmentation• A widening age gap exists between the older populations in the West and the large working-age populations in developing countries• In the European Union, the number of consumers aged 16 and under is rapidly approaching the number of consumers aged 60-plus• Asia is home to 500 million consumers aged 16 and under• Half of Japan’s population will be age 50 or older by 2025
  38. 38. Segmenting by Income and Population• Income is a valuable segmentation variable – 2/3s of world’s GNP is generated in the Triad but only 12% of the world’s population is in the Triad• Do not read into the numbers – Some services are free in developing nations so there is more purchasing power• For products with low enough price, population is a more important variable
  39. 39. Per Capita Income
  40. 40. 10 Most Populous Countries
  41. 41. Age Segmentation• Global Teens-between the ages of 12 and 19 – A group of teenagers randomly chosen from different parts of the world will share many of the same tastes• Global Elite–affluent consumers who are well traveled and have the money to spend on prestigious products with an image of exclusivity
  42. 42. Gender Segmentation In focusing on the needs and wants of one gender, do not miss opportunities to serve the other Companies may offer product lines for both genders  Nike, Levi Strauss
  43. 43. Psychographic Segmentation Grouping people according to attitudes, values, and lifestyles  SRI International and VALS 2 Porsche example  Top Guns (27%): Ambition, power, control  Elitists (24%): Old money, car is just a car  Proud Patrons (23%): Car is reward for hard work  Bon Vivants (17%): Car is for excitement, adventure  Fantasists (9%): Car is form of escape
  44. 44. Psychographic Segmentation The Euroconsumer:  Successful Idealist –Comprises from 5% to 20% of the population; consists of persons who have achieved professional and material success while maintaining commitment to abstract or socially responsible ideals  Affluent Materialist –Status-conscious ‘up-and- comers’– many of whom are business professionals – use conspicuous consumption to communicate their success to others
  45. 45. Psychographic SegmentationThe Euroconsumer:  Disaffected Survivors  Comfortable Belongers  lack power and affluence  25% to 50% of a country’s population  harbor little hope for upward mobility  conservative  tend to be either resentful or resigned  most comfortable with the familiar  concentrated in high-crime urban inner  content with the comfort of home, family, city friends, and community  attitudes tend to affect the rest of society
  46. 46. Psychographic Segmentation:Sony’s U.S. Consumer Segments
  47. 47. Behaviour Segmentation•Focus on whether people purchase a productor not, how much, and how often they use it•User status•Law of disproportionality/Pareto’s Law–80% ofa company’s revenues are accounted for by20% of the customers
  48. 48. Benefit SegmentationBenefit segmentation focuses on the value equation Value=Benefits/PriceBased on understanding the problem a product solves, the benefit it offers, or the issue it addresses
  49. 49. Ethnic Segmentation  Hispanic Americans• The population of many countries  50 million Hispanic includes ethnic Americans (14% of total groups of significant pop.) with $978 billion annual buying power size  “$1 trillion Latina” 24 million Hispanic women:• Three main groups in 42% single, 35% HOH, the U.S. include 54% working African-Americans, Asian-Americans, and Hispanic Americans
  50. 50. Assessing Market PotentialBe mindful of the pitfalls Tendency to overstate the size and short-term attractiveness of individual country markets The company does not want to ‘miss out’ on a strategic opportunity Management’s network of contacts will emerge as a primary criterion for targeting
  51. 51. Assessing Market Potential• Three basic criteria: – Current size of the segment and anticipated growth potential – Potential competition – Compatibility with company’s overall objectives and the feasibility of successfully reaching the target audience
  52. 52. Current Segment Size and Growth• Is the market segment currently large enough to present a company with the opportunity to make a profit?• If the answer is ‘no,’ does it have significant growth potential to make it attractive in terms of a company’s long-term strategy?
  53. 53. Potential Competition• Is there currently strong competition in the market segment?• Is the competition vulnerable in terms of price or quality?
  54. 54. Feasibility and Compatibility• Will adaptation be required? If so, is this economically justifiable in terms of expected sales?• Will import restrictions, high tariffs, or a strong home country currency drive up the price of the product in the target market currency and effectively dampen demand?
  55. 55. Feasibility and Compatibility• Is it advisable to source locally? Would it make sense to source products in the country for export elsewhere in the region?• Is targeting a particular segment compatible with the company’s goals, brand image, or established sources of competitive advantage?
