1. MKTG 1265
Advanced Marketing Concepts and
Applications
Lecture Two
Environment and Industry Analysis
2-1

2. Agenda
Understanding macro-environmental
forces and its impact on marketing
PEST and SWOT Analyses
Industry Analysis
Application of the Porter’s Five Forces
Model in marketing
Market Analysis and Market Segmentation
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MKTG 1265 (AMCA)

3. Reference for Lecture Two:
Week 2 - Environment and Industry Analysis
Porter, M.E. (2008). The Five Competitive Forces that
Shape Strategy, Harvard Business Review, January,
78-93.
Note: this is the 2008 update of the classic strategy article that appeared in
the HBR written by Professor Michael Porter
2-3

4. Areas of External Analysis:
STP: covered in Covered in your
your previous previous BB
marketing course
courses
2-4
: covered in this module MKTG 1265 (AMCA)

5. Moving from macro to micro
aspects….
INDUSTRY
ANALYSIS
Market and Customer
Analysis
4-5 2-5

6. PEST and SWOT Analyses
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7. Micro and Macro Environmental Factors
(Professor Philip Kotler)
Micro Factors: Direct influence
on the firm’s marketing
operations and to some extent
are controllable factors (notice
that the first factor is “the
company” (internal operations)
Macro Factors: Indirect
influence and are mostly
uncontrollable. These factors
make up the typical PEST forces
2-7

8. Macro Factors:
Political Factors / Legal
Factors
Economic Factors
Social/ Cultural Factors
Technological Factors
It is important to always FOCUS your PEST factors to the specific industry that
you are studying and not stray into vague and irrelevant or very broad macro
factors that are not related to your business operations.
The PEST factors that you list in your marketing report should be closely
correlated to the nature of your market, products and business operations
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9. © Strategy in Marketing (Pearson Asia 2009)
PEST and Marketing (some examples)
Political Factors Impact on Marketing
Stability of government Determines market attractiveness-
Policies should the form move into this
country? (global marketing)
Legal Factors Impact on Marketing
Laws relating to conduct of Product standards
business Product labelling
Regulations on advertising and
promotions
Pricing
Types of direct marketing allowed
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10. © Strategy in Marketing (Pearson Asia 2009)
PEST and Marketing (some examples)
Economic Factors Impact on Marketing
National Income/ Affordability levels
GDP/Economic Growth Purchasing power and outlook
Interest rates Price level
Level of competition
Social Factors Impact on Marketing
Changing demographics Segmentation/Targeting
Lifestyles Advertising and promotional
Culture and subcultures appeals
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11. © Strategy in Marketing (Pearson Asia 2009)
PEST and Marketing (some examples)
Technology Factors Impact on Marketing
New breakthroughs/ innovations New product development (NPD)
strategies
Identifying innovators and early
adopters
Note that not all the PEST factors will be the same for all
markets and industries. It is important to fit the product
you are studying to specific types of PEST factors that have
a direct connection to that product
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12. Linking PEST and Marketing Strategy
Make the PEST Industry specific
Write the examples of PEST using only
information related to the business and the
product category
Show trends and changes
Identify which PEST factors will have significant
impact on your marketing strategies
Think of how these PEST factors will have
linkages to marketing strategies in the future
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13. (source: Kotler, Armstrong and da Silva 2006: Pearson Asia) 2-13

