Session 2 Mkt Env

7/30/2019 Session 2 Mkt Env

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n ers an ng

Marketing

Environment

Environmental Forces



Introduction to Business

Business is the organized efforts of enterprises to supply consumers with goods

and services. Businesses vary in size as measured by number of employees or

by sales volume.

All businesses share the same purpose to earn Profits. However, thepurpose of business goes beyond earning profits.

It is an important institution in society and the role of business is crucial.

Be it for the supply of goods and services

Creation of job opportunities

Offer of better quality of life

Contributing to the economic growth of the country and putting it on the

global map

Scope of Business Business included all activities connected with production, trade,

banking, insurance, finance, agency, advertising, packaging and

numerous other related activities. Businesses include all efforts to

comply with legal restrictions and government requirements and

discharging obligations to consumers, employees, owners and to

other interest groups which have stakes in business directly or

indirectly.

Society cannot do without business and vice versa.



Characteristics of Today’s Business

Business

Information

Competition

Change - TransitionOpportunities

Diversification

Globalisation

Technology

Business during the 21st Century• There is a trend towards mini organizations alongwith large corporations.• Existence of flexible, flat and team based structures• Business is knowledge based. Processes have become complex. Brain power is in great demand.• Information technology will take care of all data management and networked computers handle

information.• Organisations have become flat.• Dispersed ownership, open minded and a transparent environment is encouraged

1. Three types of diversification maybe distinguished : Concentric, horizontal and conglomeratediversification. Concentric diversification refers to the process of adding new, but related products orservices. Eg : HLL which as Liril, Pears, Rexona, Lux and Lifebuoy. Horizontal diversification is adding

of new, unrelated products or services for present consumer base. Conglomerate diversification refersto adding new and unrelated products or services.



Environment

Environment refers to all external forces which have a bearing on the

functioning of business. ‖Environment are largely if not totally external,

and beyond the control of individual industrial enterprises and their

management. These are essentially the givers within which firms andtheir managements must operate in a specific country and they vary,

from country to country‖.

However, the term business environment refers to the

External Factors. The external environment has twocomponents ie business opportunities and threats to business.

Simmilarly, the organisational environment has two components

ie. strengths and weaknesses of the organisation. A SWOT

analysis is thus the first step in strategy formulation

Business DecisionInternal Environment External Environment

Factors influencing Business Decision



Business

Decision

Internal Environment

Mission / Objectives

Management Structure

Internal Power RelationshipPhysical Assets & facilities

Company imageHuman resources

Financial Capabilities

Technological Capabilities

Marketing Capabilities

Financiers

Suppliers

CustomersCompetitors

Public

Mktg Intermediaries

Micro Environment

Economic

TechnologicalGlobal

Demographic

Socio-Cultural

Political

Macro Environment

BUSINESS ENVIRONMENT



Internal Environment

Any business has certain vision, mission and objectives and astrategy to achieve them. Formulation of strategy is defined asestablishing a proper firm-environment fit . Indeed the objectivesshould be based on an assessment of the external environmentand the organizational factors (internal environment).

Vision

Mission

Objectives

Management Structure

Human Resources

Financial Factors Company Image and Brand Equity



The macro environment consists of factors which are beyond the control of

the business. There is a symbiotic relationship between business and the

environmental factors, environmental factors are dynamic and a particular

business firm, by itself, may not be in a position to change it’s environment.

Macro Environment includes:

Political Environment

Economic Environment

Technological Environment

Socio-cultural Environment

Global Environment.

Macro Environment

Micro Environment

The Micro environment consists of different types of stakeholders -

customers, employees, suppliers, marketing intermediaries, competitors. It isalso known as the Task Environment and Operating Environment and has a

direct bearing on the operations of the firm. Changes in the micro

environment will directly affect and impinge on the firm's activities.



Technological Environment

Technological is the systematic application of scientific or other organized knowledge to practical tasks.

