GRAHAM HOOLEY • NIGEL F.

PIERCY • BRIGETTE
NICOULAUD

3
The changing market
environment
 Introduction
• How environment in which marketing takes
place is changing
• Marketing environment can be divided into;
– Competitive environment (including company, its
immediate competitors and customers)
– Macro-environment (the wider social, political and
economic setting in which organizations operates

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 Industry vs. markets
• Industries are collection of organizations with
technology and products in common
– White good firm comprise and industry – that
make refrigerators, washing machines and so on
• Markets are customer linked by their similar
needs
– Laundry products comprise a market – products
and services customer use to clean their clothes

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 A framework for macro-
environmental analysis
• Nature of change in macro-environment
• Importance of understanding macro-
environment is tow fold
– Market impact of change
– Nature of change facing organizations is itself
changing
• PEST analysis (political, economic, social,
cultural and technological)

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Figure 3.1 PEST analysis of the macro-
environment

Economic

Political Social

Technological Legal

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 The economic and political
environment
• The European single market and its
enlargement
– Single market of over 320 million consumers was
created to allow free flow of products and services
• Internationalization and globalization
– Foundation of OPEC, valuable raw materials
– Changes in east/west relationship
• Dismantling of berlin wall, liberalization of economies,
break-up of soviet union, regional trading blocks

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Figure 3.2 The economic and political environment

Economic
growth rates
and the
business cycle

Interest rates,
Employment
consumer and
and
business
unemployment
confidence

National and
Taxation and
supranational
fiscal policy
governments

Regional trade Internationaliz

and trading ation and
areas globalization

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 Social and cultural environment
• Demographic change
– ‘Demographic time bomb’
• The grey market
– Over-60s age group make up 20% of population
• The youth market
• Multi-ethnic market – western societies
• Changing living patterns and lifestyles
– Single person households, women employment
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Figure 3.3 The social and cultural environmental

Demographic
change

The grey The youth

market market

Changing
Multi-ethnic
lifestyles and
societies
living pattern

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 Social and cultural pressures
• Customers are becoming increasingly
demanding
• They demand and expect reliable, and durable
products with quick, efficient service
• Customers are less prepared to pay substantial
premium
• Change in attitude to, concern for, the physical
environment

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 The technological environment
• A shortening of commercialization times of
new inventions:
– Photography (took over 100 years)
– Telephone (56), Radio(35), TV (12)
– Transistor (only 3 years)
• Innovative marketing research companies
• The internet – the global electronic
communications network

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 Globalization of markets
• Increasingly becoming global market
• Impact of technology
– Gigantic, world-scale markets with economies of
scale
• Problems for competitors that do not operate
on a global scale

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New strategies for changing macro-
environments
• Learn fast and adapt quickly (Dickson, 1992)
• Combination of culture and climate to
maximize learning (Slater and Narver, 1995)
• Being market oriented
• Multi mode marketing
– Pursuing intense relationship-building, less
intense and arm’s length strategies

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 Marketing strategies
• Global positioning
– Think globalization and focus core competencies
• The master brand
– Brand identity that links all parts of the business
e.g. Toyota, Honda
• The integrated enterprise and end-user focus
– Challenge of managing people, processes and
infrastructure to deliver value to end user

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Figure 3.4 The shift in strategy for delivering
shareholder value
Focus on core
competencies The new strategic
imperative

Domestic Global
focus focus

Portfolio 6-15
approaches
 Marketing strategies (Cont’d)
• Built-in-class processes
– Challenge to meet world-class standards from
wherever they come
• Mass customization
– Product or service tailored to the individual
customer requirements
• Breakthrough technology
– New technology e.g. ‘smart toilet’ in Japan

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Cravens predicted following forms
• Markets shape business strategies
• Networks of interlinked product markets
• The move from functions to processes
– Increasingly focus on process of going to market
• Strategic alliances
– Collaboration and partnership
• The balanced scorecard
– Keeping scores involved
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FIVE FORCES MODEL OF THE
INDUSTRY COMPETITION

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Figure 3.5 Five forces driving cmpetition

Threat of new
entrants

Bargaining Bargaining
Rivalry among existing power of
power of
firms in the industry buyers
suppliers

Threat of
substitutes
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 Rivalry among existing companies
• The rivalry is likely to be most intense where;
– Competition in the industry are roughly evenly
balanced in terms of size and share
– During periods of low market growth
– Where exit barriers are high
– Where product differentiation is low
– Where fixed costs are relatively high

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 The threat of market entry
• Potential for new entrants to emerge
• Conditions make market entry more likely
• Entry barriers can be low where;
– Costs of entry are low
– Existing/new distribution channels are open to use
– Little competitive retaliation is anticipated
– Differentiation is low
– There are gaps in the market

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 The threat of substitutes
• Substitution can increase competitiveness of
an industry for no of reasons
– By making existing technologies redundant
– By incremental product improvement

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 Bargaining power of suppliers
• Suppliers tend to have more bargaining power
where holds;
– Suppliers are more concentrated than buyers
– Costs of switching suppliers are higher
– Supplier's offerings are highly differentiated

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 Bargaining power of buyers
• Buyers tend to be more powerful in the supply
chain where the following is true
– They are more concentrated than sellers
– They are readily available alternative sources of
supply
– Buyer switching costs are low