  56. 56. Framework for Selecting Target Markets • Demographic information is a starting point but not the decision factor • Product-Market must be considered – Market defined by product category • Marketing model drivers must be considered – Factors required for a business to take root and grow • Are there any enabling conditions present? – Conditions whose presence or absence will determine success of the marketing model
  57. 57. 9 Questions for Creating a Product-MarketProfile1. Who buys our product?2. Who does not buy it?3. What need or function does it serve?4. Is there a market need that is not being met by current product/brand offerings?5. What problem does our product solve?6. What are customers buying to satisfy the need for which our product is targeted?7. What price are they paying?8. When is the product purchased?9. Where is it purchased?
  58. 58. Target MarketStrategy Options Standardized global marketing Mass marketing on a global scale Undifferentiated target marketing Standardized marketing mix Minimal product adaptation Intensive distribution Lower production costs Lower communication costs
  59. 59. Target Market Strategy Options• Concentrated global marketing Differentiated – Niche marketing global marketing – Single segment of  Multi-segment targeting global market  Two or more distinct markets – Look for global depth  Wider market coverage rather than national  Ex.: P&G markets Old breadth Spice and Hugo Boss for Men – Ex.: Chanel, Estee Lauder
  60. 60. Positioning• Locating a brand in consumers’ minds over and against competitors in terms of attributes and benefits that the brand does and does not offer – Attribute or Benefit – Quality and Price – Use or User – Competition
  61. 61. Positioning Strategies • Global consumer culture positioning – Identifies the brand as a symbol of a particular global culture or segment – High-touch and high-tech products • Foreign consumer culture positioning – Associates the brand’s users, use occasions, or product origins with a foreign country or cultureBeer is associated with this German’s culture; the symbolon his shirt is not German!
  62. 62. Positioning Strategies• Local consumer culture positioning – Identifies with local cultural meanings – Consumed by local people – Locally produced for local people – Used frequently for food, personal, and household nondurables – Ex.: Budweiser is identified with small-town America Clydesdale = Which Beer?
  63. 63. External Environmental Analysis (1)• Analyse the broad macro-environment of organisations in terms of political, economic, social, technological, environmental (‘green’) and legal factors (PESTEL).• Identify key drivers in this macro-environment and use these key drivers to construct alternative scenarios with regard to environmental change.
  64. 64. External Environmental Analysis(2)• Use Porter’s five forces analysis in order to define the attractiveness of industries and sectors and to identify their potential for change.• Identify successful strategic groups, valuable market segments and attractive ‘Blue Oceans’ within industries.• Use these various concepts and techniques in order to recognise threats and opportunities in the marketplace.
  65. 65. Slide 2.65 Layers of the business environment Figure 2.1 Layers of the business environment
  66. 66. The PESTEL framework (1)The PESTEL framework categorisesenvironmental influences into six main types: political, economic,social, technological, environmental legalThus PESTEL provides a comprehensive list ofinfluences on the possible success or failure ofparticular strategies.
  67. 67. The PESTEL framework (2)• Political Factors: For example, Government policies, taxation changes, foreign trade regulations, political risk in foreign markets, changes in trade blocks (EU).• Economic Factors: For example, business cycles, interest rates, personal disposable income, exchange rates, unemployment rates, GDP trends.• Socio-cultural Factors: For example, population changes, income distribution, lifestyle changes, consumerism, changes in culture and fashion.
  68. 68. The PESTEL framework (3)• Technological Factors: For example, new discoveries and technology developments, ICT innovations, rates of obsolescence, increased spending on R&D.• Environmental (‘Green’) Factors: For example, environmental protection regulations, energy consumption, global warming, waste disposal and re- cycling.• Legal Factors: For example, competition laws, health and safety laws, employment laws, licensing laws, IPR laws.
  69. 69. Key drivers of changeKey drivers for change:• The environmental factors likely to have a high impact on the success or failure of strategy.• For example, the birth rate is a key driver for those planning nursery education provision in the public sector.• Typically key drivers vary by industry or sector.
  70. 70. Using the PESTEL framework• Apply selectively –identify specific factors which impact on the industry, market and organisation in question.• Identify factors which are important currently but also consider which will become more important in the next few years.• Use data to support the points and analyse trends using up to date information• Identify opportunities and threats – the main point of the exercise!