14. Areas of Internal Analysis:
2-14
= will be covered in Lecture Five (Marketing Metrics) MKTG 1265 (AMCA)

15. SWOT analysis
After you have completed the External and Internal Analyses, you
can bring all the factors together into a SWOT framework
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16. Conducting SWOT analysis involves identifying the key issues facing
the company. These issues must be RELEVANT to the business and
should avoid talking about generalities. A good SWOT analysis should
throw up some IMPLICATIONS for future action…..
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17. Very often all we do is a mere
SWOT Listing
Strengths Weaknesses:
•.. •..
•.. •..
•.. •..
•.. •..
•.. •..
Opportunities Threats
•.. •..
•.. •..
•.. •..
•.. •..
•.. •..
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18. There are several limitations:
SWOT is historical- what happened before
SWOT may tell us what is already happening;
nothing new that we don’t know
SWOT is descriptive-does not help the
planner to identify issues and implications
SWOT may be too broad-brush (overall
company based rather than issue based)
SWOT may be based on inaccurate
information
SWOT does not incorporate competitors
perspective
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19. The arising
from SWOT analysis
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20. Diagnosis and Prognosis….
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21. © Strategy in Marketing (Pearson Asia 2009)
The implication for Strategic Marketing
We can do as much investigation as we can in
order to dig up information about the company
and its marketing operations
But once we gather this information we need to
carry out recommendations as to what is the
NEXT course of action
This means that SWOT should not be just a
historical or concurrent review (what is
happening now) but should also be able to
extrapolate what is “likely to happen” in future.
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22. Making SWOT more effective: 1. Find out which factors
carry more weight or impact (be discriminating; use
judgment)
Strengths Weaknesses:
•.. •..
•.. •..
•.. •..
•.. •..
•.. •..
Opportunities Threats
•.. •..
•.. •..
•.. •..
•.. •..
•.. •..
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23. Making SWOT more effective: 2. Try to determine how
best to match or link the SWOT factors such that we are
able to see possible action strategies emerging
Strengths Weaknesses:
•.. •..
•.. •..
•.. •..
•.. •..
•.. •..
Opportunities Threats
•.. •..
•.. •..
•.. •..
•.. •..
•.. •..
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24. Strengths Weaknesses n
le of a
S1:Strong brand reputation W1: Limited mp ian
S2:Substantial financial number of Exa As l
te
backing properties Ho
(locations)
S3:Service management
expertise in hospitality
business
Opportunities Threats
O1: Growth in air travel due T1:Competitor hotels
to emergence of budget opening up in locations
airlines where we are absent
O2: Emergence of the T2: Growth in no-frills hotels
frequent/repeat leisure
traveler on intra-Asian
destinations
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© Strategy in Marketing (Pearson Asia 2009)

25. Applying SWOT to Marketing Strategies…
2-25 (source: Kotler, Armstrong and da Silva 2006: Pearson Asia) MKTG 1265 (AMCA)

26. Industry Analysis
How to analyze the key competitive
forces in a given industry
2-26

27. Industry
Group of firms that produce products and
services that fall within a specific category/
categories
Example the auto industry; the airline industry;
the hospitality industry
Within the industry there are many players
Each fighting for a slice of the market share
Within the industry, market and technological
forces can shift market conditions
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28. What factors determine an industry’s
attractiveness?
The growth prospects in the industry- what
environmental factors will be impacting the
industry (favorable/ unfavorable?)
The size of market demand/ purchasing power
Number and size of competitors
Intensity of rivalry- what kinds of strategies are
being used by competitors?
Risk factors / unforeseen circumstances
Government policies
4-28 2-28

29. Most popular model used in
industry analysis:
Professor Michael Porter (Harvard Business School)
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30. Consider what this model means:
Threats in an industry comes from
all sides or corners
4-30 2-30

31. Detailed version of the model:
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32. Rivalry Among Existing
Firms
2-32 Source: Thomson and Strickland (2006)

33. Threat of New Entrants
2-33 Source: Thomson and Strickland (2006)

34. Supplier Power
2-34 Source: Thomson and Strickland (2006)

35. Buyer Power
2-35 Source: Thomson and Strickland (2006)

36. Substitutes
2-36 Source: Thomson and Strickland (2006)

37. © Strategy in Marketing (Pearson Asia 2009)
Using the Porter Five Forces Model as a example:
1 2 3
Where are we Where are we How do we get
now? going? there?
Situation Strategy Marketing Mix
Analysis Formulation Strategies
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38. Where are we now ? 1
To assess what forces are impacting on
our industry?
Note: it is important to use those factors
that are only specific to your industry
What are the bigger or biggest threats?
Is the market attractive overall?
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39. Five Star versus Five Skull Industries
“ all the industry forces appear to be
attractive and support growth and
profit opportunities”
“ all the industry forces appear to be
unattractive and pose great threats to
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4-39 the company in all aspects” MKTG 1265 (AMCA)

40. How to apply the model to an industry:
Asian Airline Market
Learning point: use only those factors that are
4-40
2-40 specific to the industry you are studying. Source: Kotler and da Silva (2006) Pearson Asia

