PEST or STEP Analysis

The PEST Analysis

• A scan of the external macro-environment in which the firm operates can be expressed in terms of the following factors:

• Political

• Economic

• Social

• Technological

PEST Analysis

• The acronym PEST (or sometimes rearranged as "STEP") is used to describe a framework for the analysis of these macro-environmental factors.

• A PEST analysis fits into an overall environmental scan as shown in the following diagram:

PEST Framework

Environmental Scan

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Macro-environment Micro-environment

PEST Framework

Political Factors

• Political factors include government regulations and legal issues and define both formal and informal rules under which the firm must operate. Some examples include:

• Tax policy

• Employment laws

• Environmental regulations

• Trade restrictions and tariffs

• Political stability

Political-Legal

• Consist of ideology, laws, and ethics standards.

• International political environments are more volatile.

• Consider political as prime force in China.

Political-Legal

• Organizations must operate within a framework or guideline based on national ideology.

• Regulation and policies reflect governmental ideology.

• Relating to organizations encompass subsidies, tariffs, quotas, and deregulation of industries.

Law and Legislation

• Purposes of business legislation include protection of fair competition, consumers, interests of society

• For unbridled business behavior, the legal environment becomes more complicated

• Business subject to law of tax, antitrust, safety, consumer protection, environment protection

Economic Factors

• Economic factors affect the purchasing power of potential customers and the firm's cost of capital. The following are examples of factors in the macro-economy:

• Economic growth

• Interest rates

• Exchange rates

• Inflation rate

Economic Factors

• The economic environment consists of factors that affect consumer purchasing power and spending patterns

• Economic factors include inflation, income level and its distribution, unemployment, business cycles

• Changes in major economic variables have a significant impact on the marketplace.

Economic-Political Interrelations Impact

• Global strategy (USA & China)

• Middle East War

• Financial Crisis

• Decline of business

• Energy efficiency demanding

• New business opportunity

– Why Japanese car makers entered USA, now China

Socio-cultural Factors

• Social factors include the demographic and cultural aspects of the external macro-environment. These affect customer needs and the size of potential markets. Some social factors include:

• Health consciousness

• Population growth rate

• Age distribution

• Career attitudes

• Emphasis on safety

Socio-Cultural Influences

• Social environment is a demographic aspect.

• Demography concerns population size, family structure, age distribution.

• Important variables indicating consumer base on which marketing firms target.

• Changes in the demographic aspects can result in significant problems for firms.

Socio-Cultural Environment

• Major trends

– Explosive population

– Changing age structure

– Ethnic and educational mix

– Types of households

– Geographical shifts

Socio-Cultural Environment

• The cultural environment is behavioral aspects made up of forces that affect society's basic values, perceptions, preferences. and behaviors.

• Core cultural values are firmly established within a society and are difficult to change.

• Therefore, demand is a function of people’s social conditioning.

• But once changing, many impacts on people’s views of themselves, others, and most importantly the firm image and its product

Socio-Cultural Special Interest Groups

• Special interest groups representing social ethic standards protect our moral ground

– Green Peace environment protection

• Influence and limit various organizational behaviors in a given society.

– Limiting on over packaging

• Grown in number and power over 2 decades, putting more constraints on marketers.

• Organizations hire lobbyists to influence government and advocate their point of view on public issues.

Technological Factors

• Technological factors can lower barriers to entry, reduce minimum efficient production levels, and influence outsourcing decisions. Some technological factors include:

• R&D activity

• Automation

• Technology incentives

• Rate of technological change

Technological Environment

• The technological environment refers to new technologies, processes, materials, which create new or better product and market opportunities.

• Technology has a tremendous effect on life-styles, consumption patterns, and the economy.

• It is a driving force for changing every aspects of world and people at a fast pace

• But thankfully, it is a most manageable uncontrollable force faced by marketers.

• Once advancing, you can start new industries, destroy existing industries, and stimulate entirely targeted markets.