  71. 71. ScenariosScenarios are detailed and plausible views of howthe environment of an organisation might develop inthe future based on key drivers of change aboutwhich there is a high level of uncertainty.• Build on PESTEL analysis .• Do not offer a single forecast of how theenvironment will change.• An organisation should develop a few alternativescenarios (2–4) to analyse future strategic options.
  72. 72. Carrying out scenario analysis (1)• Identify the most relevant scope of the study – the relevant product/market and time span.• Identify key drivers of change – PESTEL factors that have the most impact in the future but have uncertain outcomes.• For each key driver select opposing outcomes where each leads to very different consequences.
  73. 73. Carrying out scenario analysis (2)• Develop scenario ‘stories’ - That is, coherent and plausible descriptions of the environment that result from opposing outcomes• Identify the impact of each scenario on the organisation and evaluate future strategies in the light of the anticipated scenarios.• Scenario analysis is used in industries with long planning horizons for example, the oil industry or airlines.
  74. 74. Scenarios for the global financial system, 2020Illustration 2.2
  75. 75. Industries, markets and sectors An industry is a group of firms producing products and services that are essentially the same. For example, automobile industry and airline industry. A market is a group of customers for specific products or services that are essentially the same (e.g. the market for luxury cars in Germany). A sector is a broad industry group (or a group of markets) especially in the public sector (e.g. the health sector)
  76. 76. Porter’s five forces frameworkPorter’s five forces framework helps identify theattractiveness of an industry in terms of fivecompetitive forces:• the threat of entry,• the threat of substitutes,• the bargaining power of buyers,• the bargaining power of suppliers and• the extent of rivalry between competitors. The five forces constitute an industry’s ‘structure’.
  77. 77. Slide 2.77 The five forces framework (1) Figure 2.2 The five forces framework Source: Adapted with the permission of The Free Press, a Division of Simon & Schuster Adult Publishing Group, from Competitive Strategy: Techniques for Analyzing Industries and Competitors by Michael E. Porter. Copyright © 1980, 1998 by The Free Press. All rights reserved
  78. 78. The five forces framework (2) The Threat of Entry & Barriers to Entry • The threat of entry is low when the barriers to entry are high and vice versa. • The main barriers to entry are:  Economies of scale/high fixed costs  Experience and learning  Access to supply and distribution channels  Differentiation and market penetration costs  Government restrictions (e.g. licensing) • Entrants must also consider the expected retaliation from organisations already in the market
  79. 79. The five forces framework (3) Threat of Substitutes Substitutes are products or services that offer a similar benefit to an industry’s products or services, but by a different process. Customers will switch to alternatives (and thus the threat increases) if: • The price/performance ratio of the substitute is superior (e.g. aluminium maybe more expensive than steel but it is more cost efficient for some car parts) • The substitute benefits from an innovation that improves customer satisfaction (e.g. high speed trains can be quicker than airlines from city centre to city centre)
  80. 80. The five forces framework (4) The bargaining power of buyers Buyers are the organisation’s immediate customers, not necessarily the ultimate consumers. If buyers are powerful, then they can demand cheap prices or product / service improvements to reduce profits . Buyer power is likely to be high when:  Buyers are concentrated  Buyers have low switching costs  Buyers can supply their own inputs (backward vertical integration)
  81. 81. The five forces framework (5) The bargaining power of suppliers Suppliers are those who supply what organisations need to produce the product or service. Powerful suppliers can eat into an organisation’s profits. Supplier power is likely to be high when:  The suppliers are concentrated (few of them).  Suppliers provide a specialist or rare input.  Switching costs are high (it is disruptive or expensive to change suppliers).  Suppliers can integrate forwards (e.g. low cost airlines have cut out the use of travel agents).
  82. 82. The five forces framework (6) Rivalry between competitorsCompetitive rivals are organisations with similar products and services aimed atthe same customer group and are direct competitors in the same industry/market(they are distinct from substitutes).The degree of rivalry is increased when : Competitors are of roughly equal size Competitors are aggressive in seeking leadership The market is mature or declining There are high fixed costs The exit barriers are high There is a low level of differentiation
  83. 83. Implications of five forces analysis• Identifies the attractiveness of industries – which industries/markets to enter or leave.• Identifies strategies to influence the impact of the forces, for example, building barriers to entry by becoming more vertically integrated.• The forces may have a different impact on different organisations e.g. large firms can deal with barriers to entry more easily than small firms.