Technological environment hold new technological innovation, newproducts, the state of technology, the utilization of technology for maximum inputs and outputs, the obsolescence of technology and the

dynamic changes that frequently occur in technologies which enablefirms to get a competitive advantage

Technology reaches people through business

Helps in increased productivity

Business needs to spend on R & D and keep up with the technologicaladvances around them

Technology leads to introduction of new products and older productsbecoming outdated and redundant.

Technological advances leads to high expectations of consumers interms of quality

Leads to system complexity

Demand for capital



Political Environment

Political Environment refers to the influence exerted by the three

political institutions ie. legislature, executive and judiciary in

shaping, directing, developing and controlling business

activities.

The constitution of a country

Political Organisation

Political Stability

Image of the country and its leaders

Foreign Policy

Laws governing business

Flexibility and adaptability of laws

The Judicial System



Economic Environment

Economic Environment refers to all forces which have an economicimpact on Business.

The economic environment consists of the demand dynamics, supplysituation, pricing factors, degree of competitiveness, and impact of profitability. It includes the fiscal policy, monetary policy and the taxationpolicy, the FDI norms, the investment criterion and financing decisions.Economic environment includes:

Growth strategy

Industry

Agriculture

Infrastructure

Money and Capital Markets

Per capita and national income Population

New Economic Policy

.



Global Environment:The global environment refers to those factors which are relevant to

business, such as the WTO principles and agreements; other international conventions/ treaties / agreements / sentiments in other

countries etc. For eg hike in crude oil prices has a global impact etc. World is becoming one market

Improving quality

Competition from MNCs

Capital and technology transfers

Deciding which markets to enter and what products to manufacture

Adjusting the management process

Socio-Cultural Environment: Culture creates people

Culture and globalization

Culture determines people’s attitude to business and work. Caste system

Spirit of collectivism

Education

Ethics in business

Social responsibility

Social audit

Corporate governance



External Environmental AnalysisEnvironmental Analysis has three goals:

Provides an understanding of current and potential changes taking place

Environmental Analysis should provide input for strategic decision making.

Facilitate and lead to strategic decisions within an organization.

Environmental Analysis and diagnosis give strategists time to anticipateopportunities and to plan to take optional responses to these opportunities. Italso helps strategists to develop an early warning system to prevent threats or todevelop strategies which can turn a threat to a firm’s advantage‖. Firms whichsystematically analyse and diagnose the environment are more effective thanthose which do not.

Process of Environmental Analysis: The analysis consists of four steps:

Scanning : Detect early signals of possible environmental change and detectenvironmental change already underway.

Monitoring : Purpose of monitoring is to assemble sufficient data to discern

whether certain trends are emerging, identification of the trends andidentification of areas for further scanning.

Forecasting : It is concerned with developing projections of the direction, scopeand intensity of environmental change.

Assessment : To determine implications for the organisation’s current andpotential strategy.



Environmental Analysis and Strategic Management

Defining Business Mission and Objectives

SWOT AnalysisEnvironmental Analysis + Self Appraisal

Strategic Alternatives and Choice of Strategy

Implementation of Strategy

Evaluation and Control of Strategy



Competitive Structure of Industries

The competitive structure of industries is a very important business

environment. Identification of forces affecting the competitive

dynamics of an industry is very useful in formulation of strategies.

As per Michael Porter’ well known model of structural analysis of industries, the state of competitions depends on:

Porter’s analysis determines the competitive intensity of the industry

and the attractiveness of the market. A highly competitive industry

is one approaching ―Perfect Competition‖ whereby businesses are

only able to earn normal profits.

Rivalry among firms Buyers

Substitutes

New Entrants

Suppliers

Threat of new entrants

Threat of substitutes

Bargaining powerBargaining power



Rivalry among Existing firms:

Firms in an industry are mutually dependent – competitivemotives of a firm usually affects others and may beretaliated. Factors influencing the intensity of rivalry are:

Number of firms and their Relative market share

State of Growth of Industry: In stagnant, declining andslow growth industries, a firm is able to increase its salesby increasing the market share.