• So, organizations must quickly adapt in terms of product and process, then turn resources and advances into opportunities and a competitive edge

Technological Environment

Strengths, Weaknesses, Opportunities, and Threats (SWOT) Analysis

STRATEGY

STRENGTHS

WEAKNESSES

OPPORTUNITIES

THREATS

SWOT Analysis A Planning and Organizing Tool

Strengths, Weaknesses, Opportunities, and Threats

• Strengths and weaknesses are generally internal factors that are within your control.

• Opportunities and Threats are generally external issues that you can’t control.

Strengths

• Consider from both the view of the firm (product) as well as from customers and competitors

• Realistic and not modest

• One’s strength is another’s weakness

• Questions: – What are the firm’s or the product’s advantages over

others?

– What does it do well? What makes it stand out from your competitors?

Weaknesses

• Be truthful so that weaknesses may be overcome as quickly as possible

• One’s strength is another’s weakness

• Questions.

– What is done poorly?

– What can be improved?

– What should be avoided?

Opportunities and Threats

• external in nature

• Represent characteristics of:

– the research environment

– growth in potential markets

– changes in the competitive, economic, political/legal, technological, or socio-cultural environments

• A threat to some is an opportunity to another.

• Questions on opportunities:

– Is there a product/service area that others have not yet covered?

– Are there emerging trends that fit with your company's strengths?

• Questions on threats:

– Are your competitors becoming stronger?

– Are there emerging trends that amplify one of your weaknesses?

An opportunity could include:

• a new, developing or untapped market

• an old market needing technological advances

• a recent technological development that can be used as a catalyst for others (possibly through licensing)

• change in regulatory environment that creates demand for new technology

A threat could be:

• other ongoing research or commercialization efforts

• a large existing competitor

• market volatility (because we are new market entrants)

• market access (for supplies or customers)

• a competitor has a new, innovative product or service

• competitors have superior access to channels of distribution

Suggestions for using SWOT Analysis:

• SWOT analysis can be very subjective.

• Two people rarely come-up with the same final version of SWOT.

• Be realistic; no need to inflate strengths or be in denial about shortcomings.

• Distinguish between where your technology is today, and where it could be in the future.

• Be specific. Avoid grey areas.

• Always analyze in the context of your competitive environment.

More suggestions for using SWOT Analysis

• Weaknesses should be looked at in order to convert them into strengths.

• Try to match your strengths with external opportunities.

• Threats should be converted into opportunities.

• Strengths and opportunities should be matched.

• Keep your SWOT short and simple.

• Do not rely on it too much.

Expanding Your SWOT Analysis

• Delve deeper into the details of the technology.

• Include more detailed competitor information in the analysis.

• Take a closer look at the business environment.

• Expand the reach of a SWOT analysis through surveys.

Segmentation, Targeting & Positioning

Why do this?

Overview: Segmentation, Targeting & Positioning

The Purpose of STP

• It facilitates efficient resource utilization. By identifying and targeting discrete segments of consumers (retail or corporate), a company is able to limit the scope of individual components of the marketing mix and thus reduce costs.

STP

• It allows effective targeting of new customers. approach to targeting new customers

• It facilitates competitive advantage. The more specific an organization’s approach to segmenting the market, the easier it is to establish and maintain competitive advantage.

Definition

• Market Segmentation:

– Dividing a market into distinct groups with distinct needs, characteristics, or behavior who might require separate products or marketing mixes.

Segmentation

• Involves the division of a diverse market into a number of smaller submarkets that have common features.

• The objective is to identify groups of potential customers with similar requirements.

• Market segmentation provides a a commercially viable method of serving customer needs.

• Segmentation is at the heart of strategic marketing.

Market Segmentation - Principles

• Segmentation Variables

– Geographic

– Demographic

– Psychographic

– Behavioral

– Other (anything!)

• No single best way to segment a market.

• Often best to combine variables and identify smaller, better-defined target groups.