41. 2
Where are we going?
How do we see the industry
forces shifting over time?
Will there be new players coming into the
market?
Will more power move into the hands of the
buyer?
Will technological improvements introduce new
substitutes?
Will existing players exit the market? And will
existing competitors grow or decline?
Will suppliers pose greater or lesser threats in
the longer term?
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42. © Strategy in Marketing (Pearson Asia 2009)
The industry analysis model can be used to track changes in
forces over time (where is our industry heading?)
Threat of New Threat of New
Entrants: Entrants:
•…………. •………….
•…………. •………….
•…………. •………….
Bargaining Power of Rivalry in the Industry: Bargaining Power of Bargaining Power of Rivalry in the Industry: Bargaining Power of
Suppliers: Buyers: Suppliers: Buyers:
•…………. •………….
•…………. •…………. •…………. •………….
•…………. •………….
•…………. •…………. •…………. •………….
•…………. •………….
•…………. •…………. •…………. •………….
Threat of Threat of
Substitutes: Substitutes:
•…………. •………….
•…………. •………….
•…………. •………….
Time Period t (present) Time Period (t+1) (future)
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43. The industry analysis model can be used to estimate which
set of forces will become greater or lesser threats…
Threat of New
Less threat Entrants:
•………….
•………….
Greater threat
•………….
Bargaining Power of Rivalry in the Industry: Bargaining Power of
Suppliers: Buyers:
•………….
•…………. •………….
•………….
•…………. •………….
•………….
•…………. •………….
Threat of
Note: The size of the Substitutes:
boxes and arrows indicate
•………….
which forces become
•………….
bigger or lesser threats 2-43
•………….
© Strategy in Marketing (Pearson Asia 2009)

44. How do we get there? Marketing Strategy
Implications: 3
The Five Forces model must also be
analyzed from a marketing point of view
Think of some of the areas of the
marketing mix that could impact the five
forces
1. Product differentiation is one of the key
strategies
2. Changes in consumer buying behavior
3. The distribution channel and the supply chain
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45. © Strategy in Marketing (Pearson Asia 2009)
Examples of marketing strategies linked to the
five forces
Industry Force Marketing Strategies Impacting
Threat of new entrants What kinds of marketing strategies could we use to
block competitors or discourage them from entering a
market? Price? Product differentiation?
Rivalry within the industry What kinds of marketing strategies are used among
firms already in the industry to compete with each
other? How intense is the rivalry? Gentlemen or cut-
throat?
Buyer Power What factors are changing customer preferences? Do
consumers have more options or better information
through the Web? (more power). Do consumers buy
directly from the supplier? (Amazon.com/ Dell)
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46. © Strategy in Marketing (Pearson Asia 2009)
Examples of marketing strategies linked to the
five forces
Industry Force Marketing Strategies Impacting
Supplier Power Depends on the costs of the product/components
supplied- significant (fuel) or insignificant (basic
commodities)?
Substitutes Watch for indirect competition- the future threats
In most cases, substitution is inevitable due to the
product life cycle/ technological improvements.
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47. © Strategy in Marketing (Pearson Asia 2009)
Using the model to determine intervening
strategies (what must be done?)
To reduce the threats of new
1 entrants we will ensure scale
Threat of economies and build strong
New
brands as barriers to entry
Entrants
2
5 Rivalry in the
Bargaining Bargaining
Industry
Power of Power of
Suppliers (existing Buyers
players)
3
4 To reduce the threats of buyers
Threat of
To reduce the threat of supplier Substitutes
(trade) we will develop
power we will integrate alternative channels of
downstream and source for distribution including e-
more qualified suppliers commerce channels
(See later lecture on generic strategies)
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MKTG 1265 (AMCA)

48. Customer and Market Analysis
After completing the Industry Analysis
2-48

49. Customer Analysis
Who are main customer segments?
What are the changes in consumer trends in
terms of communication, transacting and
interacting with the marketing firm?
How do we use Consumer Behavior information
and trend tracking to guide marketing strategies?
Can consumer behavior be influenced or
changed by the marketing strategies of the firm?
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50. What is a market?
Consumers with NEEDS + Purchasing Power
Markets need not be physically constrained
Think of the
Markets are often artificially bounded but in real
life they are constantly shifting boundaries
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51. Understanding markets always starts with the question:
“what needs are we trying to meet/satisfy?”
Source: Kotler and da Silva (2006) Pearson Asia 2-51
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52. Studying markets
Secondary data: demographics
Primary data: psychographics (life-styles)
Need to track changes
New emerging trends
Forecasts and trending (“time series”)
© Strategy in Marketing (Pearson Asia 2009)
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53. © Strategy in Marketing (Pearson Asia 2009)
Delineating Markets
Geographically defined
Technology-specific
Product-based
Traditional view: markets
are clearly “bounded”
Industry category
New view: Markets are
becoming “amorphous”
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54. The problem with defining industries and
markets…
markets…
Many markets are in
a dynamic state
They are constantly
evolving as
technology and
customer needs
change Just what is your
phone today?
Market boundaries
Music?
are becoming Computing?
blurred GPS?
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MKTG 1265 (AMCA)