Fixed or storage costs: In case of high fixed costs,strategy of firms is to increase sales which in turn would

improve on capacity utilization. Indivisibility of capacity augmentation : Where there are

economies of scale, capacity increases would be in largeblocks necessitating, efforts to increase sales to achievecapacity utilization norms.



Rivalry among Existing firms:

• Product standardization, after sales service: In caseof firms which have standardized products; it is price,distribution and after sales service which become thedistinguishing factors.

Strategic stake: Rivalry becomes more intensive if

the firms have high stakes in achieving successthere.

Exit Barrier: If exit barriers are high, firms would keepcompeting in the same industry even though it mightnot be very attractive.

Diverse Competition: Competitors with diversestrategies make the industry highly competitive.

Switching costs: One time costs that the buyer faceson switching from one supplier’s product to that of another ie cost of new ancillary equipment etc.

Expected Retaliation



Threat of Entry:

Potential competition tends to be high if the industry is profitable or

critical and entry barriers are low. Some of the common entry barriersare:

Government Policy

Cost Disadvantages: Cost advantages enjoyed by established firmsmay discourage entry of new firms such as learning curve, favorablelocation etc.

Product Differentiation: Characterized by brand image, customer loyaltyetc. may deter new firms from entering the market.

Monopoly Elements

Capital Requirements : High capital intensive nature of the industry isan entry barrier to small firms

Threat of substitutes

An industry which has close substitutes available is highly competitivein nature. Existence of close substitutes increases the propensity of consumers to switch to alternatives in response to price increases.

Perceived level of product differentiation in the minds of the consumer is also a highly influential factor.



Bargaining power of Buyers:

Buyers can in turn also be potential competitors as they may integratebackwards or bargain for lower costs, better quality of the product etc.

The volume of purchase relative to the total sale of the seller

The importance of the product to the buyer in terms of the total cost

Extent of standardization or differentiation of the product

Switching costs

Extent of buyer’s information

Bargaining power of sellers:Important determinants of supplier power are the following:

Extent of concentration and domination in the supplier industry

Importance of the product to the buyer Importance of the buyer to the supplier

Extent of substitutability of the product

Switching costs

Extent of standardization of the product

Potential for forward integration by suppliers



SWOT Analysis

SWOT stands for Strengths, Weaknesses,Opportunities and Threats

Identification of the threats and opportunities inthe external environment and strengths andweaknesses in the internal environment of the firmsare the cornerstone of business policy formulation.

It is the SWOT analysis which determines thecourse of action to ensure the growth / survival of the firm.



Strengths

•Strengths—internal to the unit; are a unit’s resources and capabilities that can

be used as a basis for developing a competitive advantage; strength should be

realistic and not modest.

Your list of strengths should be able to answer:

•What are the unit’s advantages?

•What does the unit do well?

•What relevant resources do you have access to?

•What do other people see as your strengths?•What would you want to boast about to someone who knows nothing about this

organization and its work?

•Examples: good reputation among customers, resources, assets, people, :

experience, knowledge, data, capabilities

•Think in terms of: capabilities; competitive advantages; resources, assets,people

•(experience, knowledge); marketing; quality; location; accreditations

•qualifications, certifications; processes/systems



Weaknesses•Weaknesses — internal force that could serve as a barrier to maintain orachieve a competitive advantage; a limitation, fault or defect of the unit;•It should be truthful so that they may be overcome as quickly aspossible

Your list of weaknesses should be able to answer:•What can be improved?•What is done poorly?•What should be avoided?•What are you doing as an organization that you feel could be donemore effectively/efficiently?•

What is this organization NOT doing that you feel it should be doing?•If you could change one thing that would help this department functionmore effectively, what would you change?