Basis for market segmentation

On the basis of consumer’s personal characteristics (non-behavioral

correlates)

On the basis of consumer responses (behavioral correlates)

Geographic

Demographic

Psychographic

Socio-economic

Loyal status

Usage based

Benefits

Geographic Segmentation

• Divide markets into different geographic units.

• Examples: – World Region or Country: North America, Western

Europe, European Union, Pacific Rim, Mexico, etc.

– Country Region: Pacific, Mountain, East Coast, etc.

– City or Metro Size: New York, San Francisco

– Population Density: rural, suburban, urban

– Climate: northern, southern, tropical, semi-tropical

Geographic Segmentation Subdividing the whole market into different geographical units which can be further sub-divided into smaller units.

A national marketer may take whole nation as his market. For example-in the detergent market Hindustan Levers and Procter and Gamble are all national marketers in India.

A multinational company may divide the global market on the basis of continents. Like Pepsi and Coca-cola.

1 Geographical area. 3,287,263 sq km.

2 Ranking in terms of geographical area in the world.

7th largest country

3 Physical features

Climate

Four major regions :

A. The Great mountain zone.

B. The Plains of the Ganga and the Indus region.

C. The Desert region.

D. The Peninsular India

Tropical Monsoon types have four seasons

A. Winter – January to February

B. Hot weather – March to May

C. Rainy (south western monsoon) – June to September

D. Rainy (north eastern monsoon) – October to December

Source: India 2000, Publication Division, Government of India

Geographical features of India

Demographic Segmentation

• Use Differences in:

– age, gender, family size, family life cycle, income, occupation, education, race, and religion

– Most frequently used segmentation variable

• Ease of measurement and high availability.

– Usually the worst variable to use.

Demographic Segmentation

Subdividing the market in terms of demographic features of a country or a region.

Variables that may be considered are age, gender, marital status, family size, etc.

Demographic data is essential for estimating the size of the target market.

Demographic features of India

1 Population size 846.30 million as per 1991 census

Crossed 1000 million as per 2001 census

2 Sex ratio Females per 1000 males: 933/1000. 2001 census

In Kerela State: 1036/1000 – 1991 census

3 Metro Cities 1991 census

Mumbai : 12.60 million

Kolkata : 11.02 million

Delhi : 08.42 million

Chennai : 05.42 million

4 Heavily populated districts

Kolkata, Chennai, Greater Mumbai, Hyderabad, Delhi, Chandigarh, Mahe, Howrah, Kanpur, Banglore

(All of them have a density of above 2000 persons per square km. 5.01% population lives in these 10 cities. Avg. density of these districts is 6885 persons)

Source: Census of India,1991 and 2001

Psychographic Segmentation

Psychographic segmentation divides a market into

different groups based on social class, lifestyle, or

personality characteristics.

People in the same demographic classification often have very different lifestyles and personalities.

Behavioral Segmentation

• Occasion

– Special promotions & labels for holidays.

– Special products for special occasions.

• Benefits Sought

– Different segments desire different benefits from the same products.

• Loyalty Status – Nonusers, ex-users,

potential users, first-time users, regular users.

• Usage Rate – Light, medium, heavy.

Benefit segmentation

Segmented on the basis of benefits sought by consumers

Toothpaste

General benefits that consumers seek are cleanliness and hygiene in all segments. Other key benefits

are:-

Cosmetic Fluoride Herbal

Protection against foul smell, modernity and

cosmic value. Eg-Colgate, Prudent

Family health, extra protection for

children. Eg-Colgate Fluoride, Cibaca

Fluoride.

Family health and welfare.

Traditionally good for health. Eg-

Neem, Dabur.

Motorcycle brands Perceived benefits

Enfield sturdy, good for long rides and high resale value.

Hero-Honda Fuel efficient, high pick up and stylish

Kawasaki bajaj High pickup, sleek model

Scooter brands

Bajaj chetak cub Fuel efficient, lifelong, high resale value

Kinetic Honda Electronic ignition, easy to ride, trouble free.