  84. 84. Issues in five forces analysis• Apply at the most appropriate level – not necessarily the whole industry. E.g. the European low cost airline industry rather than airlines globally.• Note the convergence of industries – particularly in the high tech sectors (e.g. digital industries - mobile phones/cameras/mp3 players).• Note the importance of complementary products and services (e.g. Microsoft windows and McAfee computer security systems are complements). This can almost be considered as a sixth force.
  85. 85. The value netFigure 2.3 The value netReprinted by permission of Harvard Business Review. From ‘The Right Game’ by A. Brandenburger and B. Nalebuff, July–August 1996, pp. 57–64.Copyright © 1996 by the Harvard Business School Publishing Corporation. All rights reserved
  86. 86. Comparative industry structure analysisFigure 2.5 Comparative industry structure analysis
  87. 87. Types of industry (1) • Monopolistic industries - an industry with one firm and therefore no competitive rivalry. A firm has ‘monopoly power’ if it has a dominant position in the market. For example, BT in the UK fixed line telephone market. • Oligopolistic industries - an industry dominated by a few firms with limited rivalry and in which firms have power over buyers and suppliers. • Perfectly competitive industries - where barriers to entry are low, there are many equal rivals each with very similar products, and information about competitors is freely available. Few (if any) markets are ‘perfect’ but may have features of highly competitive markets, for example, mini- cabs in London.
  88. 88. Types of industry (2)• Hypercompetitive industries - where the frequency, boldness and aggression of competitor interactions accelerate to create a condition of constant disequilibrium and change.• Hypercompetition often breaks out in otherwise oligopolistic industries (e.g. mobile phones).• Organisations interact in a series of competitive moves in hypercompetition which often becomes extremely rapid and aggressive as firms vie for market leadership.
  89. 89. Cycles of competitionFigure 2.6 Cycles of competitionSource: Adapted with the permission of The Free Press, a Division of Simon & Schuster, Inc., from Hypercompetitive Rivalries: Competing in Highly Dynamic Environments by Richard A.D’Aveni with Robert Gunther. Copyright © 1994, 1995 by Richard A. D’Aveni. All rights reserved
  90. 90. The industry life cycleFigure 2.4 The industry life cycle
  91. 91. Strategic GroupsStrategic groups are organisations within an industry or sector with similarstrategic characteristics, following similar strategies or competing on similarbases.• These characteristics are different from those in other strategic groups in thesame industry or sector.• There are many different characteristics that distinguish between strategicgroups.• Strategic groups can be mapped on to two dimensional charts – maps.These can be useful tools of analysis.
  92. 92. Characteristics for identifying strategic groupsFigure 2.7 Some characteristics for identifying strategic groups
  93. 93. Strategic groups in the Indian pharmaceutical industryFigure 2.8 Strategic groups in the Indian pharmaceutical industrySource: Developed from R. Chittoor and S. Ray, ‘Internationalisation paths of Indian pharmaceutical firms: a strategic group analysis’, Journal of International Management, vol. 13 (2009),pp. 338–55
  94. 94. Uses of strategic group analysis• Understanding competition - enables focus on direct competitors within a strategic group, rather than the whole industry. (E.g. Tesco will focus on Sainsburys and Asda)• Analysis of strategic opportunities - helps identify attractive ‘strategic spaces’ within an industry.• Analysis of ‘mobility barriers’ i.e. obstacles to movement from one strategic group to another. These barriers can be overcome to enter more attractive groups. Barriers can be built to defend an attractive position in a strategic group.
  95. 95. Market segments A market segment is a group of customers who have similar needs that are different from customer needs in other parts of the market. • Where these customer groups are relatively small, such market segments are called ‘niches’. • Customer needs vary. Focusing on customer needs that are highly distinctive is one means of building a secure segment strategy. • Customer needs vary for a variety of reasons -these factors can be used to identify distinct market segments. • Not all segments are attractive or viable market opportunities – evaluation is essential.