•Examples: gaps in capabilities, financial, deadlines, morale•lack of competitive



Opportunities•Opportunities — any favorable situation present now or in thefuture in the external environment.

Examples: unfulfilled customer need, arrival of new technologies,

loosening of regulations, global influences, economic boom,demographic shift

•Where are the good opportunities facing you?•What are the interesting trends you are aware of?•Think of: market developments; competitor; vulnerabilities;industry/ lifestyle trends;; geographical; partnerships



Threats•External force that could inhibit the maintenance or attainment of acompetitive advantage; any unfavorable situation in the externalenvironment that is potentially damaging now or in the future.

•Examples: shifts in consumer tastes, new regulations, political or

legislative effects, environmental effects, new technology, loss of key staff,economic downturn, demographic shifts, competitor intent; marketdemands; sustaining internal capability; insurmountable weaknesses;financial backing

Your list of threats should be able to answer:

•What obstacles do you face?•What is your competition doing?• Are the required specifications for your job/services changing?•Is changing technology threatening your position?•Do you have financial problems?•Could any of your weaknesses seriously threaten your unit?



POSITIVE/

HELPFUL

to achieving thegoal

NEGATIVE/HARMFUL

to achieving thegoal

INTERNAL Origin

facts/ factors of theorganization

StrengthsThings that are

good now,maintain them,build on them

and use asleverage

Weaknesses

Things that are badnow, remedy,change or stop

them.

EXTERNAL Origin facts/ factors of the

environment inwhich the

organizationoperates

OpportunitiesThings that are

good for thefuture, prioritizethem, capturethem, build on

them andoptimize

ThreatsThings that are bad

for the future,put in plans to

manage them orcounter them

SWOT Analysis of Indian Economy



SWOT Analysis of Indian Economy

Strengths• Huge pool of labor force

• High percentage of cultivable land

• Diversified nature of the economy

• Availability of skilled manpower

• Extensive higher education system

• High growth rate of economy

• Rapid growth of IT / ITes Sector

• Abundance of natural resources

Weaknesses• High percentage of workforce involved

in agriculture

• Approx a quarter of population belowthe poverty line

• High unemployment rate

• Inequality in prevailing socio economic

conditions, rural – urban divide

• Low productivity

• Huge population leading to scarcity of

resources• Low level of mechanization

• Red tapism, Bureaucracy

• Low literacy rates

Opportunities

• Scope for entry of private firms in varioussectors of business

• Inflow of FDI

• Huge foreign exchange prospects in IT / ITeS

• Investment in R & D

• Area of infrastructure

• Huge domestic market : Opportunity for MNCs

• Huge agricultural resources

Threats

• High fiscal deficit• Threat of government intervention in

some states

• Growing import bill

• Population explosion, rate of growth of

population

• Agriculture excessively dependent on

monsoon

AN ORGANIZATION’S ENVIRONMENT



AN ORGANIZATION’S ENVIRONMENT

Industry SectorCompetitors,

Industry size andCharacteristics, Related

Industries

Raw Materials

Sector

Suppliers,

Manufacturers,

Real Estate

Human

Resources

Sector Labor Market, Employment

Agencies, Universities, Training

Schools, Employees in Other

Companies, UnionizationFinancial Resources Sector

Stock Markets, Banks,

Savings and Loans,

Private Investors

Market

Sector

Customers, Clients,

Potential Users of

Products and Services

TechnologySector

Techniques of

Production, Science,

Research Centers,

Automation, New

Materials

Economic

Conditions Sector

Recession, UnemploymentRate, Inflation rate, Rate of

Investment, Economics,Growth

Government Sector

City, State, Federal Laws and

Regulations, Taxes, Services,

Court System, Political

Processes

Socio-Cultural sector

Age, Values, Beliefs, Education,

Religion, Work Ethic, Urban vs.