Consumers’ perceived benefits of Two-wheelers

Loyalty Status Segmentation

Switchers

Shifting loyals

Split loyals

Hard-core

User & Loyalty Status Segmentation

Geodemographic Segmentation

• PRIZM, by Claritas (U.S Model)

– Organized by ZIP code

– Based on Census data

– Profiles on neighborhoods on Locality

– Multiple clusters or types

Requirements for Effective Segmentation

Segments must be

– Measurable

– Accessible

– Substantial

– Differentiable

– Actionable

• Segment Size and Growth Potential – Sales, profitability and growth rates

• Segment Structural Attractiveness – Competition, substitute products,

– buyers & supplier power, new entrants (Porter’s Five Forces)

• Company Objectives and Resources – Core competencies

– “What business do we want to be in?”

Evaluating Market Segments

Targeting Segments - Overview

Target Marketing Strategies

Customised Marketing

Differentiated Marketing

Undifferentiated Marketing

Target Marketing Strategies

Focused Marketing

Market Preference Patterns

Target Marketing Strategies

Undifferentiated marketing

Marketing mix Whole market

– Ignores segmentation opportunities

Undifferentiated (Mass) Marketing

Example of Undifferentiated Strategy Example

Post Office

• Price • Promotion • Product • Distribution

Everybody

ORGANISATION MARKETING MIX TARGET MARKET

Target Marketing Strategies

Differentiated marketing

Marketing mix 1 Segment 1

Segment 2

Segment 3

Marketing mix 2

Marketing mix 3

Differentiated (Segmented) Marketing

– Targets several segments and designs separate offers for each.

– Coca-Cola (Coke, Sprite, Diet Coke, etc.)

– Procter & Gamble (Tide, Cheer, Gain, Dreft, etc.)

– Toyota (Camry, Corolla, Prius, Scion, etc.)

Target Marketing Strategies

Focused marketing

Segment 1

Segment 2

Segment 3

Marketing mix

Niche Marketing

– Targets one or a couple small segments

– Niches have very specialized interests

• Tailoring products and marketing programs to suit the tastes of specific individuals and/or locations.

Micromarketing

• Controversies and concerns

– Targeting the vulnerable and disadvantaged • Cereal, Cigarettes, Alcohol, Fast-food

– The “Catch-22” of Targeting • Psychological Reactance

• Failure to target seen as prejudice

Socially Responsible Targeting

The place a product occupies in consumers’ minds relative to competing products.

Positioning

Positioning….

‘....is the act of designing the company’s offering so that is occupies a meaningful and distinct position in the target consumers mind’

Effective positioning is the act of linking

products and services to the solutions

that customers seek.

eBay’s positioning: No matter what “it” is, you can find “it” on eBay!

Positioning Example

To (target segment and need) our (brand) is a

(concept) that (point-of-difference).

Positioning Example

“To busy mobile professionals who need to always be in the loop, Blackberry is a wireless connectivity solution that allows you to stay connected to people and resources while on the go more easily and reliably than the competing technologies.”

• Competitive advantages

• Points of Parity

• Points of Difference => Differentiation

Positioning results from differentiation and competitive advantages.

Positioning may change over time.

Positioning Strategy

Keys to Successful Positioning

Clarity Consistency

Credibility

Successful positioning

Competitiveness

Repositioning Strategies

Image repositioning

Product repositioning

Intangible repositioning

Tangible repositioning

Same Different

Same

Different

Target market

Product

Sources of Differentiation

– Product Design

– Quality

– Additional Services

– Image

– People (Staff)

– Price

– Other

Choosing the Right Competitive Advantages

• The best competitive advantages are…

– Important

– Distinctive

– Superior

– Communicable

– Pre-emptive

– Affordable (to company and consumer)

– Profitable

Moral: Avoid meaningless differentiation.

• Under-positioning: – Not positioning strongly enough.

• Over-positioning: – Giving buyers too narrow a picture of the product.

• Muddled Positioning: – Leaving buyers with a confused image of the product.

Positioning Errors

Which is more important: Product or Positioning?

Activity

• Describe how each of the following brands, companies, or products is positioned: