Chapter Two

Marketing Environment
 Topics

 Need for Environmental Analysis

 The External Environment
 The Internal Environment
 What is marketing environment?

 A company's marketing environment consists of the actors and forces outside/inside

 They affect marketing management's ability to develop and maintain

successful transactions with its target customers.

 The marketing environment offers both opportunities and threats.

 How?
 What is marketing environment?

 How?

 Systematic environmental scanning

 Marketers are able to revise and adapt marketing strategies to meet new
challenges and opportunities in the marketplace.

 It consists:

 External(micro and macro) environment, and

 Internal environment
The Company's Microenvironment

• Microenvironment include:
― The forces close to the company that affect its ability to serve its customers

― Example:
 Suppliers,

 Marketing channel firms,

 Customer markets,

 Competitors and

 Publics.
Suppliers

Suppliers have an important link in the company's overall customer 'value

delivery system".

They provide the resources needed by the company and its competitors to produce
goods and services.

Marketing managers must:

 Watch supply availability

 Monitor the price trends of key inputs.

Suppliers

Marketing Intermediaries
Refers to firms that help the company to promote, sell and distribute its goods to
final buyers.

 They include:
o Resellers,

o Physical distribution firms,

o Marketing services agencies and

o Financial intermediaries.
Customers
Customers
• Six types of customer market:
• Consumer markets consist of individuals and households that buy goods and
services for personal consumption.
• Business markets buy goods and services for further processing or for use in
their production process
• Reseller markets buy goods and services to resell at a profit.

• Institutional markets are made up of schools, hospitals, nursing homes, prisons

Customers
• Six types of customer market:
• Government markets are made up of government agencies that buy goods
and services in order to produce public services or transfer the goods and
services to others who need them.
• International markets consist of buyers in other countries, including
consumers, producers, resellers and governments.
Competitors

• The marketing concept states that, to be successful, a company must

provide greater customer value and satisfaction than its competitors
do.
Publics
• Refers to:
— Is any group that has an actual or potential interest in or impact on an
organization‘s ability to achieve its objectives.
The Company's Macro environment

• Refers to:

 Set of the company and all the other actors operate in a larger macro environment of forces
that shape opportunities and pose threats to the company.
Demographic Environment
• Demography:
 is the study of human populations in terms of size, density, location, age, gender, race, occupation
and other statistics.

• It contain people

 People make-up of market

 People + purchasing power = success

• Characteristics and tends:
 Population Size and Growth Trends
 Changing Age Structure of a Population
 The Changing Family
 Rising Number of Educated People
 Increasing Diversity
Economic environment

• It consists of factors that affect consumer purchasing power and

spending patterns.
• Marketers should be aware of the following predominant economic trend:

• Income Distribution and Changes in Purchasing Power

• Changing Consumer Spending Patterns

Natural Environment

• The natural environment involves the natural resources that are needed as inputs by
marketers or that are affected by marketing activities.
E.g air and water

• Marketers should be aware of four trends in the natural environment:

• Shortages of Raw Materials

• Increased Cost of Energy

• Increased Pollution

• Government Intervention in Natural Resource Management

Technological environment

• Technology is the application of science to develop methods.

• The technological environment is perhaps the most dramatic force now shaping
our destiny.

• Every new technology replaces an older technology. When there is a change (new
invention), it affect (hurts) the existing technology.

• New technologies create new markets and opportunities.

Technological environment

• Trends in technology:
 Fast Pace of Technological Change - Technology life cycles are getting shorter.

 High R&D Budgets - Technology and innovations require heavy investments in

research and development.
 Concentration on Minor Improvements

 Increased Regulation - As products become more complex, people need to know

that they are safe. Thus, government agencies investigate and ban potentially
unsafe products.
Political environment

• Consists of laws, government agencies and pressure groups that influence and
limit various organizations and individuals in a given society.

• Legislation Regulating Business

 Public policy to guide commerce
• Number of reasons:
 To protect companies from each other,
 To protect consumers from unfair business practices, and
 To protect the interests of society against unrestrained business behavior.
Cultural Environment

• It refers to:

 is made up of institutions and other forces that affect society's basic values,
perceptions, preferences and behaviors.

• Marketers must be aware of these cultural influences and how they vary across
societies within the markets served by the firm:
 Persistence of Cultural Values

 Shifts of Secondary Cultural Values Through Time

Internal environment

• Components:
• The company
• Its employees/officials
• Finance section
• HRM section
• Production section
• Research and development section
• Marketing section
Internal scanning: organizational analysis
Resource-Based Approach to Organizational Analysis
Internal scanning:
 is an approach concerned with identifying and developing an organization’s
resources, capabilities, competencies and core competencies.

• Internal strategic factors analysis

 are particular strengths and weaknesses that will help determine the future of
the company
Internal scanning
Resources:
• Are an organization’s assets and are thus the basic building blocks of the
organization.
• They include

 Tangible assets: plant, equipment, finances, and location,

 Human assets: the number of employees, their skills, knowledge and

motivation and
 Intangible assets: technology (patents and copyrights), culture, and reputation
Internal scanning
Internal----
a) Capabilities
• refer to a corporation’s ability to exploit its resources.

• A capability is functionally based and is resident in a particular function.

• For example :

• Marketing capabilities,

• Manufacturing capabilities, and

• HR capabilities.
Internal scanning
Internal----
b) Competencies
• Refers to:

 is a cross-functional integration and coordination of capabilities.