Rural, Birth Rate

ORGANIZATION

DOMAIN

Task Environment

Macro

Environment

3 3



Environmentally-Conscious Business Practices

Cut back on environmentally unsafe operations

Compensate for environmentally risky endeavors

Avoid confrontation with state and federal pollution control

agencies

Comply early with government regulations

Promote new manufacturing technologies

Recycle wastes

3.3



Demographics

Characteristics of a population such asage, race, gender, ethnic origin, andsocial class

determine the characteristics of workgroups, organizations, specific markets, or nations population.

Demographics influence marketing,

advertising, and human resourcesdecisions.

Such as the number of individuals the

ages of 18 to 25



Cultural Forces

Culture is the shared characteristics,

values, and beliefs of a group thatdistinguishes them from another group

Such as religion, language, and

heritage

3.8



Basic Types of Task Environments

Adapted from Figure 3.3

Factors in environment are

few

quite similar to each other

basically the same over time

Example: Soft-drink distributors


few

somewhat similar to each other

continually changing

Example: Fast-food outlets


numerous

not similar to each other

basically the same over timeExample: Basic food production

firms


numerous

not similar to each other

continually changingExample: Computer firms

STABLE CHANGING

SI

M

P

L

E

C

O

M

PL

E

X

3.8

3.6



Ambiguity or unpredictability of certain factors external to an organization

governmental regulations

competition

stability of inputs

demand characteristics

e.g. Customer bargaining power

3.6

Environmental Uncertainty



Turbulent Environment

Complex, constantly changing

Both ambiguous and

unpredictable

3.9



Competitive Forces in the Task Environment

Adapted from Figure 3.4

Suppliers

bargaining

power

Threatof new

competitors

Buyers

bargaining

power

Threat of

substitute

goods/services

Rivalry among

existing firms

in industry



Competitors

Importance and Effect of

Competitors

competitors are an important day-to-

day environmental force facing

organizations

rivalry among competitors leads to

price cuttingadvertising promotions

enhanced customer service or warranties

improvements in product or service quality



New Entrants

Barriers to Entry:

economies of scaledecrease in per unit costs as volume

of goods/services producedincreases

product differentiationuniqueness in quality, price, design,

brand image, or customer servicethat gives a product an edge over the competition



New Entrants cont.

capital requirements

dollars needed to finance equipment

supplies, advertising, R&D, and the like

necessary to start

government regulation

may bar or severely restrict potential new

entrants to an industry



Substitute Goods and Services

Goods/Services

that can easily replace the firm’s

goods/services

I.e. Starbucks introduced a new drink called

Frappuccino. It is a cold drink that can

substitute for the more traditional hot coffeedrink



Customers

Potential Effects of Customers

they may drive down prices

push for more or higher-quality products

increase competition among sellers by

playing one against each other



Customers cont...

Exhibit Bargaining Power to the Extent

that:

they purchase a large volume relative to the

supplier’s total sales

the product/service represents a significant

expenditure by the customer

they pose a realistic threat of backwardintegration, for example: the purchase of one or

more of its suppliers

they have readily available alternatives for the

same services/products



Integration

Purchasing or developing relatedbusiness units

thought of as facing the customer

Forward Integration-purchasing your customer

Why?

Backward Integration-purchasing your supplier

Why?

Horizontal Integration-purchasing



Suppliers

Bargaining Power of Suppliers

often controls how much they can :

raise prices above their costsreduce the quality of goods and services

is increased by patents and copyrights

is increased by supplier-customer

alliances

which are advocated by total quality

programs



Impact of Technology

What is technology?

knowledge, tools, techniques, and actions

used to transform material , information, and

other inputs into finished goods and services

plays pivotal role in creating and changing

an organization’s task environment



Impact of Technology cont...

Role in Strategy :

creates strategic options not feasible with

older technologies

approaching those of traditional large-scale

manufacturing facilities

marketing over the internet

online, real-time financial management

systems

can determine profit and loss on a a daily basis

Session 2 Mkt Env

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