Unit 4 Health And Social Care Industry Analysis
WHAT ARE THE KEY AREAS THAT A MARKETER SHOULD STUDY AND CONTRAST IN ANY COMPETITIVE ENVIRONMENT
Marketing is above all satisfying customer needs and as competition grows fiercer and fiercer, understanding customers today is crucial; but that is not enough. Under the marketing concept, companies try to gain competitive advantage by satisfying target consumer needs better than competitors do, and in achieving this, ensure their own survival.
So, the marketer is bound to face many challenges as new companies and new improved products make their entry on the market, the availability of new services brought about by latest technology and the price reduction entailed in the process. The battle for conquering new …show more content…
clients and to retain the old ones is on, and only those marketers who have adopted the best strategies will finally succeed.
The marketer has in hand many tools that he can use to help him in his task to have an edge over his company’s competitors. He needs to find out all he can about them. He must constantly compare his company’s products, their prices, channels of distribution and the promotion campaigns with those of close competing firms. In this way he will be able to sort out areas of potential competitive advantage and disadvantage. Competitor analysis involves first identifying and assessing competitors and then selecting which ones to attack or avoid.
One of the most efficient tools used by marketers today is Porter’s Five Forces Analysis which helps them to contrast a competitive environment. It has similarities with other tools for environment audit, such as PEST analysis, but tends to focus on the single, stand alone, business or Strategic Business Unit rather than a single product or range of products.
The Five Forces Analysis looks at five key areas that the marketer must address and are namely:
1. The competitive rivalry within the industry
2. The threat of substitute products
3. The bargaining power of buyers,
4. The bargaining power of suppliers and
5. The threat of new entrants.
The Five Competitive Forces are typically described as follows:
[pic]
1 THE COMPETITIVE RIVALRY WITHIN THE INDUSTRY This force describes the intensity of competition between existing companies in an industry. High competitive pressure results in pressure on prices, margins, and hence, on profitability for every single company in the industry. Competition between existing companies is likely to be high when • There are many companies of about the same size, having similar strategies, and struggling for market leadership, • There is not much differentiation between companies and their products; hence, there is much price competition, • Low market growth rate, so that growth of one particular company is only possible at the expense of a competitor, • Barriers for exit are high, implying that companies have to strive within the industry rather than exit, • High fixed costs result in an economy of scales, when total costs are mostly fixed costs, the firm must produce near capacity to attain the lowest unit costs, • Low switching costs when a customer can freely switch from one product to another, • High storage costs or highly perishable products cause a producer to sell goods as soon as possible, thus the competition for customers intensifies, • Strategic stakes are high when a firm is losing market position or has potential for great gains, • A diversity of rivals with different cultures, histories, and philosophies make an industry unstable, • Industry shakeout when a growing market and the potential for high profits induces new firms to enter a market and incumbent firms to increase production and appoint is reached where the industry becomes crowded with competitors.
The marketer needs to look at all of the dimensions that identify strategic groups within the industry. He needs to know each competitor’s product quality, features and mix, customer services; pricing policy; distribution coverage; sales force strategy; and advertising and sales promotion programs. He must also study the details of each competitor’s R&D, manufacturing, purchasing, financial and other strategies. The marketer needs to assess each competitor’s strengths and weaknesses carefully in order to forecast competitor’s future strategies. He may also conduct primary marketing research with customers, suppliers, and dealers. He can resort to benchmarking the company’s products, processes and services to other leading firms in other industries to find ways to improve quality and performance. Benchmarking has become a powerful for increasing a company’s competitiveness. Michael Porter suggested four basic competitive positioning strategies that companies can follow-three winning strategies and one losing one. The three winning strategies include: i) Overall cost leadership: Here the company works hard to achieve the lowest costs of production and distribution so that it can price lower than its competitors and win a large market share. ii) Differentiation: Here the company concentrates on creating a highly differentiated product line and marketing program so that it comes across as the class leader in the industry. iii) Focus: Here the company focuses its effort on serving a few market segments well rather than going after the whole market. More recently it has been suggested that companies can gain leadership positions by delivering superior value to their customers, by adopting any of these three strategies called value disciplines which are:
(a) Operational excellence: The company provides superior value by leading its industry in price and convenience by reducing costs and creating a lean and efficient value-delivery system.
(b) Customer intimacy: The company provides superior value by precisely segmenting its market and then tailoring its products or services to match exactly the needs of the targeted customers.
© Product leadership: The company provides superior value by offering a continuous stream of leading-edge products and services that make their own and competing products obsolete. So the marketer will eventually design his plan according to whether his firm is a market leader, or a market challenger, or a market follower, or finally a market nicher.
2 THE THREATS OF SUBSTITUTE PRODUCTS A threat from substitutes exists if there are alternative products with lower prices of better performance parameters for the same purpose. They could potentially attract a significant proportion of market volume and hence reduce the potential sales volume for existing firms. This category also relates to complementary products. The marketer must bear in mind the factors that determine the threat of substitutes like: • Brand loyalty of customers, and their willingness to substitute, • Close customer relationships, • Switching costs for customers, • The relative price for performance of substitutes, • Current trends.
3 THE BARGAINING POWERS OF BUYERS The power of buyers is the impact that customers have on a producing industry. In general, when buyer is strong, the relationship to the producing industry is near to what an economist terms a monopsony – a market in which there are many suppliers and one buyer. Under such market conditions the buyer sets the price. In reality few monopsonies exist, but frequently there is some asymmetry between a producing industry and buyers. Bargaining power of buyers depends on: • Concentration of buyers; there are a few buyers with significant market share and many sellers in the industry, • Buyers purchase a significant proportion of output – distribution of purchases when the product is standardized, • The role of quality and service, • Threat of backward and forward integration into the industry where buyers can threaten to buy producing firm or rival, • Switching costs, it is easy for buyers to switch their supplier.
4 THE BARGAINING POWER OF SUPPLIERS The term 'suppliers ' comprises all sources for inputs that are needed in order to provide goods or services. A producing industry requires raw materials – labour, components, and other supplies. This requirement leads to buyer-supplier relationships between the industry and the firms that provide it the raw materials used to create products. Suppliers, if powerful, can exert an influence on the producing industry, such as selling raw materials at high price to capture some of the industry’s profits. The power of suppliers tends to be a reversal of the power of buyers.
