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Business environment 1

  1. Introduction to Marketing & The Business Environment Chris Kariyawasam BBA (hons), MBA, MCIM, CPM (Asia Pacific)
  2. What is Marketing Marketing is the Management process responsible for identifying, anticipating and satisfying consumer needs profitably (Source: Chartered Institute of Marketing UK)
  3. • Realised the consumers ultimate dream – a soap that does not dry skin due to a quarter moisturizing cream • A clearly demonstrable point of difference helped position the brand and gain market share of 12% in the US by mid 1990s and now a global brand Example of Innovation
  4. Marketing is about …. C C D V P (Philip Kotler)  Creating Solving a important consumer problem that competitor have not  Communicating How do you set your brand / product apart from competition ?  Delivering Does your product actually live up to consumer expectations ?  Value to a target market for … What is the unique value proposition of your product ?  Profit Does the price you charge more than off-set the cost of making it ? Philip Kotler
  5. The Strategic Marketing Planning Process Source: McDonald, 2007 p.49
  6. Steps in Business Analysis 1. Where are we today in terms of business performance ? E.g. Current turnover of the Company is 12 billion 2. Where do we want to be ? E.g. Required turnover is Rs 24 billion in 5 years E.g. Unilever wants to double its business in the next five years 3. How do we get there ? What do you do as the top management team to achieve the difference (24 – 12) called the planning gap ?
  7. Ansoff Matrix - Growth Strategies An important model for strategic planning How do we Grow the Business ? Products Existing New Existing New Markets Market Penetration New Market Development New Product Development Diversification • New Market Segments – Heavy user VFM segment SKUs • New distribution channels • New geographic areas • Product modification via new features, new variants • Different quality levels • New products / range extensions • More purchasing and usage by Existing customers • Gain from competitors • Convert non-users • Extend availability – new outlets • Extend the range in exist outlets • Joint ventures • Mergers • Acquisitions • Strategic alliances • New categories McDONALD, M. (2007) Marketing Plans. 6th ed. Italy: Butterworth-Heinemann, p.361
  8. Gap Analysis Used to indicate current situation vs future objectives (planning gap) Incremen tal Sales
  9. Summary Financial Statement of a Company 2006 2007 Plan 2008 Actual 2008 Volume (millions of units) 60.0 59.9 60.2 64.0 growth -0.2 0.5 6.8 Market Share NA 23.1 23.1 24.2 Turnover (GBP '000) 660.7 687.2 686.2 883.8 growth 4.0 -0.1 28.6 Gross Profit (GBP '000) 353.2 355.5 383.6 506 "% to Turnover 53 52 56 57 growth 0.7 7.9 42.3 Support Spend (GBP '000) 26.6 19.8 37.2 124.0 Net Profit (GBP "000) 326.6 335.7 346.4 382 "% to Turnover 49 49 50 43 growth 2.8 3.2 13.8
  10. • “I can’t believe its not butter” (ICBINB) is the only alternative to butter that satisfies a passion for the taste of butter without cholesterol • The product tested prior to launch, was rated highly by consumers • 84% of butter users in the study rated it equal to or better than butter on an overall rating • The brand combined major benefits of taste value of butter and health benefit of margarine Result No 1 position in USA in premium margarine segment today TVC Example of Innovation
  11. The Business Environment  The Company’s external environment changes so opportunities and threats emerge and disappear  The Strategist has to recognise the need to monitor the external environment to identify in advance any possible opportunities and threats  This will allow for a planning system and organisational structure that is capable of handling change that will minimise the effects of threats and help seize opportunities  Formulation of strategy is concerned with matching the capabilities of the organisation with the demands of the environment  The business environment is made up of the sectors and forces outside the firm which infringe upon the ability of management to develop and maintain a successful relationship with its target group
  12. The Macro-environment of a Company
  13. The Micro & Macro Environments Five Competitive Forces – Michael Porter THOMPSON, A. and STRICKLAND, A (2001) Crafting and Executing Strategy. 12th ed. New York: McGraw-Hill, p.74 How GE managed a hostile business environment
  14. The Five Stages of Environmental Analysis Audit of Environmental influences Assessment of the nature Of the environment Identification of the key Environmental forces that impact the business Identification of the competitive position Identification of key Opportunities and threats Strategic position
  15. Key Questions  How uncertain is the environment ?  What are the sources of this uncertainty ?  How should this uncertainty be dealt with ?
