2 - Session Two

2- External analysis PESTL and Porter 5 forces
• Agenda:
• Strategy Planning
• Factors Influencing Strategy
• External Analysis
• PESTL Analysis
• Micro-Environment: Porter 5 Forces.
• Quantitative evaluation of competition CSF
The strategic Formulation

Strategy Plan
External Analysis
What is the environment?
“The environment is every thing that isn’t me“ (Albert Einstein)
Factors Influencing Marketing Strategy
1-External Analysis: 2- Internal Analysis Strength) Ability
• Macro analysis (PESTL)

• Corporate Strategies
• Task environment (Porter five forces) • Financial resources
• Marketing
• Human resources
• Process skills
• Core competencies
In this analysis you have to highlight: In this analysis you have to highlight:
• Opportunities (O) • Strengths (S)
• Threats (T) • Weakness (W)
Environmental analysis (PESTL)
• PESTL
• P Political.
• E Economic.
• S Social.
• T Technological
• L Legal.
PESTL Analysis
• Political • Economic • Social

• Government Stability •GDP • Life Style changes
• Foreign trade laws. •Interest Rates • Career expectations
• Attitude toward •Money Supply • Regional shift in population
foreign companies •Inflation rate • Population growth
• Employment laws •Unemployment • Age distribution
•Wages • Birth rate
•Price control • Mortality rate
•Devaluation • Religious orientation
•Reevaluation • Increase Health Consciousness
•Energy costs and • Changing pace and location of
availability life
•Disposable income • Changing household
composition
• Technological • Legal
•R&D Spending •Regulations
•Patent protection •Tax laws
•Telecom infrastructure • Customs regulations
•Internet availability
•Availability of certain Technology need to
improve productivity
Case Study
Please read McCain case study and answer the questions.
Micro-Environment: Porter 5 Forces
• Competition is often looked at too narrowly by managers.

• Yes we are competing with our direct competitors.
• But we are also in a fight for profits with a broader extended set of players.
❖Customers and suppliers who have bargaining power.
❖New entries who might come in and grab a part of the market.
❖Substitutes that place a constrain on your profits.
• What is really causes profits in the industry.

• What are the trends that most probably significant in changing the game in the industry.
• There are some industries that have the five forces attractive.
• We are talking about the market not the competition.

• We want to know the level of competition in a certain market.
• This is not a competitive analysis , this is a market analysis.
• 4 around a main one.
Threat of New Entry
Bargaining power Bargaining power

Rivalry
of supplier of buyer
Threat of Substitutes
Threat of New Entry
➢
New entry brings new capacity to the market
Barriers to entry:
• Brand loyalty
• Absolute cost advantages
• Economies of scale
• Switching costs
• Government regulation
- Entry barriers reduce the threat of new and additional competition.
Local Examples: New entrant

• The NTRA prevents any new entrant from going in the mobile operator market by licensing.
• Mobinil, Vodafone, Etesalat
• The high real state prices in prime locations in a big city could be an entry barrier for new
coffee chain
The Bargaining Power of Buyers

• Buyers are most powerful when:
• There are many small sellers and few large buyers.
• Buyers purchase in large quantities.
• A single buyer is a large customer to a firm.
• Alternative suppliers are plentiful as the product is standard and undifferentiated.
• Buyers can switch suppliers at low cost.
• Buyers purchase from multiple sellers at once.
Identify market segments, which is attractive, which is having more or less attention by
competition, which is getting larger.
The Bargaining Power of Suppliers
Suppliers have bargaining power when:

• Their products have few substitutes and are important to buyers.
• The buyer’s industry is not an important customer to the supplier.
• Supplier product/service is unique and there is switching cost
Threat of Substitutes
• A new product that is different than the existing product, but satisfy customer needs.
V.S.
Substitute Example Photography industry
• In the past the traditional cameras with films.

• then Digital cameras.
• Now mobile phones.
The Difference between new entries and substitutes
• New Entry to an industry, brings new capacity, it has the desire to gain market share, prices and
profits will go down.
• Example: when Etisalat entered the mobile market in Egypt.
• Substitute: other products that can perform the same function (satisfy the same needs) as
the products of the industry with different technology.
• Example: Skype, What’s app, Viber.
Rivalry Among Established Firms

Rivalry occur because:
• Industry’s competitive structure.
• Demand (growth or decline) conditions in industry.
• Height of industry exit barriers.
Competitive analysis
Competitive analysis:
• After PESTL analysis

• What is competition all about?
• Qualitative
• Circles of direct competitors, indirect , potential
• Who are your direct competitors?
• Those who are addressing the same needs of your direct customers
• Who are competing with you on the same need.
• If you have a restaurant , you can ask your customers , if we are closed or full , where will
you go?
• The best thing is to ask the customers, not a consulting company
nd
• 2 level of competitors indirect competition.
Zero sum competition
• When all the competitors are only fighting on price.

• The only one who will benefit is the customer.
• Positive sum competition is when companies are competing on different attributes, to
meet the needs of different customers.
• Positive sum allowing all competitors to do better.
• If you are in a zero sum competition, it is better to expand the pie rather than going for
increasing market share.
Local example: Detergents

Local example: Banks
External Analysis
All the external analysis at the 2 levels are The sources of Opportunities (O) and Threats (T)
External Environment Trends
-2 years Now + 2 years
Political :Political stability is increasing(O)

Economic : Dollar price was EGP 7  12 18 (T)
Buyers: there is an increase in health consciousness (O)
Buyers: the demand for smart phones increase
Competition: the number of competitors is increasing (T)

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2 - Session Two

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2- External analysis PESTL and Porter 5 forces

The strategic Formulation

• Macro analysis (PESTL)

• Political • Economic • Social

• Competition is often looked at too narrowly by managers.

• What is really causes profits in the industry.

• We are talking about the market not the competition.

Threat of New Entry

Bargaining power Bargaining power

Local Examples: New entrant

The Bargaining Power of Buyers

Suppliers have bargaining power when:

Substitute Example Photography industry

• In the past the traditional cameras with films.

Rivalry Among Established Firms

• After PESTL analysis

• When all the competitors are only fighting on price.

Local example: Detergents

External Environment Trends

-2 years Now + 2 years

Political :Political stability is increasing(O)

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