4.1 Supplier bargaining power is likely to be high when: • The switching costs are high e.g. switching from one software supplier to another, • Brand is powerful e.g. Cadillac, Pizza Hut, Microsoft, • There is a possibility of the supplier integrating forward in order to obtain higher prices and margins e.g. Brewers buying bars, • Customers are fragmented (not in clusters) so that they have little bargaining power e.g. Gas/Petrol stations in remote places, • The market is dominated by a few large suppliers rather than a fragmented source of supply, • There are no substitutes for the particular input, • The suppliers customers are fragmented, so their bargaining power is low, • The switching costs from one supplier to another are high. 4.2 Supplier bargaining power is likely to be weak when: • The suppliers customers are fragmented, so their bargaining power is low, • The buying industry has a higher profitability than the supplying industry, • The buying industry hinders the supplying industry in their development (e.g. reluctance to accept new releases of products), • The buying industry has low barriers to entry. 5. THREAT OF ENTRY
It is not only incumbent rivals that pose a threat to firms in an industry; the possibility that new firms may enter the industry and affect competition. In theory, any firm should be able to enter an exit a market, and if free entry and exit exist, and then profits always should be nominal. In reality, however, industries possess characteristics that protect the high profit levers of firms in the market and inhibit additional rivals from entering the market. These are barriers to entry.
Barriers to entry are more than the normal equilibrium adjustments that markets typically make. For e.g, when industry profits increase, we would expect additional firms to enter the market to take advantage of the high profit levels, over time driving down profits for all firms in the industry. When profits decrease we would expect some firms to exit the market thus restoring market equilibrium. Firm may also be reluctant to enter markets that are extremely uncertain. Firms keep prices artificially low as a strategy to prevent potential entrants from entering the marker. Barriers reduce the rate of entry of new firms, thus maintaining a level of profit for those already in the industry.
5.1 Barriers to entry • Economies of scale (minimum size requirements for profitable operations) • High initial investment and fixed costs • Cost advantages of existing firms • Brand loyalty of customers • Switching cost for customers • Access to distribution channels controlled by existing firms • Scarcity of important resources e.g. qualified expect staff • Government regulations • Access to technology • The likelihood of retaliation from existing industry firms • Access to raw materials is controlled by existing firms • Existing firms have closed customer relation, e.g. from long- term service contracts • Patents and proprietary knowledge serve to restrict entry into an industry
Some of an industry’s entry and exist barriers are summarized as follows:-
|Easy to Enter if there is : |Difficult to Enter if there is: |
|Common technology |Patented or proprietary know-how |
|Little brand franchise |Difficulty in brand switching |
|Access to distribution channels |Restricted distribution channels |
|Low scale threshold |High scale threshold |
| | |
|Easy to Exit if there are: |Difficult to Exit if there are: |
|Salable assets |Specialized assets |
|Low exit costs |High exit costs |
|Independent businesses |Interrelated businesses |
Barriers to exit work similarly to barriers to entry. Exit barriers limit the ability of a firm to leave the market and can exacerbate rivalry- unable to leave the industry, a firm must compete.
The nature and fascination of business is that it is not static for instance phone companies, computer firms, and entertainment are merging and forming strategic alliances to remap the information terrain.
To counter the five forces, strategies can be formulated on three levels:
• Corporate level • Business unit level • Functional or departmental level
The business unit level is the primary contest of industry rivalry.
The three generic strategies (cost leadership, differentiation and focus as discussed earlier) that can be implemented at the business unit level to create a competitive advantage. The proper generic strategy will position the firm to leverage its strengths and defend against the adverse effects of the five forces.
Having seen the strategies to counter the negative effects of the five forces model, the marketer must now consider the limitation of this same five forces model.
• Care must be taken not to under estimate or underemphasize the importance of the existing strengths of the organization, • It does not cope with synergies and interdependencies within the portfolio of large corporations, • From a more theoretical perspective the model does not addressed the possibility that an industry could be attractive because certain companies are in it, • Some claim that environments which are characterized by rapid, systemic and radical change require more flexible, dynamic or emergent approaches to strategy formulation, • Sometimes it may be possible to create completely new markets instead of selecting from existing
ones.
“MARKETING SUCCESS IS DEPENDENT ON MARKETING PLANS”.
WHAT ARE THE DIFFERENT STAGES OF ANY MARKETING PLANS.
Marketing is a critical component of any business strategy. Unfortunately, it is not often given the importance it deserves. This is due to a multitude of misconceptions. For starters, it is treated as a cost instead of an investment. Using this stance, it is often one of the first things to take a cost cut when controls become tighter. Secondly, younger organizations hardly ever commit to long term campaigns with consistency, primarily because of lack of instant results. Along with a few other misconceptions involving lack of expertise and experience, marketing is often left on the back burner. Listed below are five steps to get any marketing strategy in place, with a plan.
1.1 Step One – Situational Analysis:
Prior to starting any marketing campaign, it is essential to do a thorough analysis on the industry. Facts such as market share, growth, trends and economic policies are critical pieces of information. Next, it is important to find out about the entrenched competitors. Who are they? What is their market share? How fast have they been growing? Then comes the search for the major distributors in the industry, discounting policies, strategic alliances and any other information that may help to get a better understanding of where to take a stance while taking into account the following factors:
➢ Marketing environment, ➢ Laws and regulations, ➢ Politics, ➢ The current state of technology, ➢ Economic conditions, ➢ Socio-cultural aspects, ➢ Demand trends, ➢ Media availability, ➢ Stakeholder interests, ➢ Marketing plans and campaigns of competitors, ➢ Internal factors such as experience and resource availability.
These tools for internal/external audit should also be considered: ➢ SWOT, ➢ PEST, ➢ Porter’s Five Forces, ➢ Marketing environment.
Listed below are some of the critical things to look at when doing a situational analysis:
(I) The Industry: Before going any further, there is a necessity for information regarding the growth rate of the particular industry. What are it’s historic trends? What were the revenue figures for the segment? Have any major technological innovations taken place in it recently? Is the industry very segmented? These are some preliminary questions of interest and importance when looking at an opportunity in a particular industry.