55. © Strategy in Marketing (Pearson Asia 2009)
morphing…
Markets are morphing…(convergence)
MP3
Notebook
Mobile
Phone
Digital
Camera
GPS Sat Nav
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56. Brands that show crossover effect
Porsche Cayenne Sony PS3
Chopard Ladies
Watch
2-56
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57. © Strategy in Marketing (Pearson Asia 2009)
Market Segmentation:
Breaking down
the total
market into
segments…
… and then deciding
which one /s you
want to target at
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58. Importance of Market Segmentation
More precise
More accurate
Market definition of
marketing
segmentation customers needs
objectives
and wants
Improved
resource
allocation
Better marketing
results
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59. 2-59
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60. 2-60
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61. © Strategy in Marketing (Pearson Asia 2009)
Important issue in Segmentation:
You must be able to pick the right set of
segmentation variables that best describes the way
in which the market for that product should be
segmented. Otherwise your segmentation is invalid.
??
Psychographic
??
?? Usage
Demographic Occasion ??
Geographic
Benefit
?? ??
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62. Do you think INCOME is the best
way to segment the market for
these two brands?
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63. How to choose the “right bases” for
segmentation
Figure 6.2
2-63 Source: Kotler and da Silva (2006) Pearson Asia

64. Application of Multi-Stage Segmentation
(Banyan Tree Example)
2-64 Source: Kotler and da Silva (2006) Pearson Asia

65. Coffee drinkers across Asian cities share
common needs and gravitate towards a
global brand- Starbucks
STRATEGICALLY EQUIVALENT SEGMENTS
Starbucks
Bangkok
Starbucks
KL
Starbucks
Singapore
2-65
© Strategy in Marketing (Pearson Asia 2009)

66. well…
Business markets can be segmented as well…
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67. 2-67
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68. Segmentation in airline industry- B2B marketing:
The Airbus range of aircraft
Seats
Range
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69. Therefore different aircraft models will suit
different airlines…
The kind of aircraft bought by different
airlines will depend on the routes they fly
(place strategy) and how the airline is
2-69
© Strategy in Marketing (Pearson Asia 2009) positioned (full service or budget airline)

70. Past Year Exam Questions
Environment and Industry
Analysis
These are samples of questions that test different aspects
of the topics covered in this lecture. The actual exam
question will of course be linked to the case study
assigned.
70
MKTG 1265 (AMCA)

71. Specimen Question # 1:
What is the purpose of a Porter's Five Forces
analysis? Using the factors outlined by Porter,
evaluate the strength of the threat of
potential entrants in a given industry, clearly
stating any assumptions you may need to
make. Briefly state what action(s) a manger
might take to attempt to reduce the strength
of that force.
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72. Specimen Question # 2:
What is the purpose of the Porter's Five
Forces Model? Briefly describe the Five
Forces that should be analysed.
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73. Specimen Question # 3:
In undertaking a Porter’s Five Forces
analysis for a given industry, what are five
industry
factors that you would evaluate to assess
the strength of the rivalry of existing
competitors for the industry? Explain how
each factor impacts on the intensity of
rivalry for that industry. Clearly state any
assumptions you may need to make.
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74. Specimen Question # 4:
In undertaking a Porter’s Five Forces analysis
for a given industry, what are five factors that
you would evaluate to assess the strength of
the threat of potential entrants for the
industry? Explain how each factor impacts on
the likelihood that a potential entrant will
enter that industry. (state any assumptions
you make)
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75. Specimen Question # 5:
What is the purpose of a Porter’s Five
Forces analysis? Using the factors outlined
by Porter, evaluate the strength of the rivalry
amongst existing competitors in the (case
study) industry, stating any assumptions you
may need to make. Briefly state what
action(s) the (case study) company has
taken in the past, or could undertake in the
future, to attempt to reduce the strength of
that force.
MKTG 1265 (AMCA)