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 Competitiveness drivers
• Where following industry characteristics are
present, expect greater level of competition:
– There is little differentiation between market offers
– Industry growth rates are low
– High fixed costs need to be recovered
– High supplier switching costs
– Low buyer switching costs
– Low entry barriers
– High exit barriers
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THE PRODUCT LIFE CYCLE

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 Figure 3.6 The product life cycle

Sales
Sales &
profit

Time
Profit

Loss

Pre-launch Introduction Growth Maturity Decline

Launch

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 Introduction stage
• Product is launched into the market and sales
are slow to pick up
• Customer and distribution have to be found
– The first HD DVD player
– Motorola razr in the fashion phone market

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 Growth stage
• Rapid increase in sales
• Product starts to attract different types of
customers
• Repeat purchases may start
– Microsoft Zunes as the ‘IPod killer’

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 Maturity stage
• Growth slows down significantly
• Lasts longer than the previous one, the most
challenging one
• Severe competition, market fragmentation
and declining profits
• Weaker competitors will exit

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 Decline stage
• Rapid decline of the sales of the product
• Better solutions
– New technology such as the flash pen replacing
flopping and zip-disk
• A change in consumer taste or an increase in
competition, domestic or international

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 Strategic groups
• Firms within industry following similar
strategies for similar customer groups
– Coca Cola and Pepsi
• Barriers to mobility within industry
– Vertical integration of companies
– Geographical boundaries
– Differences in technology
– Threat of substitute or new entrants

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 Figure 3.7 Map of strategic groups in the US
automobile market

Broad line The Faded

The Big Three Champions
GM, Ford, Chrysler VW Audi, Rover Group

The Samurai
Luxury Cars
Degree of Toyota, Nissan,
Mercedes, BMW,
specialization Honda, Mazda
Volvo, Saab,
Jaguar

Specialists
Rolls-Royce, Ferrari,
Aston Martin
Narrow line
Lamborghini, Lotus,
Morgan, McLaren

High Local content Low

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Industry evolution and forecasting
• Porter (1980) discussed evolution of industry
through three main stages; emergence,
transformation to maturity and decline

Industry Evolution Product

Product Lifecycle Brand

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Figure 3.8 Industry evolution

Stages Issues Strategies

Emergence Technological uncertainty Locate innovators, and early adopters

Commercial uncertainty Establish standard
Customer uncertainty Reduce switching cost risk
Channel uncertainty Encourage trial
Transition to Slow growth, failing products Marketing mix marketing
maturity Excess capacity, intense competition Customer retention and segmentation
Increased customer power Efficiency focus
Extended product line Coordination

Decline Substitution by newer technologies Focus or divest

Demographic change

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 Emerging stage
• Uncertainty
• Big losses can be associated
• Out of three competing video disks and video
cassette recording technology in mid-1980s
only one, VHS, has survived
• Philip with laser disk and V2000 VCRs and
Sony with Betamax were two of losers

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 Transition to maturity
• Uncertainty declines
• Competition intensifies
• Rapid growth, high margins, little competition
and apparent size of industry within late stage
of emergence attract many competition

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 Decline
• Emergence of substitute or demographic shift
• Two main strategies are usually appropriate;
• Divest or focus on the efficient supply of a
robust segment

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 Environmental stability
• Limitation of porter’s industry model
• Technological and marketing uncertainty to
emerging stage of the industry
• Environmental turbulence is fundamental to
understanding industries (Ansoff – 1984)
• Marketing and innovation turbulence
• Try to match its capability to appropriate
environmental turbulence
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 Figure 3.9 Environmental turbulance

Grocers
(Tesco, Sainsbury etc.

Convenience stores
(7/11, SPAR etc.)

Environmental
Turbulence Repetitive Devaloping Changing Discontinous Surpriseful

Strategic Thrust Stable Reactive Anticipatory Exploring Creative

Capability Custodial Adaptive Synergistic Global Creative
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 Space analysis
• SPACE (strategic position & action evaluation)
• Relates industry strength to the competitive
advantage and financial strength of company
• Financial strength, high liquidity or access to
resources; withstand environmental volatility
• Industry strength, attractiveness in terms of
growth potential, profitability and ability to
use its resources efficiently

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 Space analysis (Cont’d)
• Competitive posture; competitive advantage
in an attractive industry
• Aggressive quadrant; significant advantages,
likely to face threats of new competition
• Conservative posture; mature markets, lack of
needs for investment, financial surplus
• Defensive posture; vulnerable, little residual
strength to combat competition

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Figure 3.10 Space analysis map

Financial
Strength
Conservative Aggressive

Competitive
advantage
Industry
Strategic strength
postures
Defensive Competitive

Environmental
stability

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 The advantage matrix
• Boston consulting group (1979) developed it
• Classify competitive environment within
industry
• Framework identifies two dimensions;
– Approaches for achieving advantage in market
– Potential size of advantage
• Quadrants of advantage matrix show how
relationship between relative size and return
on asset can differ
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 Figure 3.11 The Advantage Matrix
Fragmented Specialized

ROA ROA
Many
Number of ways to achieve
advantage

RS RS

Stalemate Volume

Few ROA ROA

RS RS

Small Large
ROA – Return on asset Potential size advantage
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RS – Relative size