  96. 96. Bases of market segmentation (1)Table 2.1 Some bases of market segmentation
  97. 97. Who are the strategic customers?A strategic customer is the person(s) at whom the strategy is primarilyaddressed because they have the most influence over which goods orservices are purchased.Examples:• For a food manufacturer it is the multiple retailers (e.g. Tesco) that are thestrategic customers not the ultimate consumer.• For a pharmaceutical manufacturer it is the health authorities andhospitals not the final patient.
  98. 98. Critical success factors (CSFs) • Critical success factors are those factors that are either particularly valued by customers or which provide a significant advantage in terms of cost. • Critical success factors are likely to be an important source of competitive advantage if an organisation has them (or a disadvantage if an organisation lacks them). • Different industries and markets will have different critical success factors (e.g. in low cost airlines the CSFs will be punctuality and value for money whereas in full service airlines it is all about quality of service).
  99. 99. Blue ocean thinking • ‘Blue oceans’ are new market spaces where competition is minimised. • ‘Red Oceans’ are where industries are already well defined and rivalry is intense. • Blue Ocean thinking encourages entrepreneurs and managers to be different by finding or creating market spaces that are not currently being served. • A ‘strategy canvas’ compares competitors according to their performance on key success factors in order to develop strategies based on creating new market spaces.
  100. 100. Strategy canvasFigure 2.9 Strategy canvas for electrical components companiesSource: Developed from W.C. Kim and R. Mauborgne, Blue Ocean Strategy, 2005, Harvard Business School Press
  101. 101. Summary (1) • Environmental influences can be thought of as layers around an organisation, with the outer layer making up the macro-environment, the middle layer making up the industry or sector and the inner layer strategic groups and market segments. • The macro-environment can be analysed in terms of the PESTEL factors, from which key drivers of change can be identified. Alternative scenarios about the future can be constructed according to how the key drivers develop. • Industries and sectors can be analysed in terms of Porter’s five forces – barriers to entry, substitutes, buyer power, supplier power and rivalry. Together, these determine industry or sector attractiveness.
  102. 102. Summary (2)• Industries and sectors are dynamic, and their changes can be analysed in terms of the industry life cycle, comparative five forces radar plots and hypercompetitive cycles of competition. competition• In the inner layer of the environment, strategic group analysis, market segment analysis and the strategy canvas can help identify strategic gaps or opportunities.• Blue Ocean strategies characterised by low rivalry are likely to be better opportunities than Red Ocean strategies with many rivals.• The most important reason for environmental analysis is to identify OPPORTUNITIES AND THREATS
  103. 103. Strategic Competitive AdvantageFactors that shape competitionCompetitive advantage at the industry and national levelsHypercompetitive industry
  104. 104. Industry Analysis:Forces Influencing Competition Industry – group of firms that produce products that are close substitutes for each other Michael Porter identifies five forces that influence competition 16-104
  105. 105. Porter’s Force 1: Threat of New Entrants New entrants mean downward pressure on prices and reduced profitability Barriers to entry determines the extent of threat of new industry entrants
  106. 106. Threat of New Entrants: Barriers to Entry Economies of Scale  Refers to the decline in per-unit product costs as the absolute volume of production per period increases Product differentiation  The extent of a product’s perceived uniqueness Capital requirements  Required investment for manufacturing, R&D, advertising, field sales and service, etc. Switching costs  Costs related to making a change in suppliers or products
  107. 107. Threat of New Entrants:Barriers to Entry  Distribution channels  Are there current distribution channels available with capacity?  Government policy  Are there regulations in place that restrict competitive entry?  Cost advantages independent of scale economies  Is there access to raw materials, large pool of low-cost labor, favorable locations, and government subsidies?  Competitor response  How will the market react in anticipation of increased competition within a given market?