(II) Competitors: This is an important segment, one in which the need to document as many direct and indirect competitors in the market place as possible. To look at their teams, products/services, pricing and any other marketing collateral which could be found. It is important to remain constantly vigilant about all competitors, this is a must for any company regardless of size. Creating document files which can be referenced easily, this will come in handy during later sections, when positioning and promoting the product as well.
(III) Distributors: Is the industry dependent on any major suppliers or distributors? If this is the case, then there is a need to find out maximum information regarding their operations, team, pricing and discounting practices. Developing strategic partnerships with key distributors in the market place can become a very strong competitive advantage in the market place. Dell has executed this superbly in partnerships with Intel and Microsoft.
(IV) Internal Assessment: If you have already developed, or are in the process of developing a product/service line, this section will highlight where you stand in the current market place. Through this section, a SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis is available. This analysis will also help identify your strengths, and pinpoint where you should avoid competing in the market place.
Using data assembled in this section, you will be able to identify, where you face major threats and where the most opportunities lie. It will also help you gauge market demand with a closer and more precise perspective. This step requires considerable searching and scouring for data, do this as a team, it becomes a little more exciting!
1.2 Step Two - Marketing Objectives:
Every plan needs to have specific goals and targets that it wants to achieve. This section can be used to plan what the organization’s major marketing objectives need to be. This could include market share, customer acquisition, customer retention, website traffic or expected ROI on certain marketing tactics. These need to be thought through, and be strongly linked to major objectives set out in the business plan. Using the opportunities identified in the situational analysis post, we will construct the next part of the marketing plan, which includes establishing objectives. These objectives will serve as beacons to be used as guides when developing specific strategies. It is important that these objectives should be specific, measurable, attainable, realistic and time specific. Without clearly identifying targets, is like throwing darts blindfolded. Listed below are some broad segments, for which specific objectives should be established:
(I) Market Penetration: Using data collected during the research phase, should give an approximate idea of the market share held by the competition. Sometimes this data is difficult to come by, in the past, lists of the major competitors when adequate information was not available. The point of this task is to identify the competition, and set realistic targets of where you want to be on that list. The important part is setting a target. .
(II) Marketing Metrics: When setting objectives, it is important to use key benchmarks which can continuously compare yourself with. These objectives can be pegged to major activities such as website traffic, newsletter sign-up rates, number of queries, pipeline activity, deal closings or sales staff turnover. These numbers will be a reflection of whether promotional strategies are paying off or not. More importantly is to develop promotional strategies around these numbers as well. If the current website is attracting about 1000 visitors daily, what will it take to hit the website traffic objectives of 2000 visitors? When establishing these metrics it is necessary make sure they are realistic and attainable.
(III) Financial Objectives: The company CFO is always wary of the marketing budget. The reason being, there are often no clear financial objectives justifying marketing plans. This section of the plan should outline specific financial targets that need to be achieved when devising the plan. This would include turnover targets, profitability targets as well as improvement of product/service margins. At the end of the quarter or year, there should be justification for the expenditure incurred on marketing. It is important for a startup with limited resources to think this section through carefully. Usually the opportunity cost is high, it is imperative that it is used correctly. It is up to the team to set objectives in such a manner, that responsibility for certain key metrics and objectives, is person specific. It is that individual’s responsibility to continually monitor progress and provide feedback to the team. This will create a culture where responsibility will be shared, and more importantly, will help the team realize the importance of good marketing. The objective must pass the SMART test otherwise it will be too vague and will not be realized, because the rest of the plan will hinge on the objective.
If this is not correct, the plan may fail. The SMART test is all about: ➢ Specific – being precise on what to achieve ➢ Measurable – quantify the objective ➢ Achievable – must be within the limit of possible ➢ Realistic – necessary resource (men, money, machines, materials minutes) to make the objective happen ➢ Timed – the deadline to achieve the objective
1.3 Step Three - Marketing Strategies:
This section is a major component of the entire plan. The marketing objectives outlined in the previous section, need to be translated into strategies now. This is best done by segmenting the market, and identifying areas that can be most effectively targeted. Correctly positioning in the market place, and ensuring a differentiation strategy to the entrenched competition will be an added help.
Strategy and tactics formulate the heart of a marketing plan. What happens is, these two sections are often thought of as one. This is a critical error. These two segments are interlinked closely, they do however, serve two very different purposes. The marketing strategy segment, uses marketing objectives discussed earlier, as end goals, which need to be achieved. In order to reach those goals it is not however advisable, to start planning how many brochures are required to be printed, or the next marketing seminar. Before going into any of these detailed tactics, there is urgent need to take time out to think through the best ways to reach the goals. Some important points to keep in mind when developing the marketing strategies are;
(I) Market Segmentation: Identify a niche in the market where it is able to use the strengths to their maximum potential. Treating everyone out there, as a potential customer is appealing. However, as a startup with limited resources, the need is to focus on one segment initially. This will allow consolidation of efforts and resources. It is true, putting all the eggs in one basket may appear risky, but experience says, a startup needs to be focused from the beginning, getting distracted by other potential opportunities usually gets into deeper water than can be handled.
(II) Positioning: Once the segment to be operating in has been identified, the next step will involve a most important aspect of the marketing plan: positioning. Who is the target customer and why? What benefits that can be provided to them as compared to taking a completely different positioning stance? For example, if a new media company is being developed, positioning must be in a manner which provides a certain segment more value? Positioning will be a reflection of the organization identity. It is important to make sure that this step is made correctly, it has long term impact.
(III) Differentiation: Once a segment has been selected and certain market positions, there is likely to be direct and indirect competition. This is the time to think how to differentiate from the others. For example, if the educational segment of the market has been selected for the company events and positioned to specialize in planning graduation ceremonies, what will set the firm apart from other events and companies who provide the same services? Some differentiation points could involve the development of a unique alumni website or specialized gifts for every graduate. The last thing to do is, differentiate on price! This section will help to develop a strategy which will complement the objectives that have been set. It is very important that these go hand in hand to ensure desired results. By selecting a narrow niche or one too overpopulated with strong competition, will make reaching the targets that much more difficult. Once a strategy has been outlined, the firm is ready to drill down to specific tactics through which the strategy will be deployed.