  16. The Micro and Macro Environments  Micro-environment Is made of those elements which are closest to the company and which exert the greatest and most direct influence over its ability to deal with its markets  E.g. Organisation itself, its suppliers, its distribution network, customers, competitors and the public at large  Macro-environment Consists of the broader set of forces that have a bearing upon the company  E.g. economic, demographic, technological, political, legal, social and cultural factors Read Business Environment Analysis
  17. The PESTEL Framework  Complexity arises because many of the different issues in the business environment are interconnected  E.g. Tech development in IT changes the way we operate which alters consumer behaviour and purchasing patterns  Therefore understanding the interconnections are important in developing a strategic picture of the business environment  Speed of change – the pace of technological change and the speed of global communication mean more and faster change now than ever before  Your task is to perform environmental analysis for organisations that will help in identifying key issues and ways for coping with complexity and change
  18. The PESTEL Framework  It is important to build an understanding of how changes in the macro environment are likely to impact on individual organisations  Use the PESTEL framework to identify how future trends in the political, economic, social, technological, environmental and legal environments might affect the organisation  This provides the broad data from which the key drivers of change can be identified  These will differ from sector to sector and from country to country  If the future environment is going to be very different from the past it is important to create possible future scenarios
  19. The PESTEL Framework  Within the general environment, an important layer is the industry or sector – a group of organisations producing the same products or services  The five-forces framework and competitor analysis can be used to understand how the competitive dynamics in an industry are changing  The concept of strategic groups can be used to identify direct and indirect competitors  Consumer expectations are not all the same and market segmentation and critical success factors for each segment needs to be considered  Remember that PESTEL factors are linked and NOT interdependent
  20. The PESTEL Framework  Managers need to identify the key drivers of change and the differential impact of these external influences on particular industries, markets and organisation  Identifying key drivers cuts across “layers of the business environment”  Although there will be many changes happening in the macro environment of organisations, it is important to identify the key factors and their influence rather than all of the factors
  21. The Key Drivers of Change  Remember that key drivers will be different from country to country and market / sector and the specific key drivers of change need to be identified depending on the organisation and the environment it is operating in
  22.  Political stability  Risk of military invasion  Legal framework for contract enforcement  Intellectual property protection  Trade regulations & tariffs  Favoured trading partners  Anti-trust laws  Pricing regulations  Taxation - tax rates and incentives  Wage legislation - minimum wage and overtime  Work week  Mandatory employee benefits  Industrial safety regulations  Product labelling requirements Political and Legal Environment What impact would a change in each factor below have on the Company sales, profit, and market share ? And what do you recommend doing to deal with opportunities or threats as a result?
  23. Economic Environment  Type of economic system in countries of operation  Government intervention in the free market  Comparative advantages of host country  Exchange rates & stability of host country currency  Efficiency of financial markets  Infrastructure quality  Skill level of workforce  Labour costs  Business cycle stage (e.g. prosperity, recession, recovery)  Economic growth rate  Discretionary income  Unemployment rate  Inflation rate  Interest rates
  24. Demographic Environment How the are factors below predicted to change in the next two years and therefore, what should you do if you were formulating strategy for the Company  Demographics  Class structure  Education  Culture (gender roles, etc.)  Entrepreneurial spirit  Attitudes (health, environmental consciousness, etc.)  Leisure interests
  25. Technological Environment What are the global trends and how can the current technology change or be made obsolete ? If so what will be the impact on the Company be ? How should my strategy change to deal with this situation in the next two years?  Recent technological developments  Technology's impact on product offering  Impact on cost structure  Impact on value chain structure  Rate of technological diffusion
  26. I10Po6A SWOT Analysis
  27. Strengths What are your Company’s key strengths that enable it to take advantage of opportunities in the business environment ?  Advantages of proposition?  Capabilities?  Competitive advantages?  USP's (unique selling points)?  Resources, Assets, People?  Experience, knowledge, data?  Financial reserves, likely returns?  Marketing - reach, distribution, awareness?  Innovative aspects?  Location and geographical?  Price, value, quality?  Accreditations, qualifications, certifications?  Processes, systems, IT, communications?  Cultural, attitudinal, behavioural?
  28. Weaknesses What weaknesses should we overcome and why? How do you propose it be done as part of the implementation plan of your strategy ?  Disadvantages of proposition?  Gaps in capabilities?  Lack of competitive strength?  Reputation, presence and reach?  Financials?  Own known vulnerabilities?  Timescales, deadlines and pressures?  Cash flow, start-up cash-drain?  Continuity, supply chain robustness?  Effects on core activities, distraction?  Reliability of data, plan predictability?  Morale, commitment, leadership?  Accreditations, etc?  Processes and systems, etc?
  29. Opportunities Trends in the micro and macro environment that can have a favourable impact or effect on your Company’s sales and profit, i.e. to grow sales and profitability  Market developments?  Competitors' vulnerabilities?  Industry or lifestyle trends?  Technology development and innovation?  Global influences?  New markets, vertical, horizontal?  Niche target markets?  Geographical, export, import?  New USP's?  Tactics - surprise, major contracts, etc?  Business and product development?  Information and research?  Partnerships, agencies, distribution?  Volumes, production, economies?
  30. Threats Trends or events that will have a negative impact on the Company’s sales, market share, and profit  Political effects?  Legislative effects?  Environmental effects?  IT developments?  Competitor intentions - various?  Market demand?  New technologies, services, ideas?  Vital contracts and partners?  Sustaining internal capabilities?  Obstacles faced?  Insurmountable weaknesses?  Loss of key staff?  Sustainable financial backing?  Economy - home, abroad?
  31. Structure Vision Systems Strategy Skills Culture Staff Environment The 7S Framework for Strategy Implementation Fit Source: Mintzberg & Quinn 1992 p.136
  32. Swatch Case Study  Do A SWOT Analysis for the Swiss Watch Industry  What went wrong with Swatch and why?  What were the key driving forces in the environment that led to this situation and why?  How would you as the management team of ensure that your market share did not erode? Swatch Experience
  33. Practice Questions 1. The business environment is increasingly dynamic and complex and unstable. Discuss the implications of this for the strategic planning process. Illustrate your answer with appropriate contemporary examples from a sector of your choice. 2. All business operate within an environment which directly or indirectly affects the way in which they function. Critically discuss this statement using illustrations from an industry of your choice