  108. 108. Porter’s Force 2:Threat of Substitute Products  Availability of substitute products places limits on the prices market leaders can charge  High prices induce buyers to switch to the substitute
  109. 109. Porter’s Force 3:Bargaining Power of Buyers Buyers=manufacturers and retailers, not consumers Buyers seek to pay the lowest possible price Buyers have leverage over suppliers when:  They purchase in large quantities (enhances supplier dependence on buyer)  Suppliers’ products are commodities  Product represents significant portion of buyer’s costs  Buyer is willing and able to achieve backward integration
  110. 110. Bargaining Power of Buyers“We do not quibble or argue with anyone’s right to sing what they want, to print what they want, and say what they want. But we reserve the right to sell what we want.” - Wal-Mart’s response to the accusation that it is using its financial power to dictate what is appropriate music and art
  111. 111. Porter’s Force 4:Bargaining Power of Suppliers When suppliers have leverage, they can raise prices high enough to affect the profitability of their customers Leverage accrues when  Suppliers are large and few in number  Supplier’s products are critical inputs, are highly differentiated, or carry switching costs  Few substitutes exist  Suppliers are willing and able to sell product themselves
  112. 112. Porter’s Force 5: Rivalry Among Competitors Refers to all actions taken by firms in the industry to improve their positions and gain advantage over each other  Price competition  Advertising battles  Product positioning  Differentiation
  113. 113. Competitive Advantage Achieved when there is a match between a firm’s distinctive competencies and the factors critical for success within its industry Two ways to achieve competitive advantage  Generic strategies—four types  Strategic intent—also four types
  114. 114. Competitive Advantage“The only way to gain lasting competitive advantage is to leverage your capabilities around the world so that the company as a whole is greater than the sum of its parts. Being an international company– selling globally, having global brands or operations in different countries–isn’t enough.” - David Witwam, CEO, Whirlpool
  115. 115. Generic Strategies for Creating Competitive Advantage Broad market strategies  Cost Leadership—low price  Product Differentiation—premium price Narrow market strategies  Cost Focus—low price  Focused Differentiation—premium price
  116. 116. Cost Leadership Based on a firm’s position as the industry’s low-cost producer Must construct the most efficient facilities Must obtain the largest market share so that its per unit cost is the lowest in the industry Only works if barriers exist that prevent competitors from achieving the same low costs
  117. 117. Product Differentiation Product that has an actual or perceived uniqueness in a broad market has a differentiation advantage Extremely effective for defending market position Extremely effective for obtaining above-average financial returns; unique products command a premium price
  118. 118. Cost Focus Firm’s lower cost position enables it to offer a narrow target market and lower prices than the competition Sustainability is the central issue for this strategy  Works if competitors define their target market more broadly  Works if competitors cannot define the segment even more narrowly
  119. 119. Focused DifferentiationThe product not only has actual uniqueness but it also has a very narrow target marketResults from a better understanding of customer’s wants and desireseg. High-end audio equipment
  120. 120. The Flagship Firm: TheBusiness Network with FivePartners Network Relationship Commercial Relationship
  121. 121. Creating Competitive Advantagevia Strategic Intent “Few competitive advantages are long lasting. Keeping score of existing advantages is not the same as building new advantages. The essence of strategy lies in creating tomorrow’s competitive advantages faster than competitors mimic the ones you possess today. An organization’s capacity to improve existing skills and learn new ones is the most defensible competitive advantage of all.” - Gary Hamel and C.K. Prahalad
  122. 122. The Flagship Firm• A collection of 5 partners – Key suppliers do some tasks better than the flagship (ex.: manufacturing) – Key customers (ex: car dealers) – Key consumers (ex: car buyers) – Selected competitors like global Strategic Partnerships – Non-business infrastructure: universities, governments, trade unions that supply intangibles like technology and intellectual property
  123. 123. Creating CompetitiveAdvantage via StrategicIntent Building layers of advantage Searching for loose bricks Changing the rules of engagement Collaborating
  124. 124. Building Layers of Advantage A company faces less risk if it has a wide portfolio of advantages Successful companies build portfolios by establishing layers of advantage on top of one another Illustrates how a company can move along the value chain to strengthen competitive advantage
  125. 125. Searching for Loose Bricks  Search for opportunities in the defensive walls of competitors whose attention is narrowly focused  Focused on a market segment  Focused on a geographic area to the exclusion of others
  126. 126. Changing the Rules of Engagement• Refuse to play by the rules set by industry leaders Example Xerox and Canon  Xerox employed a huge direct sales force; Canon chose to use product dealers  Xerox built a wide range of copiers; Canon standardized machines and components  Xerox leased machines; Canon sold machines