1.4 Step Four - Marketing Tactics:
After formulating broad strategies regarding marketing stance and positioning, It is imperative to convert them into executable actions. These can be done effectively using the 4P’s structure, which helps identify executable strategies for the product, price, placement and promotion. Each section can have specific strategies to help market the product/service and reach designated targets. After all the research and strategizing is done, the strategies need to be translated into executable actions. It is important to remember that without the effort that goes into correctly identifying strategies for the business, marketing tactics will not work. Their success is largely dependent on how clearly and thoughtfully the strategies have been laid out. Once the goals have been established, objectives and marketing strategies based on segmentation, positioning and differentiation, selection of marketing tactics can begin. The first thing that comes to mind about tactics, the 4P’s (Product, Price, Placement, Promotion). Structured frameworks should enable to develop executable strategies. If they become roadblocks, there is a problem. So keeping the 4P framework in mind tactics can be devised to drive sales and push the company further. These are four questions to ask when determining marketing tactics:
(a) What is unique about the product/service that our customers should know? For example, the MacBook Air did really well ( I really admire Apple’s corporate branding efforts). They brought out an ultra portable laptop and when it was revealed to the world, it came out of a manila envelope. Such a simple, yet effective introduction, made this product the talk of the town.
(b) What is the price point strategy and why? As mentioned earlier, competing on price is a losing strategy, one which entrepreneurs frequently use unfortunately. The inability to set correct price points can make or break a business. Pricing strategy must be based on comprehensive market research and comparison. After taking a look at the competition, then a decision has to be taken on how to be perceived by the market. Normally using pricing as a strategy helps slot in a particular segment in the customers mind.
© How to get the product/service to the target segment? According to objectives regarding volume, there needs to be identification of channels, to reach those targets. A thorough analysis of available channels of distribution needs to be done; those which can be used most cost effectively are targeted. However, keeping in mind, the more channels are used to open up, the more resources required. Channels are carefully selected, and then the need is to focus on developing them to reach their potential.
(d) How best can the product/service be promoted to the target audience? This is the segment that entrepreneurs need to get creative about. The firm usually doesn’t have large marketing budgets at its disposal; hence need to come up with ingenious ways to promote it.
These questions should help spark conversation, and pave the way to think about marketing tactics to be used. It is essential to remain focused on bottom line objectives, it is easy to slip into heated discussions about specific tactics and forget about end goals. Marketing can be simple and complex, it is advisable that at the onset of entrepreneurial ventures, to keep things simple!
1.5 Step Five - Marketing Budgets & Controls:
The last section requires the marketing budget to be structured. This budget must be strongly correlated to marketing objectives and be allocated accordingly. There need to be a strong focus on controlling costs and creating feedback loops to ensure that relevant information is being gathered, to help identify the most effective tactics. This budget must be treated as an investment and should therefore be pegged to ROI figures. Budgets are a necessary evil, they draw boundaries to ensure we know how far to go with the marketing plan. With entrepreneurs, the boundary perimeter is often small and limited. This calls for ingenious tactics to make full use of creative and deal making mindsets. The budget of a marketing plan is directly correlated with objectives set by the team. The progress towards those objectives must be monitored constantly by using control measures. These measures act as feedback mechanisms to help identify each tactic’s input.
There are a few things to keep in mind when in the midst of setting budget and control measures: i) Are the objectives and marketing budget in sync?: For a new business, it is important to outline realistic and attainable marketing objectives. Despite being optimistic and large goals, however, often these objectives are set without necessary resources allocated for realistic follow through. When discussing numbers, this is a good time to go back to objectives, and see whether attaining a 3% market share with the marketing budget, is a realistic target. ii) It is normal to commit more than 35% of the budget to one particular tactic, if so, is it justified. It is advisable to make sure that committing a large part of the budget to one tactic or promotional activity is based on substantial research. iii) Has the firm established tactic specific controls? As entrepreneurs do not often have access to a lot of funds in the marketing budgets. It is hence essential, to ensure that control measures are established for every tactic, to maintain monthly or quarterly monitoring. If it is noticed that the tactic is consistently not delivering as planned, adjust the plan accordingly. Having control measures in place also forces the responsible individuals to provide constructive feedback. iv) What is the expected return on investment (ROI) on the marketing budget?: This is a complex topic, and has been written about widely. To keep it simple, it is imperative to look at the marketing budget as an investment rather than a cost. Whenever an investment is made, we look for a certain ROI to justify it. We must do the same for our marketing budget. Keep tracking your investments meticulously, and see how to improve on your investment to ensure your expected ROI. This must be discussed with the finance people at the company. A well defined marketing budget can be the difference between, a good and a great result. It is important to keep in mind, that funds are wisely invested, and that have the ability to adapt to feedback along the way. There is no planning without control, control is vital and it should incorporate the following: ➢ Stat-up costs, ➢ Monthly budgets, ➢ Sales figure, ➢ Market share data, ➢ Consider the cycle of control.
These five steps constitute a simple marketing plan. The entire objective of this exercise is to bring structure to marketing activities, as well as to have clearly defined goals for what we expect it to do for our organization. Marketing is not limited to super bowl ads or billboards in Time Square. It requires being creative with the limited budget allocated. It must be used in such a way that activities are continuously monitored and tracked, and at year end, provide a significant ROI. It is stressed that by sticking with the marketing plan will help not to bail out halfway through. Two things the plan should incorporate, consistency and SMART objectives. Finally a short summary is placed at the front of the plan to help others to get acquainted with the plan without having to spend time reading it all. Also all supporting information is incorporated into an appendix at the back of the plan.
References: http://usmansheikh.wordpress.com/2008/07/01/5-steps-to-writind-a-marketing plan/ http://www.quickmba.com/strategy/porter.shtml http://www.12manage.com/methods_porter_five_forces.html http://www.marketingteacher.com/Lessons/lesson_fivefoces.htm http://www.the manager.org/Models/p5f.htm Principles of Marketing Ninth Edition Kotler & Armstrong
Marketing is above all satisfying customer needs and as competition grows fiercer and fiercer, understanding customers today is crucial; but that is not enough. Under the marketing concept, companies try to gain competitive advantage by satisfying target consumer needs better than competitors do, and in achieving this, ensure their own survival.
So, the marketer is bound to face many challenges as new companies and new improved products make their entry on the market, the availability of new services brought about by latest technology and the price reduction entailed in the process. The battle for conquering new …show more content…
clients and to retain the old ones is on, and only those marketers who have adopted the best strategies will finally succeed.
The marketer has in hand many tools that he can use to help him in his task to have an edge over his company’s competitors. He needs to find out all he can about them. He must constantly compare his company’s products, their prices, channels of distribution and the promotion campaigns with those of close competing firms. In this way he will be able to sort out areas of potential competitive advantage and disadvantage. Competitor analysis involves first identifying and assessing competitors and then selecting which ones to attack or avoid.
One of the most efficient tools used by marketers today is Porter’s Five Forces Analysis which helps them to contrast a competitive environment. It has similarities with other tools for environment audit, such as PEST analysis, but tends to focus on the single, stand alone, business or Strategic Business Unit rather than a single product or range of products.
The Five Forces Analysis looks at five key areas that the marketer must address and are namely:
1. The competitive rivalry within the industry
2. The threat of substitute products
3. The bargaining power of buyers,
4. The bargaining power of suppliers and
5. The threat of new entrants.
The Five Competitive Forces are typically described as follows:
[pic]
1 THE COMPETITIVE RIVALRY WITHIN THE INDUSTRY This force describes the intensity of competition between existing companies in an industry. High competitive pressure results in pressure on prices, margins, and hence, on profitability for every single company in the industry. Competition between existing companies is likely to be high when • There are many companies of about the same size, having similar strategies, and struggling for market leadership, • There is not much differentiation between companies and their products; hence, there is much price competition, • Low market growth rate, so that growth of one particular company is only possible at the expense of a competitor, • Barriers for exit are high, implying that companies have to strive within the industry rather than exit, • High fixed costs result in an economy of scales, when total costs are mostly fixed costs, the firm must produce near capacity to attain the lowest unit costs, • Low switching costs when a customer can freely switch from one product to another, • High storage costs or highly perishable products cause a producer to sell goods as soon as possible, thus the competition for customers intensifies, • Strategic stakes are high when a firm is losing market position or has potential for great gains, • A diversity of rivals with different cultures, histories, and philosophies make an industry unstable, • Industry shakeout when a growing market and the potential for high profits induces new firms to enter a market and incumbent firms to increase production and appoint is reached where the industry becomes crowded with competitors.
The marketer needs to look at all of the dimensions that identify strategic groups within the industry. He needs to know each competitor’s product quality, features and mix, customer services; pricing policy; distribution coverage; sales force strategy; and advertising and sales promotion programs. He must also study the details of each competitor’s R&D, manufacturing, purchasing, financial and other strategies. The marketer needs to assess each competitor’s strengths and weaknesses carefully in order to forecast competitor’s future strategies. He may also conduct primary marketing research with customers, suppliers, and dealers. He can resort to benchmarking the company’s products, processes and services to other leading firms in other industries to find ways to improve quality and performance. Benchmarking has become a powerful for increasing a company’s competitiveness. Michael Porter suggested four basic competitive positioning strategies that companies can follow-three winning strategies and one losing one. The three winning strategies include: i) Overall cost leadership: Here the company works hard to achieve the lowest costs of production and distribution so that it can price lower than its competitors and win a large market share. ii) Differentiation: Here the company concentrates on creating a highly differentiated product line and marketing program so that it comes across as the class leader in the industry. iii) Focus: Here the company focuses its effort on serving a few market segments well rather than going after the whole market. More recently it has been suggested that companies can gain leadership positions by delivering superior value to their customers, by adopting any of these three strategies called value disciplines which are:
(a) Operational excellence: The company provides superior value by leading its industry in price and convenience by reducing costs and creating a lean and efficient value-delivery system.
(b) Customer intimacy: The company provides superior value by precisely segmenting its market and then tailoring its products or services to match exactly the needs of the targeted customers.
© Product leadership: The company provides superior value by offering a continuous stream of leading-edge products and services that make their own and competing products obsolete. So the marketer will eventually design his plan according to whether his firm is a market leader, or a market challenger, or a market follower, or finally a market nicher.
2 THE THREATS OF SUBSTITUTE PRODUCTS A threat from substitutes exists if there are alternative products with lower prices of better performance parameters for the same purpose. They could potentially attract a significant proportion of market volume and hence reduce the potential sales volume for existing firms. This category also relates to complementary products. The marketer must bear in mind the factors that determine the threat of substitutes like: • Brand loyalty of customers, and their willingness to substitute, • Close customer relationships, • Switching costs for customers, • The relative price for performance of substitutes, • Current trends.
3 THE BARGAINING POWERS OF BUYERS The power of buyers is the impact that customers have on a producing industry. In general, when buyer is strong, the relationship to the producing industry is near to what an economist terms a monopsony – a market in which there are many suppliers and one buyer. Under such market conditions the buyer sets the price. In reality few monopsonies exist, but frequently there is some asymmetry between a producing industry and buyers. Bargaining power of buyers depends on: • Concentration of buyers; there are a few buyers with significant market share and many sellers in the industry, • Buyers purchase a significant proportion of output – distribution of purchases when the product is standardized, • The role of quality and service, • Threat of backward and forward integration into the industry where buyers can threaten to buy producing firm or rival, • Switching costs, it is easy for buyers to switch their supplier.
4 THE BARGAINING POWER OF SUPPLIERS The term 'suppliers ' comprises all sources for inputs that are needed in order to provide goods or services. A producing industry requires raw materials – labour, components, and other supplies. This requirement leads to buyer-supplier relationships between the industry and the firms that provide it the raw materials used to create products. Suppliers, if powerful, can exert an influence on the producing industry, such as selling raw materials at high price to capture some of the industry’s profits. The power of suppliers tends to be a reversal of the power of buyers.
4.1 Supplier bargaining power is likely to be high when: • The switching costs are high e.g. switching from one software supplier to another, • Brand is powerful e.g. Cadillac, Pizza Hut, Microsoft, • There is a possibility of the supplier integrating forward in order to obtain higher prices and margins e.g. Brewers buying bars, • Customers are fragmented (not in clusters) so that they have little bargaining power e.g. Gas/Petrol stations in remote places, • The market is dominated by a few large suppliers rather than a fragmented source of supply, • There are no substitutes for the particular input, • The suppliers customers are fragmented, so their bargaining power is low, • The switching costs from one supplier to another are high. 4.2 Supplier bargaining power is likely to be weak when: • The suppliers customers are fragmented, so their bargaining power is low, • The buying industry has a higher profitability than the supplying industry, • The buying industry hinders the supplying industry in their development (e.g. reluctance to accept new releases of products), • The buying industry has low barriers to entry. 5. THREAT OF ENTRY
It is not only incumbent rivals that pose a threat to firms in an industry; the possibility that new firms may enter the industry and affect competition. In theory, any firm should be able to enter an exit a market, and if free entry and exit exist, and then profits always should be nominal. In reality, however, industries possess characteristics that protect the high profit levers of firms in the market and inhibit additional rivals from entering the market. These are barriers to entry.
Barriers to entry are more than the normal equilibrium adjustments that markets typically make. For e.g, when industry profits increase, we would expect additional firms to enter the market to take advantage of the high profit levels, over time driving down profits for all firms in the industry. When profits decrease we would expect some firms to exit the market thus restoring market equilibrium. Firm may also be reluctant to enter markets that are extremely uncertain. Firms keep prices artificially low as a strategy to prevent potential entrants from entering the marker. Barriers reduce the rate of entry of new firms, thus maintaining a level of profit for those already in the industry.
5.1 Barriers to entry • Economies of scale (minimum size requirements for profitable operations) • High initial investment and fixed costs • Cost advantages of existing firms • Brand loyalty of customers • Switching cost for customers • Access to distribution channels controlled by existing firms • Scarcity of important resources e.g. qualified expect staff • Government regulations • Access to technology • The likelihood of retaliation from existing industry firms • Access to raw materials is controlled by existing firms • Existing firms have closed customer relation, e.g. from long- term service contracts • Patents and proprietary knowledge serve to restrict entry into an industry
Some of an industry’s entry and exist barriers are summarized as follows:-
|Easy to Enter if there is : |Difficult to Enter if there is: |
|Common technology |Patented or proprietary know-how |
|Little brand franchise |Difficulty in brand switching |
|Access to distribution channels |Restricted distribution channels |
|Low scale threshold |High scale threshold |
| | |
|Easy to Exit if there are: |Difficult to Exit if there are: |
|Salable assets |Specialized assets |
|Low exit costs |High exit costs |
|Independent businesses |Interrelated businesses |
Barriers to exit work similarly to barriers to entry. Exit barriers limit the ability of a firm to leave the market and can exacerbate rivalry- unable to leave the industry, a firm must compete.
The nature and fascination of business is that it is not static for instance phone companies, computer firms, and entertainment are merging and forming strategic alliances to remap the information terrain.
To counter the five forces, strategies can be formulated on three levels:
• Corporate level • Business unit level • Functional or departmental level
The business unit level is the primary contest of industry rivalry.
The three generic strategies (cost leadership, differentiation and focus as discussed earlier) that can be implemented at the business unit level to create a competitive advantage. The proper generic strategy will position the firm to leverage its strengths and defend against the adverse effects of the five forces.
Having seen the strategies to counter the negative effects of the five forces model, the marketer must now consider the limitation of this same five forces model.
• Care must be taken not to under estimate or underemphasize the importance of the existing strengths of the organization, • It does not cope with synergies and interdependencies within the portfolio of large corporations, • From a more theoretical perspective the model does not addressed the possibility that an industry could be attractive because certain companies are in it, • Some claim that environments which are characterized by rapid, systemic and radical change require more flexible, dynamic or emergent approaches to strategy formulation, • Sometimes it may be possible to create completely new markets instead of selecting from existing
ones.
“MARKETING SUCCESS IS DEPENDENT ON MARKETING PLANS”.
WHAT ARE THE DIFFERENT STAGES OF ANY MARKETING PLANS.
Marketing is a critical component of any business strategy. Unfortunately, it is not often given the importance it deserves. This is due to a multitude of misconceptions. For starters, it is treated as a cost instead of an investment. Using this stance, it is often one of the first things to take a cost cut when controls become tighter. Secondly, younger organizations hardly ever commit to long term campaigns with consistency, primarily because of lack of instant results. Along with a few other misconceptions involving lack of expertise and experience, marketing is often left on the back burner. Listed below are five steps to get any marketing strategy in place, with a plan.
1.1 Step One – Situational Analysis:
Prior to starting any marketing campaign, it is essential to do a thorough analysis on the industry. Facts such as market share, growth, trends and economic policies are critical pieces of information. Next, it is important to find out about the entrenched competitors. Who are they? What is their market share? How fast have they been growing? Then comes the search for the major distributors in the industry, discounting policies, strategic alliances and any other information that may help to get a better understanding of where to take a stance while taking into account the following factors:
➢ Marketing environment, ➢ Laws and regulations, ➢ Politics, ➢ The current state of technology, ➢ Economic conditions, ➢ Socio-cultural aspects, ➢ Demand trends, ➢ Media availability, ➢ Stakeholder interests, ➢ Marketing plans and campaigns of competitors, ➢ Internal factors such as experience and resource availability.
These tools for internal/external audit should also be considered: ➢ SWOT, ➢ PEST, ➢ Porter’s Five Forces, ➢ Marketing environment.
Listed below are some of the critical things to look at when doing a situational analysis:
(I) The Industry: Before going any further, there is a necessity for information regarding the growth rate of the particular industry. What are it’s historic trends? What were the revenue figures for the segment? Have any major technological innovations taken place in it recently? Is the industry very segmented? These are some preliminary questions of interest and importance when looking at an opportunity in a particular industry.