• For example:

 A competency in new product development in one division of a corporation

may be the consequence of integrating management of information systems
(MIS) capabilities, marketing capabilities, R&D capabilities, and production
capabilities within the division
Internal scanning
Internal----
c) Core competency

 is a collection of competencies that crosses divisional boundaries

 Widespread within the corporation

 It is something that the corporation can do exceedingly well.

 Example:

o New product development is a core competency if it goes beyond one unit

Internal scanning
Internal----
d) Distinctive competencies
 Are core competencies which are superior to those of the competitors. (achieving
competitive advantage)

 For example, General Electric is well known for its distinctive competency in
management development.

 Its executives are sought out by other companies hiring top managers
Internal scanning
Internal----
Building Core Competencies

 Core competencies are distinctive competencies if they fulfilled the following

four criteria

1. Valuable competencies

 Competencies that provide customer value and firm’s competitive advantages.

 By effectively using capabilities to exploit opportunities, a firm creates value for

customers.
Internal scanning
Internal----
2. Rare competencies

• Are competencies that few, if any, competitors possess.

• A key question to be answered when evaluating this criterion is, “How

many rival firms possess these valuable competencies?”

• Competencies possessed by many rivals are unlikely to be sources of

competitive advantage.
Internal scanning
Internal----

3. Costly-to-imitate competencies

• are competencies that other firms cannot easily develop.

4. Non substitutable competencies

• are competencies that do not have strategic equivalents

Resources and capabilities that meet these four criteria
become a source of:

Valuable

Resources and Capabilities

Rare
Core Competencies
Costly to imitate

Non substitutable

31
 Core Competencies are the basis for a firm’s

Competitive
advantage

Strategic
competitiveness Core Competencies
Ability to earn
above-average
returns

32
Internal scanning
• How to measure/evaluate?
 The company’s past performance,
 The company’s key competitors,
 The industry average as a whole.
• Is significantly different from the:
 Firm’s own past
 Its key competitors, or
 The industry average,
• They are likely to be a strategic factor and should be considered in
strategic formulation.
USING RESOURCES TO GAIN COMPETITIVE ADVANTAGE

 A company’s sustained competitive advantage is primarily determined by its

resource endowments
 five-step, resource-based approach for strategic analysis.

1) Identify and classify the firm’s resources in terms of strengths and weaknesses.

2) Combine the firm’s strengths into specific capabilities, competencies and core
competencies
USING RESOURCES TO GAIN ---

3) Appraise the profit potential of those capabilities ,

competencies and core competencies in terms of:

 Their potential for sustainable competitive advantage

 Are there any distinctive competencies?

4) Select the strategy that best exploits the firm’s capabilities and
competencies relative to external opportunities.

5) Identify resource gaps and invest in upgrading weaknesses

Where do these competencies come from?

 A corporation can gain access to a distinctive competency in four ways:

1) It may be an asset endowment, such as a key patent, coming from the

founding of the company.

2) It may be acquired from someone else.

3) It may be shared with another business unit or alliance partner.

4) It may be carefully built and accumulated over time within the company.

 For example, Honda carefully extended its expertise in small motor

manufacturing from motorcycles to autos and lawnmowers.
DETERMINING THE SUSTAINABILITY OF AN ADVANTAGE

 Just because a firm is able to use its resources, capabilities, and competencies to
develop a competitive advantage does not mean it will be able to sustain it

 Two characteristics determine the sustainability of a firm’s distinctive

competencies: durability and immutability

1) Durability is the rate at which a firm’s underlying resources, capabilities, or

core competencies depreciate or become obsolete

 New technology can make a company’s core competency obsolete.

DETERMINING THE SUSTAINABILITY OF ---

2) Immutability is the rate at which a firm’s underlying resources, capabilities, or

core competencies can be duplicated by others.

 To the extent that a firm’s distinctive competency gives it competitive advantage in

the marketplace,

 competitors will do what they can to learn and imitate that set of skills and
capabilities

 Competitors’ efforts may range from reverse engineering to hiring employees

from the company (competitors)
DETERMINING THE SUSTAINABILITY OF ---

 A core competency can be easily imitated to the extent that it is transparent, transferable, and

replicable.

a) Transparency is the speed with which other firms can understand the relationship of resources

and capabilities supporting a successful firm’s strategy.

b) Transferability is the ability of competitors to gather the resources and capabilities necessary to

support a competitive challenge.

c) Replicability is the ability of competitors to use duplicated resources and capabilities to imitate

the other firm’s success

DETERMINING THE SUSTAINABILITY OF ---

 It is relatively easy to learn and imitate another company’s core competency

or capability if it comes from explicit knowledge

 Explicit knowledge is knowledge that can be easily articulated and

communicated.

 It is the type of knowledge that competitive intelligence activities can

quickly identify and communicate
Value-Chain Analysis Approach to develop core competencies

• What is value chain?

 is a linked set of value-creating activities that begin with basic raw materials
coming from suppliers, moving on to a series of value-added activities
involved in producing and marketing a product or service, and ending with
distributors getting the final goods into the hands of the ultimate consumer.
Value-Chain Analysis Approach to develop core competencies

• A typical value chain of manufacturing product is as follows:

Industry Value-Chain Analysis
• The value chains of most industries can be split into two segments,
upstream and downstream segments.
 For example, In the petroleum industry,
 Upstream refers to oil exploration, drilling, and moving of the crude oil to the
refinery, and
 Downstream refers to refining the oil plus transporting and marketing the refined oil
to distributors and gas station retailers
 An industry can be analyzed in terms of the profit margin available at any
point along the value chain
Thank you
The End