  127. 127. Collaborating Use the know-how developed by other companies Licensing agreements, joint ventures, or partnerships
  128. 128. Global Competition and NationalCompetitive Advantage Global competition occurs when a firm takes a global view of competition and sets about maximizing profits worldwide The effect is beneficial to consumers because prices generally fall as a result of global competition While creating value for consumers, it can destroy the potential for jobs and profits
  129. 129. Global Competition and NationalCompetitive Advantage(Porter’s Diamond)
  130. 130. Factor Conditions Human Resources – the quantity of workers available, skills possessed by those workers, wage levels, and work ethic Physical Resources – the availability, quantity, quality, and cost of land, water, minerals, and other natural resources Knowledge Resources – the availability within a nation of a significant population having scientific, technical, and market-related knowledge
  131. 131. Factor Conditions  Capital Resources – the availability, amount, cost, and types of capital available; also includes savings rate, interest rates, tax laws, and government deficit  Infrastructure Resources – this includes a nation’s banking, healthcare, transportation, and communication systems
  132. 132. Demand Conditions Composition of Home Demand – determines how firms perceive, interpret, and respond to buyer needs Size and Pattern of Growth of Home Demand – large home markets offer opportunities to achieve economies of scale and learning in familiar, comfortable markets
  133. 133. Demand Conditions Rapid Home Market Growth – another incentive to invest in and adopt new technologies faster and build large, efficient facilities Products being pushed or pulled – do a nation’s people and businesses go abroad and then demand the nation’s products and services in those second countries?
  134. 134. Related and SupportingIndustries  The advantage that a nation gains by being home to internationally competitive industries in fields that are related to, or in direct support of, other industries
  135. 135. Firm Strategy, Structure, and Rivalry Domestic rivalry in a single national market is a powerful influence on competitive advantage  The absence of significant domestic rivalry can lead to complacency in the home firms and eventually cause them to become noncompetitive in the world markets Differences in management styles, organizational skills, and strategic perspectives also create advantages and disadvantages for firms competing in different types of industries
  136. 136. Firm Strategy, Structure,and Rivalry Capital markets and attitudes toward investments are important components of the national environments Chance events are occurrences that are beyond control; they create major discontinuities Government is also an influence on determinants by virtue of its roles as a consumer, policy maker, and commerce regulator
  137. 137. Current Issues inCompetitive Advantage Today’s business environment, market stability is undermined by:  Short product life cycles  Short product design cycles  New technologies  Globalization Result is an escalation and acceleration of competitive forces
  138. 138. Current Issues in Competitive Advantage Hypercompetition is a term used to describe a dynamic competitive world in which no action or advantage can be sustained for long Competition unfolds in a series of dynamic strategic interactions in four areas: cost quality, timing and know- how, and barriers to entry
  139. 139. Current Issues in Competitive Advantage In today’s world, in order to achieve a sustainable advantage, companies must seek a series of unsustainable advantages The role of marketing is innovation and the creation of new markets Innovation begins with abandonment of the old and obsolete
  140. 140. Current Issues inCompetitive Advantage “I don’t think we’re moving towards ahypercompetitive world in which there areno trade-offs. We’re probably moving in theother direction. There are more customersegments than ever before, moretechnological options, more distributionchannels. That ought to create lots ofopportunities for unique positions.” Michael Porter
  141. 141. Location of Companies withCompetitive Advantage
  142. 142. Conclusion“Our innovation strategy is to innovate for every one of those consumers on that economic curve, and if you don’t do that, you’ll fail.” Robert McDonald, CEO, Procter & Gamble
  143. 143. Casestudy : SAB-MILLER1. Read and prepare the Casestudy on SAB MILLER (Johnson, Whittington & Scholes (2011)) for discussion and presentation next week.2. Identify and evaluate the global marketing challenges facing SAB MILLER by conducting External Environment, Industry, Competitor analysis, SWOT, Marketing Mix and Gap Analysis .
  144. 144. Core Reading Juleff, L, Chalmers, A.. and Harte, P. (2008) Business Economics in a Global Environment, Napier University Edinburgh Daniels, J.D., Radebaugh, L.H. and Sullivan, D.P. (2012) International Business: Environments and Operations. 14th edition, Pearson Keegan, W.J. and Green, M.C. (2013) Global Marketing, 7th edition, Pearson Johnson, Whittington and Scholes (2012) Exploring Strategy, 9th Edition, Pearson

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