(II) Competitors: This is an important segment, one in which the need to document as many direct and indirect competitors in the market place as possible. To look at their teams, products/services, pricing and any other marketing collateral which could be found. It is important to remain constantly vigilant about all competitors, this is a must for any company regardless of size. Creating document files which can be referenced easily, this will come in handy during later sections, when positioning and promoting the product as well.
(III) Distributors: Is the industry dependent on any major suppliers or distributors? If this is the case, then there is a need to find out maximum information regarding their operations, team, pricing and discounting practices. Developing strategic partnerships with key distributors in the market place can become a very strong competitive advantage in the market place. Dell has executed this superbly in partnerships with Intel and Microsoft.
(IV) Internal Assessment: If you have already developed, or are in the process of developing a product/service line, this section will highlight where you stand in the current market place. Through this section, a SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis is available. This analysis will also help identify your strengths, and pinpoint where you should avoid competing in the market place.
Using data assembled in this section, you will be able to identify, where you face major threats and where the most opportunities lie. It will also help you gauge market demand with a closer and more precise perspective. This step requires considerable searching and scouring for data, do this as a team, it becomes a little more exciting!
1.2 Step Two - Marketing Objectives:
Every plan needs to have specific goals and targets that it wants to achieve. This section can be used to plan what the organization’s major marketing objectives need to be. This could include market share, customer acquisition, customer retention, website traffic or expected ROI on certain marketing tactics. These need to be thought through, and be strongly linked to major objectives set out in the business plan. Using the opportunities identified in the situational analysis post, we will construct the next part of the marketing plan, which includes establishing objectives. These objectives will serve as beacons to be used as guides when developing specific strategies. It is important that these objectives should be specific, measurable, attainable, realistic and time specific. Without clearly identifying targets, is like throwing darts blindfolded. Listed below are some broad segments, for which specific objectives should be established:
(I) Market Penetration: Using data collected during the research phase, should give an approximate idea of the market share held by the competition. Sometimes this data is difficult to come by, in the past, lists of the major competitors when adequate information was not available. The point of this task is to identify the competition, and set realistic targets of where you want to be on that list. The important part is setting a target. .
(II) Marketing Metrics: When setting objectives, it is important to use key benchmarks which can continuously compare yourself with. These objectives can be pegged to major activities such as website traffic, newsletter sign-up rates, number of queries, pipeline activity, deal closings or sales staff turnover. These numbers will be a reflection of whether promotional strategies are paying off or not. More importantly is to develop promotional strategies around these numbers as well. If the current website is attracting about 1000 visitors daily, what will it take to hit the website traffic objectives of 2000 visitors? When establishing these metrics it is necessary make sure they are realistic and attainable.
(III) Financial Objectives: The company CFO is always wary of the marketing budget. The reason being, there are often no clear financial objectives justifying marketing plans. This section of the plan should outline specific financial targets that need to be achieved when devising the plan. This would include turnover targets, profitability targets as well as improvement of product/service margins. At the end of the quarter or year, there should be justification for the expenditure incurred on marketing. It is important for a startup with limited resources to think this section through carefully. Usually the opportunity cost is high, it is imperative that it is used correctly. It is up to the team to set objectives in such a manner, that responsibility for certain key metrics and objectives, is person specific. It is that individual’s responsibility to continually monitor progress and provide feedback to the team. This will create a culture where responsibility will be shared, and more importantly, will help the team realize the importance of good marketing. The objective must pass the SMART test otherwise it will be too vague and will not be realized, because the rest of the plan will hinge on the objective.
If this is not correct, the plan may fail. The SMART test is all about: ➢ Specific – being precise on what to achieve ➢ Measurable – quantify the objective ➢ Achievable – must be within the limit of possible ➢ Realistic – necessary resource (men, money, machines, materials minutes) to make the objective happen ➢ Timed – the deadline to achieve the objective
1.3 Step Three - Marketing Strategies:
This section is a major component of the entire plan. The marketing objectives outlined in the previous section, need to be translated into strategies now. This is best done by segmenting the market, and identifying areas that can be most effectively targeted. Correctly positioning in the market place, and ensuring a differentiation strategy to the entrenched competition will be an added help.
Strategy and tactics formulate the heart of a marketing plan. What happens is, these two sections are often thought of as one. This is a critical error. These two segments are interlinked closely, they do however, serve two very different purposes. The marketing strategy segment, uses marketing objectives discussed earlier, as end goals, which need to be achieved. In order to reach those goals it is not however advisable, to start planning how many brochures are required to be printed, or the next marketing seminar. Before going into any of these detailed tactics, there is urgent need to take time out to think through the best ways to reach the goals. Some important points to keep in mind when developing the marketing strategies are;
(I) Market Segmentation: Identify a niche in the market where it is able to use the strengths to their maximum potential. Treating everyone out there, as a potential customer is appealing. However, as a startup with limited resources, the need is to focus on one segment initially. This will allow consolidation of efforts and resources. It is true, putting all the eggs in one basket may appear risky, but experience says, a startup needs to be focused from the beginning, getting distracted by other potential opportunities usually gets into deeper water than can be handled.
(II) Positioning: Once the segment to be operating in has been identified, the next step will involve a most important aspect of the marketing plan: positioning. Who is the target customer and why? What benefits that can be provided to them as compared to taking a completely different positioning stance? For example, if a new media company is being developed, positioning must be in a manner which provides a certain segment more value? Positioning will be a reflection of the organization identity. It is important to make sure that this step is made correctly, it has long term impact.
(III) Differentiation: Once a segment has been selected and certain market positions, there is likely to be direct and indirect competition. This is the time to think how to differentiate from the others. For example, if the educational segment of the market has been selected for the company events and positioned to specialize in planning graduation ceremonies, what will set the firm apart from other events and companies who provide the same services? Some differentiation points could involve the development of a unique alumni website or specialized gifts for every graduate. The last thing to do is, differentiate on price! This section will help to develop a strategy which will complement the objectives that have been set. It is very important that these go hand in hand to ensure desired results. By selecting a narrow niche or one too overpopulated with strong competition, will make reaching the targets that much more difficult. Once a strategy has been outlined, the firm is ready to drill down to specific tactics through which the strategy will be deployed.
1.4 Step Four - Marketing Tactics:
After formulating broad strategies regarding marketing stance and positioning, It is imperative to convert them into executable actions. These can be done effectively using the 4P’s structure, which helps identify executable strategies for the product, price, placement and promotion. Each section can have specific strategies to help market the product/service and reach designated targets. After all the research and strategizing is done, the strategies need to be translated into executable actions. It is important to remember that without the effort that goes into correctly identifying strategies for the business, marketing tactics will not work. Their success is largely dependent on how clearly and thoughtfully the strategies have been laid out. Once the goals have been established, objectives and marketing strategies based on segmentation, positioning and differentiation, selection of marketing tactics can begin. The first thing that comes to mind about tactics, the 4P’s (Product, Price, Placement, Promotion). Structured frameworks should enable to develop executable strategies. If they become roadblocks, there is a problem. So keeping the 4P framework in mind tactics can be devised to drive sales and push the company further. These are four questions to ask when determining marketing tactics:
(a) What is unique about the product/service that our customers should know? For example, the MacBook Air did really well ( I really admire Apple’s corporate branding efforts). They brought out an ultra portable laptop and when it was revealed to the world, it came out of a manila envelope. Such a simple, yet effective introduction, made this product the talk of the town.
(b) What is the price point strategy and why? As mentioned earlier, competing on price is a losing strategy, one which entrepreneurs frequently use unfortunately. The inability to set correct price points can make or break a business. Pricing strategy must be based on comprehensive market research and comparison. After taking a look at the competition, then a decision has to be taken on how to be perceived by the market. Normally using pricing as a strategy helps slot in a particular segment in the customers mind.
© How to get the product/service to the target segment? According to objectives regarding volume, there needs to be identification of channels, to reach those targets. A thorough analysis of available channels of distribution needs to be done; those which can be used most cost effectively are targeted. However, keeping in mind, the more channels are used to open up, the more resources required. Channels are carefully selected, and then the need is to focus on developing them to reach their potential.
(d) How best can the product/service be promoted to the target audience? This is the segment that entrepreneurs need to get creative about. The firm usually doesn’t have large marketing budgets at its disposal; hence need to come up with ingenious ways to promote it.
These questions should help spark conversation, and pave the way to think about marketing tactics to be used. It is essential to remain focused on bottom line objectives, it is easy to slip into heated discussions about specific tactics and forget about end goals. Marketing can be simple and complex, it is advisable that at the onset of entrepreneurial ventures, to keep things simple!
1.5 Step Five - Marketing Budgets & Controls:
The last section requires the marketing budget to be structured. This budget must be strongly correlated to marketing objectives and be allocated accordingly. There need to be a strong focus on controlling costs and creating feedback loops to ensure that relevant information is being gathered, to help identify the most effective tactics. This budget must be treated as an investment and should therefore be pegged to ROI figures. Budgets are a necessary evil, they draw boundaries to ensure we know how far to go with the marketing plan. With entrepreneurs, the boundary perimeter is often small and limited. This calls for ingenious tactics to make full use of creative and deal making mindsets. The budget of a marketing plan is directly correlated with objectives set by the team. The progress towards those objectives must be monitored constantly by using control measures. These measures act as feedback mechanisms to help identify each tactic’s input.
There are a few things to keep in mind when in the midst of setting budget and control measures: i) Are the objectives and marketing budget in sync?: For a new business, it is important to outline realistic and attainable marketing objectives. Despite being optimistic and large goals, however, often these objectives are set without necessary resources allocated for realistic follow through. When discussing numbers, this is a good time to go back to objectives, and see whether attaining a 3% market share with the marketing budget, is a realistic target. ii) It is normal to commit more than 35% of the budget to one particular tactic, if so, is it justified. It is advisable to make sure that committing a large part of the budget to one tactic or promotional activity is based on substantial research. iii) Has the firm established tactic specific controls? As entrepreneurs do not often have access to a lot of funds in the marketing budgets. It is hence essential, to ensure that control measures are established for every tactic, to maintain monthly or quarterly monitoring. If it is noticed that the tactic is consistently not delivering as planned, adjust the plan accordingly. Having control measures in place also forces the responsible individuals to provide constructive feedback. iv) What is the expected return on investment (ROI) on the marketing budget?: This is a complex topic, and has been written about widely. To keep it simple, it is imperative to look at the marketing budget as an investment rather than a cost. Whenever an investment is made, we look for a certain ROI to justify it. We must do the same for our marketing budget. Keep tracking your investments meticulously, and see how to improve on your investment to ensure your expected ROI. This must be discussed with the finance people at the company. A well defined marketing budget can be the difference between, a good and a great result. It is important to keep in mind, that funds are wisely invested, and that have the ability to adapt to feedback along the way. There is no planning without control, control is vital and it should incorporate the following: ➢ Stat-up costs, ➢ Monthly budgets, ➢ Sales figure, ➢ Market share data, ➢ Consider the cycle of control.
These five steps constitute a simple marketing plan. The entire objective of this exercise is to bring structure to marketing activities, as well as to have clearly defined goals for what we expect it to do for our organization. Marketing is not limited to super bowl ads or billboards in Time Square. It requires being creative with the limited budget allocated. It must be used in such a way that activities are continuously monitored and tracked, and at year end, provide a significant ROI. It is stressed that by sticking with the marketing plan will help not to bail out halfway through. Two things the plan should incorporate, consistency and SMART objectives. Finally a short summary is placed at the front of the plan to help others to get acquainted with the plan without having to spend time reading it all. Also all supporting information is incorporated into an appendix at the back of the plan.
References: http://usmansheikh.wordpress.com/2008/07/01/5-steps-to-writind-a-marketing plan/ http://www.quickmba.com/strategy/porter.shtml http://www.12manage.com/methods_porter_five_forces.html http://www.marketingteacher.com/Lessons/lesson_fivefoces.htm http://www.the manager.org/Models/p5f.htm Principles of Marketing Ninth Edition Kotler & Armstrong